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 resolutions by the National Company Law Tribunal, the Code can be helpful in cleaning up bank books in future credit cycles. The recapitalisation 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 recapitalisation 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.

Which one of the following statements best reflects the most logical, rational and practical suggestion implied by the passage given above?

Question

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 resolutions by the National Company Law Tribunal, the Code can be helpful in cleaning up bank books in future credit cycles. The recapitalisation 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 recapitalisation 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.

Which one of the following statements best reflects the most logical, rational and practical suggestion implied by the passage given above?

Accepted Answer

Indian banking system requires structural reforms as a long-term solution for bad loans problem.

Answer

Lending by the banks should be closely monitored and regulated by the Central Government.

Answer

Interest rates should be kept low so as to induce banks to lend more, promote credit growth and thereby boost economic activity.

Answer

Merger of many banks into a few large banks alone is the long-term solution to make them viable and prevent their bad performance.

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