The deterioration in the overall asset quality of banks- gross Non-per-forming assets (NPAs) are reportedly 27% higher at the end of December 2009 than at the end of December 2008- is not surprising. Any slowdown in growth is bound to trigger arise in NPAs as more and more companies default on loan repayments. The effect would be pronounced in when the slowdown coincides with a severe global recession. But for the restructuring of loans permitted by the Central Bank on fairly generous terms NPAs would have been still higher. Prudent banks that took care while sanctioning lone-and then monitored the post- sanction disbursement diligently should be able to weather the crisis. But it is one thing to-have NPAs rise because of cyclical downturn, it is quite another to have NPAs rise because of policy errors that are entirely within the realm of Policy makers. And this is what we need to guard against excessively low interest rates skew the risk-reward equation by making projects that are actually not viable, appear viable-tell interest rates reverse and the same projects cease to be viable! it is now well established that tong periods of unduly low interest rates encourage banks to take more risks. A low interest rate regime driven by an easy money policy rather than macroeconomic fundamentals leads to excessive expansion of credit. It incentivizes banks to take on more risk in search of higher returns and to misprice risk. Banks' NPAs occur only due to economic factors.

Options

A. (a) if the inforence is `definitely true,' i.e, it properlyfollows from.the statement of facts given.
B. (b) If the inference is 'probably true' though not 'definitely true' in the light of the facts given.
C. (c) If the 'data are inadequate, i.e., from the facts given you connot say whether the inference is likely to be true or false.
D. (d) if the inference is 'probably false' though not 'definitely false' in the light of the facts given.

Answer

a

Explanation

The Inference is definitely true because rise in NPAs depend upon cyclic factors.