IBPS Reading Comprehension Passages 4 — Questions and Answers
Question 1: Passage: 'The credit-deposit (CD) ratio measures the proportion of deposits a bank lends out. A very high CD ratio may signal overleveraging, while a very low ratio suggests underutilisation of resources.' Which inference is CORRECT based on the passage?
- A CD ratio of 100% is always desirable for a bank
- An optimal CD ratio balances lending activity with resource efficiency (Correct answer)
- A low CD ratio always indicates a financially strong bank
- Banks should aim to eliminate the CD ratio as a metric
Correct answer: An optimal CD ratio balances lending activity with resource efficiency
Since both extremes—too high or too low—are flagged as problematic, the passage implies an optimal balance is ideal.
Question 2: A passage reads: 'Inflation erodes the purchasing power of money, disproportionately affecting fixed-income earners and those with savings in low-interest accounts.' The word 'disproportionately' implies that inflation:
- Affects all segments of society equally
- Has no impact on savings account holders
- Harms certain groups more than others (Correct answer)
- Only affects people without bank accounts
Correct answer: Harms certain groups more than others
'Disproportionately' means unequally or to a greater degree, indicating that fixed-income earners and savers are harder hit by inflation.
Question 3: Passage: 'Account aggregators act as intermediaries that allow customers to share their financial data securely across institutions, fostering a more informed credit assessment process.' What is the role of account aggregators?
- They provide loans directly to customers
- They facilitate secure sharing of financial data between institutions (Correct answer)
- They audit banks on behalf of the RBI
- They issue credit cards to underserved segments
Correct answer: They facilitate secure sharing of financial data between institutions
The passage describes account aggregators as intermediaries enabling secure financial data sharing across institutions.
Question 4: A passage states: 'The Kisan Credit Card (KCC) scheme provides short-term credit to farmers for crop cultivation, post-harvest expenses, and allied activities at concessional interest rates.' What is the PRIMARY purpose of KCC?
- Providing long-term housing loans to farmers
- Offering subsidised credit for agricultural and allied needs of farmers (Correct answer)
- Granting personal loans to rural entrepreneurs
- Financing urban cooperative banks
Correct answer: Offering subsidised credit for agricultural and allied needs of farmers
The passage states KCC provides short-term, concessional credit to farmers for cultivation and related activities.
Question 5: Passage: 'Digital lending platforms leverage alternative data—such as utility bill payments and e-commerce transaction history—to assess creditworthiness of borrowers who lack formal credit histories.' What PROBLEM do digital lenders address?
- The unavailability of interest rate data from RBI
- The difficulty in assessing creditworthiness of borrowers without traditional credit histories (Correct answer)
- The over-reliance of borrowers on gold loans
- The shortage of bank branches in metropolitan cities
Correct answer: The difficulty in assessing creditworthiness of borrowers without traditional credit histories
Digital lenders use alternative data to evaluate borrowers who cannot be assessed through traditional credit histories.
Question 6: A passage reads: 'Moral hazard arises when entities take on excessive risk, knowing they will be protected from the consequences by another party—such as a government bailout.' In banking, which scenario BEST illustrates moral hazard?
- A bank maintaining high capital reserves to avoid losses
- A bank making reckless loans assuming the government will rescue it if it fails (Correct answer)
- A bank refusing to lend to high-risk borrowers
- A bank investing in government securities for safety
Correct answer: A bank making reckless loans assuming the government will rescue it if it fails
Moral hazard occurs when a bank takes undue risks, assuming external protection (like a bailout) will cover the downside.
Question 7: Passage: 'The concept of 'too big to fail' suggests that certain banks are so systemically important that their collapse would trigger catastrophic consequences for the broader economy, justifying government intervention.' What does this passage imply about large banks?
- Large banks should be broken up to reduce their market share
- Governments are legally obligated to rescue any failing business
- The systemic importance of large banks may result in preferential treatment during crises (Correct answer)
- Large banks pose no risk to the broader financial system
Correct answer: The systemic importance of large banks may result in preferential treatment during crises
The passage implies that systemically important banks may receive government intervention due to the catastrophic risks their failure would pose.
IBPS Reading Comprehension Passages 4
Passage: 'The credit-deposit (CD) ratio measures the proportion of deposits a bank lends out.
A very high CD ratio may signal overleveraging, while a very low ratio suggests underutilisation of resources.' Which inference is CORRECT based on the passage?