Q. The resolution of bankruptcy cases of Indian banks under the Insolvency and Bankruptcy Code should help bring non-performing assets (NPA) situation under some control.
Despite the slow pace of resolution by the National Company Law Tribunal, the Code can be helpful in cleaning up bank books in future credit cycles. The recapitalization of public sector banks too can help increase the capital cushion of banks and induce them to lend more and boost economic activity. But bad debt resolution and recapitalization are only a part of the solution as they, by themselves, can do very little to rein in reckless lending that has pushed the Indian banking system to its current sorry state. Unless there are systemic reforms that address the problem of unsustainable lending, future credit cycles will continue to stress the banking system.
Q 1. Which one of the following statements best reflects the most logical, rational and practical suggestion implied by the passage given above?
(a) Lending by the banks should be closely monitored and regulated by the central Government.
(b) Interests rates should be kept low so as to induce banks to lend more, promote credit growth and thereby boost economic activity.
(c) Merger of many banks into a few large banks alone in the long-term solution to make them viable and prevent their bad performance.
(d) Indian banking system requires structural reforms as a long-term solution for bad loans problem.
Question from UPSC Prelims 2021 CSAT Paper
Explanation :
Q1: Correct Answer – (d) Indian banking system requires structural reforms as a long-term solution for bad loans problem.
Explanation – The most logical, rational and practical suggestion implied by the passage given above is that the Indian banking system requires structural reforms as a long-term solution for bad loans problem (option d). The passage suggests that while resolution of bankruptcy cases and recapitalization of public sector banks can help in cleaning up bank books and increasing their capital cushion, they are only a part of the solution. Systemic reforms that address the problem of unsustainable lending are necessary to prevent future credit cycles from stressing the banking system.