7 min readConcept sheetMCQ · cause classification and statement pairs

Sickness in small industries: causes, symptoms and rehabilitation

A unit is sick when it cannot meet its obligations and losses erode its net worth. Causes are internal or external; early detection and timely restructuring decide revival.

RBI MSME revival framework (2016)Spot stress early through special mention account (SMA) categories, then a corrective action plan

Corrective action optionsRectification, restructuring, recovery

SICA and BIFRSICA 1985 set up BIFR for sick industrial companies; both ended in 2016 as the IBC took over

IBC pre-packPre-packaged insolvency resolution for MSME companies added in 2021

Causes of sickness

Type	Area	Examples
Internal	Management	Poor planning, inexperience, family disputes, diversion of funds
Internal	Production	Wrong location or technology, poor quality, low capacity use
Internal	Marketing	Wrong demand estimate, dependence on one buyer, weak selling
Internal	Finance	Under-capitalisation, short-term funds used for long-term assets, poor credit control
Internal	Labour	Unrest, low productivity, shortage of skilled workers
External	Market and economy	Recession, competition from large units and imports
External	Inputs	Shortage or price rise of raw materials, power cuts
External	Finance and policy	Delayed payments by large buyers, late or inadequate credit, sudden policy changes

Early warning symptoms

Repeated delays in paying loan instalments and interest.
Cash credit account persistently at or above its limit; cheques returned.
Falling sales and capacity use; piling inventory.
Delays in paying suppliers, staff and statutory dues.
Late submission of stock statements and accounts to the bank.
Frequent requests for extra or ad hoc credit.

How a stressed MSME account is tracked

Each SMA stage marks a longer overdue period; the exact day bands are set by RBI and can change.

Rehabilitation process

1
Identify stress early
Flagged by the bank as SMA, or reported by the unit itself
2
Refer to the bank's committee for distressed MSMEs
Formed under the RBI framework
3
Assess viability
Can the unit recover and repay within a reasonable time?
4★
Choose a corrective action plan
Rectification, restructuring or recovery
5
Implement the package
Rescheduled instalments, funded interest, fresh working capital, promoter's contribution, sometimes a change of management
6
Monitor, or move to exit
Non-viable units face recovery, sale or closure; companies may use the IBC

★ one-way, controls the pace

Viable vs non-viable sick unit

ViableWith a package it can repay its dues and run profitably within a reasonable period; it deserves rehabilitation.

Non-viableIt cannot recover even with concessions; the bank moves to recovery, merger, sale or closure.

Older RBI rules called a small unit sick when a loan account stayed an NPA for a set period or when accumulated losses wiped out a large part of its net worth. The 2016 framework shifted the focus to early stress.

How NET asks this

NET asks you to classify causes as internal or external, to spot early symptoms, and to recall SICA 1985 and BIFR or the RBI revival framework (rectification, restructuring, recovery).

Exam angle

Typical MCQ: “Power shortages that make a small unit fail are which kind of cause?” An external cause. Trap: poor production planning would be internal.

Typical MCQ: “What three options does a corrective action plan offer under the RBI's MSME revival framework?” Rectification, restructuring and recovery.

Remember it

Corrective action plan = 3 Rs: Rectify, Restructure, Recover.