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    Question

    It may be tempting to believe that last year’s

    bankruptcy law reforms will soon begin to ease the pain at banks by encouraging the quick sale of assets of troubled borrowers. The proceeds from such sales, however, would likely amount to very little in comparison with the mammoth scale of troubled assets. According to a joint study by Assocham and Crisil, gross NPAs in the banking system are estimated to increase to ₹9.5 lakh crore by March 2018, from ₹8 lakh crore a year earlier. ______________. So the RBI in the coming months should continue to push banks, both public and private, to promptly recognise the stressed loans on their portfolios. Incidentally, the Prime Minister last week laid the blame for bad loans on the previous government. While it is quite true that the present bad loans crisis has been a long time in the making, the problem of lax corporate governance, which has plagued public sector banks and contributed in no small measure to the present crisis, still remains largely unaddressed by the government.  In the following question a short passage is given with one of the lines in the passage missing and represented by a blank. Select the best out of the five choices given to make the passage complete and coherent (Coherent means logically complete and sound)
    A SBI, of course, is not the only lender to have had its assets forcibly reclassified by the RBI. Correct Answer Incorrect Answer
    B The bad loans problem is likely to remain a festering sore and risks undermining the health of the economy until meaningful structural reforms to the banking system are undertaken. Correct Answer Incorrect Answer
    C In that case, write-offs recognising losses may be the most honest and practical way to deal with the bad loans problem. Correct Answer Incorrect Answer
    D Even the latest plan to recapitalise public sector banks may achieve little more than giving some temporary relief to lenders for the sake of reviving credit growth. Correct Answer Incorrect Answer
    E Most of these reclassified assets are linked to troubled projects in sectors including power and telecom. Correct Answer Incorrect Answer

    Solution

    It may be tempting to believe that last year’s bankruptcy law reforms will soon begin to ease the pain at banks by encouraging the quick sale of assets of troubled borrowers. The proceeds from such sales, however, would likely amount to very little in comparison with the mammoth scale of troubled assets. According to a joint study by Assocham and Crisil, gross NPAs in the banking system are estimated to increase to ₹9.5 lakh crore by March 2018, from ₹8 lakh crore a year earlier. In that case, write-offs recognising  losses  may be the most honest and practical way to deal with the bad loans problem. So the RBI in the coming months should continue to push banks, both public and private, to promptly recognise the stressed loans on their portfolios. Incidentally, the Prime Minister last week laid the blame for bad loans on the previous government. While it is quite true that the present bad loans crisis has been a long time in the making, the problem of lax corporate governance, which has plagued public sector banks and contributed in no small measure to the present crisis, still remains largely unaddressed by the government.

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