SBI Associate PO 2010 Question 189


Below is given a passage followed by several possible inferences which can be drawn from the facts stated in the passage You have to examine each inference separately in the context of the passage and decide upon its degree of truth or falsity.
Mark answer (a)if the inference is ‘definitely true’ i,e it properly follows from the statement of facts given
Mark answer (b)if the inference is ‘probably true’ though not ‘definitely true’ in the light of the facts given
Mark answer (c)if the ‘data are inadequate i.e from the facts given you cannot say whether the inference is likely to be true or false
Mark answer (d)if the inference is ‘probably false’ though not ‘definitely false’ in the light of the facts given
Mark answer (e)if the inference is ‘probably false’ i.e it cannot possibly be drawn from the facts given or it contradicts the given facts.

The deterioration in the overall asset quality of banks gross Non-performing Assets (NPAs) are reportedly 27% higher at the end of December 2009 than at the end of December 2008-is not surprising Any slowdown in growth is bound to trigger a rise in NPAs as more and more companies default on loan repayments The effect would be pronounced when the slowdown coincides with a severe global recession But for the restructuring of loans permitted by the Central Bank on fairly generous terms NPAs would have been still higher Prudent banks that took care while sanctioning loans and then monitored the post sanction disbursement diligently should be able to weather the crisis But it is one thing to have NPAs rise because of a cyclical downturn it is quite another to have NPAs rise because of policy errors that are entirely within the realm of policy makers And this is what we need to guard against Excessively low interest rates skew the risk reward equation by making projects that are actually not viable appear viable till interest rates reverse and the same projects cease to be viable It is now well established that long periods of unduly low interest rates encourage banks to take more risks A low interest rate regime driven by an easy money policy rather than macroeconomic fundamentals leads to excessive expansion of credit It incentivizes banks to take on more risk in search of higher returns and to misprice risk.

Question 189

Low interest rate on credit reduces the capacity to absorb various unaccounted risk factors.

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