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)

“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.

 

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