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.

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 policy makers And this is what we need to guard against Excessively low interest rates skew the risk-reward equation by making projects it is actually not viable appear viable till interest rates reverse and the same projects cease to be viable it 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 incentivises banks to take on more risk in search of higher returens and to misprice risk

Question 87

The Central Bank always allows banks to restructure their loans in the event of rise in NPAs

Create a FREE account and get:

  • Banking Quant Shortcuts PDF
  • Free Banking Study Material - (15000 Questions)
  • 135+ Banking previous papers with solutions PDF
  • 100+ Online Tests for Free


Boost your Prep!

Download App