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    Direction: Read the given passage carefully and answer the questions that follow.

    The Narendra Modi government simply does not get it when it comes to the financial sector. With the best of intentions, and despite doing more and better than almost any previous government in terms of taking the right steps to fix the mess in public sector banks, the latter are now in deeper trouble than they were in 2014.
    The latest indication of this is the Punjab National Bank (PNB) fraud, where two crooked diamantaires, Nirav Modi and Mehul Choksi, aided by crooked bankers, have managed to punch a crater-sized hole in its vaults, and the losses are yet to be counted. The eventual losses may be more than the Rs 11,400 crore mentioned so far, since the liabilities are yet to be totted up, and there may be more skeletons ready to tumble out of the bank’s closet. And there may be worse to come. The PNB fraud is not just about one bank, but a loud comment on the state of corporate governance and risk-management in the entire public sector banking system. Who knows how many more scams will crawl out of the rotting woodwork when it is given a good shake. Already, one more group – the Kotharis of Rotomac – are said to be under the scanner for a loan problem of Rs 3,695 crore, involving a clutch of other banks.
    Granted, most of the bad loans were generated during the buccaneering days of United Progressive Alliance (UPA) government era crony socialism, when politicians were in cahoots with businesses to milk the system for what it was worth. They used public sector banks as milch cows to bankroll their crookery. But can the Modi government now claim in its fourth year of power that it could not have fixed the problem by now?
    Granted, many of the building blocks for a solution have now been put into place – a strong Insolvency and Bankruptcy Code, large recapitalisation of public sector banks, lesser political influence in the sanction of loans, etc – but the real issue is not just the plumbing and legislation required to deal with the sector’s issues, but a failure to understand the impact the Modi government’s other policies have had on the banking sector.
    For example, let’s take the PNB case as a starting point to speculate on what else it can impact. It is unlikely to be an isolated case, and if PNB – the second-largest Indian bank after SBI – now freezes lending and focuses on internal plumbing issues, the systemic impact of its lending caution will impact borrowers and other banks, and if the other banks too have some issues with poor governance, the overall lending freeze will worsen, killing all chances of an early revival of the capex cycle. If all public sector banks – some 11 of them are already in the Reserve Bank’s prompt corrective action (PCA) intensive care – now go conservative, the system-wide impact of 70 per cent of the banking system going easy on credit growth will be huge. Add PNB to the PCA stable, and we are talking of a big bank-induced speedbreaker.
    Next, it is obvious that the National Democratic Alliance (NDA) government has not calculated the impact of its own policies on the banking system. When you have a weak and tottering financial system, what does the imposition of demonetisation and radical, horizontal expansion of banking to the poor (Jan Dhan accounts) do to the banking sector’s bottomline? Some time ago, HDFC Bank indicated that with a minimum balance of Rs 10,000 in each account, it could earn around Rs 400 per annum, which would just about cover the cost of providing customers with cheque-books, statement of accounts and ATM services. Even assuming digital banking reduces those costs for no-frills payment banks, zero- or low-balance accounts as in Jan Dhan involve huge annual costs for public sector banks. Put simply, Jan Dhan is a huge burden on public sector banks. So too was demonetisation, the big cost burden of managing it falling largely on government banks.
    Then consider other policy fallouts. When you opt to eliminate rent-seeking in the allocation of spectrum and coal blocks, how does that impact banks? Simple, old loans to myriad allottees go bad, as we are now seeing in telecoms, where NPAs are piling up as mobile services company after company is winding up. The latest to do may be Aircel, which is expected to file for bankruptcy shortly, according to an Economic Times report.
    Which of the following correctly explains the meaning of the sentence, ‘They used public sector banks as milch cows to bankroll their crookery.’

    Options :-

    1. They used the public sector banks as a source of easy money to support their illegal/dishonest activities financially.
    2. They used the public sector banks just the way people use cows, took advantage and gave nothing in return.
    3. They used the public sector banks as cows are used for milk, milked them for regular amounts of money over a period of time.
    4. The used the public sector banks to fund their own corrupt businesses.
    5. They used the public sector banks like people use cows, took advantage of the easily available money.
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Reply To: Direction: Read the given passage carefully and answer the questions that follow. The Narendra Modi….
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