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IBPS SO & IPPB Exam 2016: Reading Comprehension Quiz ‘Credit growth to industry below zero’

Nov 25, 2016 15:52 IST

    For a job in any government organization, you need English and as far as banking exams are concerned, you face questions in the English section from passages taken from leading dailies in English such as The Times of India, The Indian Express, The Hindu, The Economic Times, The Business Standard etc. Hence, to give boost to your preparation, the banking team of Jagranjosh.com, the best website for banking preparation, is bringing to you passages from these papers and questions on those in the recent pattern so that guide you in your preparation. This is a passage from ‘The Indian Express (dated October 12, 2016)’ for Reading Comprehension questions. Go through it to give your preparation a boost.

    Question (1-10): Read the following passage and answer the questions that follow. Some words / phrases are printed in bold in the passage in order to help you locate them while answering some of the questions asked.

    Bank credit to the industrial sector, which continued at an elevated rate of over 20 per cent on an average until four years ago and was in double digits until the month of July 2014, has slipped into the negative in August 2016 — the first time it has done so in at least a decade.

    For the month of August 2016, the loan outstanding of scheduled commercial banks to the industrial sector contracted by 0.2 per cent.

    While it stood at Rs 26, 23,800 crore in August 2015, it fell 0.2 per cent to Rs 26, 18,100 crore, according to Reserve Bank of India estimates.

    If industrial credit growth was one of the concerns cited by the central bank in its monetary policy statement earlier this month, the contraction in August after a steady tapering of growth reaffirms the red flags raised by the RBI.

    In fact, in August, gross bank credit expanded by 7.6 per cent, down from 9.5 per cent in January 2016. While industrial credit growth steadily declined from 5.6 per cent to (-) 0.2 per cent between January 2016 and August 2016, credit in the other three sectors — services, personal loans, agriculture and allied activities — has grown in double digits.

    Economists say this contraction reflects high unutilized capacities in industrial units and investments not taking place. “The demand in the economy over the last couple of years has come down to a level that capacity utilizations are at around 75 per cent. In such a scenario, no investor will invest and I don’t think a cut in interest rate can fuel investment,” said D K Pant, chief economist at India Ratings, a unit of Fitch Ratings.

    While bank debt fuelled the rise in corporate leverage steadily from 2005 to 2011 and bank lending to the industrial sector continued at over 20 per cent until the fiscal ending March 2012, much of it went to large industrial houses and the growth for them stood strong at over 20 per cent. It has however, steadily declined over the last 30 months.

    The decline in demand and stress in the bank’s books on account of rising NPAs first showed up in terms of a decline in loan disbursements to medium and micro & small sized businesses.

    While medium-sized businesses have been witnessing a contraction in loan outstanding every month since June 2015, micro and small businesses have seen a contraction since March 2016. However, the industrial sector continued to witness growth (though at a slow rate) until July 2016, on account of some growth for large businesses that account for more than 80 per cent of the total bank loan to the industrial sector.

    The decline in gross bank credit growth is only a result of sharp decline in industrial credit growth (accounting for 40 per cent of bank credit), as all other components have been growing at a faster pace.

    Pant added that while a rate cut may not fuel investment, a pick-up in demand on account of good monsoon, rise in rural demand and impact of implementation of the Seventh Pay Commission recommendations will raise capacity utilization levels of companies, thereby incentivizing them to invest. “The impact of rate cut on investments will come with a long lag,” said Pant.

    1. Which among the following is true regarding the flow of bank credit towards industrial sector in India?

    1. Bank credit to industrial sector is increasing day by day because of the importance the sector is getting with every passing year.
    2. Bank credit to the industrial sector is on the rise because the number of banks working towards industrialization is increasing day by day.
    3. Bank credit has never been this low as it is now in the last five years.
    4. Both (1) and (2)
    5. Other than those given in options.

    Solution: Option (3)

    Explanation: According to the passage, bank credit has grown in the last decade but for the first time in August 2016, the same has shown a negative decline and this is very much a matter of concern for the government. This makes it true that bank credit has never been on the decline in the last decade and that makes option (3) the only true statement regarding this subject.

    2. Which among the following proves that the loan exposure of banks to the industry has changed?

    1. The banks are not willing to give loans to big corporations since these companies often turn into willful defaulters.
    2. The banks are not willing to disclose information regarding their clients because it violates the banker client privilege at the first place.
    3. The data on the total loan amount outstanding proves that the banks have started shelling out less as loans to companies.
    4. The banks have exposed several defaulting companies and that is why industry is not very keen on bank route for loans.
    5. Other than those given in options.

    Solution: Option (3)

    Explanation: According to the given passage, banks have given the information related to credit exposure to industries in the recent months to Reserve Bank of India and the same has revealed that the total credit base has shrunk by 0.2 percent as of August 2016 and that is understandable from the total loan amount outstanding of these banks.

    3. Which among the following best explains the trend in overall credit exposure of banks in the recently published data?

    1. The banks have given loans to individuals more but for companies banks are not willing to give without proper security.
    2. Banks have given loans in general as the overall credit growth increased but for industrial credit growth, the same is negative.
    3. Banks have stopped giving loans altogether and rather focused their attention on fixing the ongoing issue of bad assets in the banks.
    4. Banks are reluctant to give retail loans since it becomes very difficult for them to recover the same from the clients.
    5. Other than those given in options.

    Solution: Option (2)

    Explanation: According to the data presented by RBI regarding credit growth by banks in India in the recent months, overall credit expanded by 7.6 percent in the recent months whereas industrial credit showed decline in the month of August 2016. This is implied in statement (2) among the given options and that is why, it is the right choice.

    4. Which among the following has been attributed as a reason for the bank credit exposure trend pertaining to industry in the recent months?

    1. Industrial units have not bothered to approach banks for fresh loans since they have got other ways to gather money from.
    2. Industrial units have not experienced much support from banks because of the problem of non-performing assets playing the villain.
    3. Industrial units have not seen much demand and that is why, they are not able to put the whole resources into work making it difficult for investors to come forward.
    4. Both (2) and (3)
    5. All the above

    Solution: Option (3)

    Explanation: According to the economists, banks have been wary of industrial output growth in the recent months because of the falling demand in the economy and the firms have not been able to utilize more than 75 percent of their total resources so far in the recent months for the purpose of production. This has made the whole sector going into a lull. Statement (3) represents this point and that is why, it is the right choice among the given options.

    5. Which among the following negates the perception that banks have not been misers while giving loans lately as per the information presented in the passage?

    1. Industrial units have never seen a decline in credit growth in the last 10 years and this is the first time they are experiencing so after liberalization.
    2. Industrial units have seen that banks are not wary of giving loans to them when banks come to them for credit proposals.
    3. Banks have seen growth in their credit portfolios regarding sectors such as personal loans, service sectors, agriculture and allied sectors etc.
    4. Both (2) and (3)
    5. None of the above statements prove the desired point.

    Solution: Option (3)

    Explanation: According to the given passage, overall bank credit has not taken a hit in the recent months as is seen from the passage, it grew though slower than earlier whereas for industrial units, there has been a decline in the credit portfolio. The sectors such as service sectors, agriculture and allied sectors etc have seen growth in double digits in the recent months. This proves that banks are giving loans but not to industrial houses. This makes option (3) the right choice among the given options.

    6. Which among the following proves that industrial credit is very important to banks?

    1. Industrial credit base makes up almost 40 percent of the total loans given by banks every year.
    2. Though other sectors are not experiencing any contraction in credit exposure from banks, industrial credit decline has made the overall credit growth decline.
    3. Industrial credit base makes up a sizeable chunk in the credit base of any bank because of large interest it generates.
    4. Individual borrowers need to repay their loans earlier compared to corporate houses forcing banks to go for corporate finance.
    5. Other than those given in options.

    Solution: Option (2)

    Explanation: According to the passage, all other sectors of the economy are growing at a very fast pace and banks are also providing them loans to the galore but it is only the industrial sector which is experiencing a lull. This has all to do with the fact that industrial credit makes up 40 percent of the total credit base of the banking system in India. This proves the significance of industrial credit in our country and this makes option (2) the right choice among the given options.

    7. Which among the following is similar in meaning to the word ‘elevated’ as used in the passage?

    1. Superfluous
    2. Canine
    3. High
    4. Exposed
    5. Other than those given in options

    Solution: Option (3)

    Explanation: As per the given passage, bank credit growth has been high towards the industrial sector in the recent months but in August 2016 the same has declined for the first time after long. This makes option (3) the right choice among the given options as the synonym of the given word.

    8. Which among the following is similar in meaning to the word ‘fuel’ as used in the passage?

    1. Defer
    2. Differ
    3. Falsify
    4. Bolster
    5. Other than those given in options

    Solution: Option (4)

    Explanation: According to the context of the given passage, the given word has been used to imply that demand decline is the real reason behind the credit exposure decline to industrial sector in the recent months and a cut in interest rates by RBI is not going to strengthen investment in the sector in the coming months. This makes option (4) the right choice among the given options.

    9. Which among the following is opposite in meaning to the word ‘witness’ as used in the passage?

    1. Disproof
    2. Avow
    3. Disown
    4. Atone
    5. Other than those given in options

    Solution: Option (1)

    Explanation: As per the context given in the passage, the given word has been used to imply that the economy has seen a growth in industrial sector in the recent months as well as in industrial credit. This makes option (1) the right choice among the given options as the opposite since it means not to see anything or having no proof of something.

    10. Which among the following is opposite in meaning to the word ‘tapering’ as used in the passage?

    1. Intuition
    2. Increase
    3. Swell
    4. Testify
    5. Other than those given in options

    Solution: Option (2)

    Explanation: According to the given passage, the word has been used to imply that industrial growth started declining after a continuous rise in the last few years. This makes option (2) the right choice among the given options as ‘increase’ is the opposite to the given word in the sense it has been used in the given context.

    DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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