CA Foundation · Business Economics · Business Cycles
Which of the following is an effect of business cycles on the banking system during a recession in India?
In a recession, banks face rising non-performing assets and weaker credit demand. Falling sales make it hard for firms to repay loans, and uncertainty makes them postpone expansion borrowing. Higher loan demand, fewer defaults and rapid credit growth belong to boom conditions.
- ARise in non-performing assets and lower credit demandCorrect
- BSharp rise in demand for fresh business loans
- CFall in loan defaults by firms
- DIncrease in the profitability of lending due to rapid credit growth
Explanation
In a recession, firms' revenues fall, so repayment becomes difficult and non-performing assets rise, while demand for new credit weakens as expansion plans are shelved. The other options describe boom conditions.
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