Passage

Bank credit to the industrial sector has started shrinking. Its decline has been a serious concern as credit growth is essential to revive investment. The problem’s origins lie in the incomplete reforms of the last 25 years. An institutional change that should have followed the 1991 reforms should have been setting up of a resolution corporation for banks. In a market economy with booms and busts, banks should be allowed to be set up and to fail. Today, we cannot shut down banks because there is not proper system to shut them down. Weak loss-making banks continue to need more capital.

QUESTION

CSAT

Medium

Comprehension

Prelims 2020

Which one of the following is the most logical and rational inference that can be made from the above passage?

Select an option to attempt

Explanation

Option A is incorrect. The passage specifically highlights the decline in credit to the industrial sector. It does not provide enough evidence to infer the overall role of the banking system in economic growth.

Option B is incorrect. While the passage discusses the incompleteness of the 1991 reforms, including the lack of a resolution corporation for banks, this alone does not support the conclusion in this option. Therefore, the statement cannot be considered a logical inference.

Option C is correct. The passage mentions the absence of institutional changes, such as a resolution corporation for banks, in the 1991 reforms and the resulting inability to handle bank failures. This statement directly aligns with the argument in the passage.

Option D is incorrect. The passage focuses on the decline of bank credit to the industrial sector and the lack of institutional mechanisms to address bank failures. It does not mention encouraging foreign investments as a solution to this issue.

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