Challenges in Running a NPA unit

It is a very tough job to revive an unit once it falls into the trap of Stress. Financially, such units become NPA and the owners are classified as defaulters in the CIBIL record. Ultimately it has very few avenues open for raising  finance . Thus few hopes of revival amid severe challenges from all the sides. These few hopes need lot of hard work, honesty, patience, focused approach and  tough decisions if the unit has to see itself revived. 

An Stressed/NPA unit has typical characteristic of exhausted  options for raising finance, huge losses,  small and semi-expert management team, low credibility with the suppliers, ongoing legal issues with the lenders, high cost of business operations due to liquidity crunch coupled with long overdue statutory liabilities and labour dues. Overall the life of a stressed unit becomes so tough that for every step there are end number of challenges . 

In this situation what are the ways to not only continue the business operations but also come out of the stress. As per my experience very few units ( not more than 20%) bounce back, rest go into oblivion. Reviving a unit under the tight noose of the lenders, government scrutiny and paucity of funds needs lot of courage and sound strategy. Some of the following suggestions may help in revival process:

    1. The unit can be switched over to job work : this will help in scaling up the operations and also generate revenues without much investment;

      2. Credit period needs to be reduced to the maximum even if it causing some margin hit;

     3. Non core asset, if any, should be immediately disposed off. However this takes some time as proper pricing may not be offered. While disposing of such assets ‘ liquidity’should be preferred than the ‘value of sale’ as the need of the hour is liquidity. It is to some extent emotional issue too but when there is fire at home, one can not be selective in saving the life. However, this step is possible only with the permission of the Lenders if assets are mortgaged.

     4. Change in management team: cost saving is the need of the hour and shall be strictly adhered , this need small team with lowest possible cost. Such units can not afford very high cost team but the talent Can not be compromised . Outsourcing the talent can be good  option to fill the gap .  

    5. Any additional funding into the form of debt should be avoided thought it may not be available too. The cost saving is the earning too. Equity is the most suitable way of raising funds. Management should be always open to the strategic investment even if it transpires into the change in management for the benefit of the unit . There is no better option than reviving the unit. 

     6.  Above all, self confidence of the owner is the key to revive the unit as he is the one who created it and has the guts to revive too . Poor market support , tough legal battles and tight financial position are only temporary obstacles need to be addressed with hard and quick  decisions, patience and positive attitude.

It may take 2-3 years to revive  an unit but once the revival happens, promoter can regain the lost image and money.