The government plans to revise the annual targets for public sector banks, moving away from a focus on size that has traditionally led banks to artificially boost their loans and deposits at year-end to meet growth goals. According to banking and government sources, the new targets, to be discussed in an upcoming meeting with senior state bank officials, will emphasize efficiency. The objectives will be based on metrics such as return on assets, return on equity, and controlling non-performing assets (bad debts).

Which of the following can be logically inferred from the above information?

Question

The government plans to revise the annual targets for public sector banks, moving away from a focus on size that has traditionally led banks to artificially boost their loans and deposits at year-end to meet growth goals. According to banking and government sources, the new targets, to be discussed in an upcoming meeting with senior state bank officials, will emphasize efficiency. The objectives will be based on metrics such as return on assets, return on equity, and controlling non-performing assets (bad debts).

Which of the following can be logically inferred from the above information?

Accepted Answer

**Solution:**

1. The passage states that the government is shifting the focus from increasing the size of loans and deposits to improving efficiency metrics such as return on assets and controlling bad debts.

2. This implies that banks will no longer be encouraged to inflate loans and deposits artificially, especially short-term loans taken just to meet year-end targets.

3. Since short-term loans are often used to temporarily boost loan figures, discouraging such loans aligns with the new focus on efficiency and controlling bad debts.

4. There is no direct information suggesting that loans and deposits will increase (option a), or that credit ratings will improve (option c), or that financial stability will worsen (option d).

5. Therefore, the only logical inference is that some short-term loans will be discouraged by banks.

**Answer:** (b) Banks will discourage some short-term loans.

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