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Q.3) If we draw parallels with the aggressive bank lending to the infrastructure sector in the aftermath of 2008 global financial crisis, what are the risks involved in the aggressive bank lending to MSMEs at the behest of government against the backdrop of pandemic? (10 Marks)

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Swatantra

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“Mentor’s Comments”

  • https://www.livemint.com/opinion/online-views/heed-the-not-so-obvious-lesson-of-the-2008-global-financial-crisis-11625671803938.html
  • In the intro, mention the parallels in the action of central bank after 2008 crisis and now.
  • In the body, discuss the various government initiatives and schemes such as Emergency Credit Line Guarantee Scheme (ECLGS),   to increase to lending to the MSME sector to protect from the adverse impact of pandemic. In the next part, mention the risks involved such as adverse selection, increased NPA and danger of systemic risk. Next mention the issue with the National Credit Guarantee and Trustee Company (NCGTC) as it  is committed to give only 75% of an ‘eligible’ claim preferred by the bank within 30 days.
  • Conclude by mentioning the need to take into account the inherent dangers in such move to avert the next NPA crisis.

 

Comments

14 responses to “Q.3) If we draw parallels with the aggressive bank lending to the infrastructure sector in the aftermath of 2008 global financial crisis, what are the risks involved in the aggressive bank lending to MSMEs at the behest of government against the backdrop of pandemic? (10 Marks)”

  1. shubham yadav Avatar
    shubham yadav

    Please review it sir
    Payment I’d- pay_HHhwlNw9vfR4HH

    1. Swatantra Avatar
      Swatantra

      Shubham

      Decent attempt. In introduction you can also mention about RBI’s accomodative monetary policy during both periods.

      Body of the answer is fine. You can add some more govt schemes which focus on fast disbursal of credit to MSMEs. Risks are fine, also mention adverse selection that is no proper background check of borrowers.

      Also, mention the issue with the National Credit Guarantee and Trustee Company (NCGTC) as it is committed to give only 75% of an ‘eligible’ claim preferred by the bank within 30 days ; rest 25% to be given back after resolution.

      Conclusion is fine. Keep practicing. 🙂

  2. Sonal Sharma Avatar
    Sonal Sharma

    0000422288
    Kindly review, sir.

    1. Swatantra Avatar
      Swatantra

      Sonal

      Good attempt. You have covered most points.

      Introduction is good. Body of the answer is also fine. You can mention things like faster approval of loans, collateral-free lending etc in agressive lending.

      Risks mentioned are good. Also, mention the issue with the National Credit Guarantee and Trustee Company (NCGTC) as it is committed to give only 75% of an ‘eligible’ claim preferred by the bank within 30 days ; rest 25% to be given back after resolution.

      Conclusion is fine.

      Keep practicing. 🙂

  3. subhashree mallick Avatar
    subhashree mallick

    pay_HH1EGxOD3EGEhl

    1. subhashree mallick Avatar
      subhashree mallick

      @swatantra sir pls review it

    2. Swatantra Avatar
      Swatantra

      Subhashree

      Introduction can be better. 1st line of your answer is not clear. Inflation doesn’t cause growth. Keep it simple, mention financial crisis of 2008,low demand, recession, accomodative monetary policy then and compare it with similar situations in this post-pandemic era.

      Then start the body part with mentioning, how the lending is aggressive- write some features of ECLGS- collateral free loans, interest rate capped, so-called 100% guarantee, SMA1 accounts also eligible etc. Also you can mention schemes which are approving loans in 59 mins etc

      Impacts and risks are fine. Here, in risks you can mention inflation. Conclusion is okay. You can also mention the need of strict regulatory framework to avoid situations like NPA crisis post 2008.

      Regarding bad banks, they are basically asset restructuring companies. They won’t provide loans like normal banks. They will take over the bad loans of public banks(which the banks could not recover) and try to find a solution for them. This will help in cleaning the balance sheet of PSBs, capitalize them and make them ready for fresh lending. Solution might be of various types for example liquidation of the company, administration management,initiate corporate insolvency process etc. However, the final modalities are yet to be decided.

      Keep writing. 🙂

  4. SUMITA DOWERAH Avatar
    SUMITA DOWERAH

    Payment Id: pay HFrdyJMOEZ9967. Please review, Sir.

    1. Swatantra Avatar
      Swatantra

      Sumita

      Nice attempt. Introduction is good.

      In govt schemes part mention some features of ECLGS- collateral free loans, interest rate capped, so-called 100% guarantee, SMA1 accounts also eligible etc. Also you can mention schemes which are approving loans in 59 mins etc to justify aggressive lending.

      Risks associated and conclusion are fine. A very brief way forward emphasizing the need of adequate regulatory framework, background verification of borrowers etc can be written.

      Read some other answers. Keep writing. 🙂

  5. ankita thakur Avatar
    ankita thakur

    Payment id-HJHAZEWKSzM3CX

    1. Swatantra Avatar
      Swatantra

      Ankita

      Introduction can be better framed. Inflation did not lead to loose monetary, actually vice versa can be true.

      After that structure the answer properly, first mention how aggressive lending is being done-mention some features of ECLGS- collateral free loans, interest rate capped, so-called 100% guarantee, SMA1 accounts also eligible etc. Also you can mention schemes which are approving loans in 59 mins etc

      Then,mention the risks involved such as adverse selection, increased NPA and danger of systemic risk. Next mention the issue with the National Credit Guarantee and Trustee Company (NCGTC) as it is committed to give only 75% of an ‘eligible’ claim preferred by the bank within 30 days.

      Content is okay but the structure of the answer can be better. Pick specific issues from the question itself and then address them instead of writing like an essay.

      Keep writing. 🙂

  6. Kartikey Singh Avatar
    Kartikey Singh

    pay_HHogiMPYpQ87sC

    1. Swatantra Avatar
      Swatantra

      Kartikey

      Introduction is fine. You can also mention about similar accomodative monetary policy of RBI.

      In steps taken part, mention how aggressive lending is being done-mention some features of ECLGS- collateral free loans, interest rate capped, so-called 100% guarantee, SMA1 accounts also eligible etc. Also you can mention schemes which are approving loans in 59 mins etc

      Threats are fine. Issue with the National Credit Guarantee and Trustee Company (NCGTC) as it is committed to give only 75% of an ‘eligible’ claim preferred by the bank within 30 days can be also mentioned.

      Steps needed and conclusion are good.

      Read some other answers. Keep writing. 🙂

  7. Deepali Rajan Avatar
    Deepali Rajan

    Kindly review @swatantra sir
    Ref id 420326

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