Read the paragraph carefully and give an answer to the question

The Economic Survey cautions against extended forbearance of credit default, drawing the lessons that extended forbearance in the wake of the 2007-08 global financial crisis led to the build-up of bad loans and dragged down investment rates and economic growth.

If followed through, this would mean a major squeeze on company finances, as they scramble for resources to service loans to avoid bankruptcy, and a big demand on the government to recapitalize the banks it owns, after they recognize and provide for a mass of bad loans

Regulatory forbearance must be an emergency medicine, not a staple diet, is sound advice. A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates. Many of these firms would face acute liquidity problems when the moratorium ends

Fast growth that embraces all businesses would avert a crisis. Such Goldilocks perfection rarely materializes in real life. many companies that could survive with access to liquidity could go under when banks think it is time to do their asset quality reviews. The solution is to provide such companies with capital that does not need to be serviced when they do not make a profit on equity

Companies would need a whole lot of capital, to service existing loans and to invest in new production, to cater to the demand thrown up by economic revival. The government had promised a fund to funds that would mobilize large volumes of capital to invest in micro, small and medium enterprises.

This is the time to walk the talk. The equity stakes can be sold later, hopefully at a profit. Special situation funds, private equity, and allocations from retirement savings can be tapped for the needed capital. Managing the investment is the challenge.


1. Given below are two statements:

Statement 1:  Forbearance of credit default is a common phenomenon in Indian banking system

Statement II:  Global financial crisis influences the quantum of bad loans in India In light of the above statements, choose the correct answer from the options given below

(a) Both statement I and statement II are false

(b) Both statement I and statement II are true

(c) Statement I is false but statement II is true

(d) Statement I is true but statement II is false


2. Which could be suitable title for the above paragraph?

(a) Bad loans and Indian corporates

(b) Forbearance and Corporate Funding in Crisis Times

(c) Funding crisis and Covid-19

(d) Funding during crisis


3. Given below are two statements, one is labelled as Assertion A and the other is labelled as Reason R

Assertion A: The government had promised a fund of funds that would                        mobilize large volumes of capital to invest in micro, small                          and medium enterprises

Reason R: Companies would need a whole lot of capital, to service                           existing loans and to invest in new production, to cater to                       the demand thrown up by economic revival.

In light of the above statements, choose the most appropriate answer from the options given below.

(a) A is correct but R is not correct

(b) A is not correct but R is correct

(c) Both A and R correct R is the correct explanation of A

(d) Both A and R are correct but R is NOT the correct explanation of A


4. What is the theme of the paragraph narrated above?

(a) Crisis of corporate funding during crisis times

(b) Forbearance of credit default

(c) Liquidity and survival of companies

(d) Moratorium by banks on debt service


5. Given below are two statements, one is labelled as Assertion A and the other is labelled Reason R Assertion A: A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates Reason R: Regulatory forbearance must be an emergency medicine but not a staple diet In light of the above statements, choose the most appropriate answer from the options given below

(a) A is correct but R is not correct

(b) A is not correct but R is correct

(c) Both A and R are correct and R is the correct explanation of A

(d) Both A and R correct but R is Not The correct explanation of A


ANSWERS

1 - b

2 - b

3 - c

4 - a

5 - c