Comprehension
Read the following passage carefully and answer the questions that follow.
Amid the sharp rise in NPA, talks of setting up a ‘bad’ bank have been gaining momentum. The government and the RBI are drawing up strategies on how to operationalise such a scheme. The economic survey of 2016-17 pointed out the twin balance sheet problem — stressed companies on one hand and NPA-laden banks on the other — and advocated a centralised Public Sector Asset Rehabilitation Agency (PARA) be established to deal with the bad loans problem.
“Private Asset Reconstruction Companies (ARCs) haven’t proved any more successful than banks in resolving bad debts,” the economic survey had said while proposing the ‘bad’ bank. “But international experience shows that a professionally-run central agency with government backing — while not without its own difficulties — can overcome the difficulties that have impeded progress,” it added.
One challenge private sector ARCs face is that of capital. None of the entities till now has been allowed to tap the capital market for raising funds. Kotak Mahindra Bank, which recently took its board’s approval to raise Rs. 5,300 crore equity said the bank also wanted to capitalise on opportunities in acquisition and resolution of stressed assets in the banking sector including participation in a ‘bad’ bank. Kotak Mahindra Prime and Kotak Mahindra Investments, companies in the Kotak Mahindra Group are sponsors of the asset reconstruction company Phoenix and together own 49% stake in it. “The ARCs are badly capitalised. We see significant opportunity for Kotak in this,” Mr. Kotak said adding the country would need 2-3 well-capitalised ‘bad’ banks. Some central bank as well as government officials also admitted capital was the biggest challenge in setting up a ‘bad’ bank. “At least Rs. 25,000 to Rs. 30,000 crore of capital will be required to set up a bad bank in the initial stages. Where will the money come from?” asked a senior central bank official.
Amid the sharp rise in NPA, talks of setting up a ‘bad’ bank have been gaining momentum. The government and the RBI are drawing up strategies on how to operationalise such a scheme. The economic survey of 2016-17 pointed out the twin balance sheet problem — stressed companies on one hand and NPA-laden banks on the other — and advocated a centralised Public Sector Asset Rehabilitation Agency (PARA) be established to deal with the bad loans problem.
“Private Asset Reconstruction Companies (ARCs) haven’t proved any more successful than banks in resolving bad debts,” the economic survey had said while proposing the ‘bad’ bank. “But international experience shows that a professionally-run central agency with government backing — while not without its own difficulties — can overcome the difficulties that have impeded progress,” it added.
One challenge private sector ARCs face is that of capital. None of the entities till now has been allowed to tap the capital market for raising funds. Kotak Mahindra Bank, which recently took its board’s approval to raise Rs. 5,300 crore equity said the bank also wanted to capitalise on opportunities in acquisition and resolution of stressed assets in the banking sector including participation in a ‘bad’ bank. Kotak Mahindra Prime and Kotak Mahindra Investments, companies in the Kotak Mahindra Group are sponsors of the asset reconstruction company Phoenix and together own 49% stake in it. “The ARCs are badly capitalised. We see significant opportunity for Kotak in this,” Mr. Kotak said adding the country would need 2-3 well-capitalised ‘bad’ banks. Some central bank as well as government officials also admitted capital was the biggest challenge in setting up a ‘bad’ bank. “At least Rs. 25,000 to Rs. 30,000 crore of capital will be required to set up a bad bank in the initial stages. Where will the money come from?” asked a senior central bank official.
Question: 1
Which of the following is/are true as per the passage?
I. Kotak Mahindra Bank took its board’s approval to raise Rs. 5,300 crore equity.
II. Budget 2016-17 advocated a centralised Public Sector Asset Rehabilitation Agency (PARA) to deal with the bad loans problem.
Which of the following is/are true as per the passage?
I. Kotak Mahindra Bank took its board’s approval to raise Rs. 5,300 crore equity.
II. Budget 2016-17 advocated a centralised Public Sector Asset Rehabilitation Agency (PARA) to deal with the bad loans problem.
I. Kotak Mahindra Bank took its board’s approval to raise Rs. 5,300 crore equity.
II. Budget 2016-17 advocated a centralised Public Sector Asset Rehabilitation Agency (PARA) to deal with the bad loans problem.
Show Hint
Be careful to check the exact source mentioned in the passage. The statement about the Economic Survey and the Budget was a key detail in this question.
Updated On: Mar 10, 2025
- Both are Correct
- I only
- II only
- None is Correct
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The Correct Option is B
Solution and Explanation
Step 1: Analyze Statement I
"Kotak Mahindra Bank took its board’s approval to raise Rs. 5,300 crore equity."
This statement is supported by the passage, which mentions that Kotak Mahindra Bank took its board’s approval to raise Rs. 5,300 crore equity. Therefore, statement I is correct.
Step 2: Analyze Statement II
"Budget 2016-17 advocated a centralised Public Sector Asset Rehabilitation Agency (PARA) to deal with the bad loans problem."
The passage mentions that the Economic Survey of 2016-17 advocated the establishment of PARA, not the Budget. Therefore, statement II is incorrect.
Step 3: Final Answer
The correct answer is (b) I only, as statement I is correct and statement II is incorrect. Final Answer: The correct answer is (b) I only.
"Kotak Mahindra Bank took its board’s approval to raise Rs. 5,300 crore equity."
This statement is supported by the passage, which mentions that Kotak Mahindra Bank took its board’s approval to raise Rs. 5,300 crore equity. Therefore, statement I is correct.
Step 2: Analyze Statement II
"Budget 2016-17 advocated a centralised Public Sector Asset Rehabilitation Agency (PARA) to deal with the bad loans problem."
The passage mentions that the Economic Survey of 2016-17 advocated the establishment of PARA, not the Budget. Therefore, statement II is incorrect.
Step 3: Final Answer
The correct answer is (b) I only, as statement I is correct and statement II is incorrect. Final Answer: The correct answer is (b) I only.
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Question: 2
What is the biggest challenge in setting up of a ‘bad’ bank?
What is the biggest challenge in setting up of a ‘bad’ bank?
Show Hint
Always look for specific mentions of challenges or obstacles in the passage. In this case, "capital" is directly mentioned as the biggest challenge.
Updated On: Mar 10, 2025
- Approval of the Finance Ministry.
- Approval of the RBI.
- Capital
- An efficient policy.
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The Correct Option is C
Solution and Explanation
Step 1: Analyze Option (a)
"Approval of the Finance Ministry."
The passage does not mention that the approval of the Finance Ministry is the biggest challenge in setting up the `bad` bank. Therefore, option (a) is incorrect.
Step 2: Analyze Option (b)
"Approval of the RBI."
The passage does not suggest that the approval of the RBI is the biggest challenge. Therefore, option (b) is incorrect.
Step 3: Analyze Option (c)
"Capital."
The passage specifically mentions that "capital was the biggest challenge in setting up a ‘bad’ bank." Therefore, option (c) is correct.
Step 4: Analyze Option (d)
"An efficient policy."
While an efficient policy is important, it is not mentioned as the biggest challenge in the passage. Therefore, option (d) is incorrect.
Step 5: Final Answer
The correct answer is (c) Capital. Final Answer: The correct answer is (c) Capital.
"Approval of the Finance Ministry."
The passage does not mention that the approval of the Finance Ministry is the biggest challenge in setting up the `bad` bank. Therefore, option (a) is incorrect.
Step 2: Analyze Option (b)
"Approval of the RBI."
The passage does not suggest that the approval of the RBI is the biggest challenge. Therefore, option (b) is incorrect.
Step 3: Analyze Option (c)
"Capital."
The passage specifically mentions that "capital was the biggest challenge in setting up a ‘bad’ bank." Therefore, option (c) is correct.
Step 4: Analyze Option (d)
"An efficient policy."
While an efficient policy is important, it is not mentioned as the biggest challenge in the passage. Therefore, option (d) is incorrect.
Step 5: Final Answer
The correct answer is (c) Capital. Final Answer: The correct answer is (c) Capital.
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Question: 3
What does the phrase ‘twin balance sheet’ used in the passage refer to?
What does the phrase ‘twin balance sheet’ used in the passage refer to?
Show Hint
When answering questions about specific phrases, always refer directly to the passage for context. The correct answer will often be explicitly mentioned in the text.
Updated On: Mar 10, 2025
- Stressed companies and NPA-laden banks
- Higher Inflation and NPA-laden banks
- High fiscal deficit and negative current account deficit
- None of the Above
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The Correct Option is A
Solution and Explanation
Step 1: Analyze Option (a)
"Stressed companies and NPA-laden banks."
The passage clearly mentions the "twin balance sheet problem" as "stressed companies on one hand and NPA-laden banks on the other." Therefore, option (a) is correct.
Step 2: Analyze Option (b)
"Higher Inflation and NPA-laden banks."
The phrase "twin balance sheet" does not refer to inflation, so option (b) is incorrect.
Step 3: Analyze Option (c)
"High fiscal deficit and negative current account deficit."
The passage does not mention fiscal deficit or current account deficit in relation to the "twin balance sheet" problem, so option (c) is incorrect.
Step 4: Analyze Option (d)
"None of the Above."
Since option (a) is correct, option (d) is incorrect.
Step 5: Final Answer
The correct answer is (a) Stressed companies and NPA-laden banks. Final Answer: The correct answer is (a) Stressed companies and NPA-laden banks.
"Stressed companies and NPA-laden banks."
The passage clearly mentions the "twin balance sheet problem" as "stressed companies on one hand and NPA-laden banks on the other." Therefore, option (a) is correct.
Step 2: Analyze Option (b)
"Higher Inflation and NPA-laden banks."
The phrase "twin balance sheet" does not refer to inflation, so option (b) is incorrect.
Step 3: Analyze Option (c)
"High fiscal deficit and negative current account deficit."
The passage does not mention fiscal deficit or current account deficit in relation to the "twin balance sheet" problem, so option (c) is incorrect.
Step 4: Analyze Option (d)
"None of the Above."
Since option (a) is correct, option (d) is incorrect.
Step 5: Final Answer
The correct answer is (a) Stressed companies and NPA-laden banks. Final Answer: The correct answer is (a) Stressed companies and NPA-laden banks.
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Question: 4
Choose the word which is similar in meaning to the word “Amid”, in the passage?
Choose the word which is similar in meaning to the word “Amid”, in the passage?
Show Hint
When looking for synonyms, focus on words that convey the same core meaning. In this case, "During" aligns perfectly with the meaning of "Amid."
Updated On: Mar 10, 2025
- During
- Separate
- Outside
- Beyond
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The Correct Option is A
Solution and Explanation
Step 1: Analyze the meaning of "Amid."
"Amid" means "in the middle of or during something." The correct synonym is "during."
Step 2: Evaluate the options.
(a) "During" is the correct synonym for "Amid."
(b) "Separate" does not match the meaning of "Amid."
(c) "Outside" is unrelated to "Amid."
(d) "Beyond" is also not the correct synonym for "Amid."
Step 3: Final Answer
The correct synonym for "Amid" is (a) During. Final Answer: The correct answer is (a) During.
"Amid" means "in the middle of or during something." The correct synonym is "during."
Step 2: Evaluate the options.
(a) "During" is the correct synonym for "Amid."
(b) "Separate" does not match the meaning of "Amid."
(c) "Outside" is unrelated to "Amid."
(d) "Beyond" is also not the correct synonym for "Amid."
Step 3: Final Answer
The correct synonym for "Amid" is (a) During. Final Answer: The correct answer is (a) During.
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