Friday, 18 December 2015

Sick Industry

 When an entrepreneur starts his/her business he/she may not know about the various problems that may crop up like may be the raw material availability which was there at the time of taking loan but it may not be there at the time of the production, the market security which was there at the time of taking loan but it may not be there at the time of marketing the products then the entrepreneurs may not be able to repay the loan to the bank. The industry may become sick. And if the entrepreneur now wants to take another loan to start another venture to repay the loan then it may be difficult for the entrepreneur to convince the bank for bank loan. So the entrepreneurs if they ensure/have other sources to repay the bank loan other than manufacturing and marketing the products from their industries then he/she may be able to repay the bank loan and may be prevent their industries from becoming sick.

If the entrepreneur takes additional loan to start another business/industry may be smaller than the main loan that may be included in the project proposal/industry scheme that may be sanctioned at the time of taking the main loan but the entrepreneur may start the other business/industry at an appropriate time and the additional bank loan is free from interest till that time he withdraws the money for his business venture from bank then the entrepreneur may be able to save his industry from  becoming sick that is it may be another activity other than his main activity to fund for his non repayment of loan which is just like other big industries who can use the funds from their other activities to fund the one that is in need. Or the entrepreneur may take loan for two industries at a time.  

According to a financial institution, for revival of a sick industry, bank will examine its viability when bank funds are involved. When the entrepreneur approaches the bank for a different loan that is for another business, banks will see the previous loan incurred by the entrepreneur, its entire liability to the market that is the bank will first create these liabilities, will see the own funds the entrepreneur will be able to contribute for the new unit and minimum percentage by the bank for loan. Bank will be examining the proposal. The bank may not be interested to fund for another business after the unit become sick. If the entrepreneur wants to go for two business at a time, the bank will see how it can be handled by the entrepreneur, his past experience, the local market for the product and the time period of the loan. The entrepreneur can go for several activities at a time.

According to a senior officer of a financial institution, when an account becomes Non Performing Asset (NPA), the bank will see the reasons for NPA. The bank will analyze the reasons. The reasons could be that that there is no adequate power supply to the unit, market is not there, raw material is not available, capital is required, the operating cost is not much then the bank will provide counseling and may be with counseling the problems may go away or the bank will go for additional funding in case, if it is possible that with further funding the problems can go away. If an entrepreneur wants to start two enterprises at a time then the bank will see his/her capacity that is whether he/she (a single/lone entrepreneur) has the capacity to handle two businesses or not, the project is viable or not. It is a hypothetical question. The entire economy will be affected. Banks will try to discourage.

According to another financial institution, when an industry becomes sick, loan may be restructured as per RBI guidelines. It will depend on financier. If the entrepreneur is not able to repay the loan at all, then the bank will take action to try to recover its loan amount. If an entrepreneur wants to go for two units at a a time, it won't be easy for the entrepreneur to run two units. There will be stress.

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