Directions (Q. 21-25): Read the passage carefully
and answer the questions given below it. Certain words/
phrases have been given in bold to help you locate them
while answering some of the questions.
In December 2011, a key advisory group on asset
reconstruction companies (ARC) sector reforms, appointed
by the government, had recommended, among others, thus:
“Since ARC industry is capitalintensive,
and the existing
investors lack adequate resources to fund the expansions,
ARCs may be allowed to tap capital market. This will also
increase public scrutiny and higher disclosures.”
The advisory group also suggested that ARCs may
be allowed to raise equity from market in public issue of
shares. This has assumed critical importance, particularly
after August 2014, when the Reserve Bank has raised
mandatory investment in securities receipts issued by an
ARC from 5 per cent to 15 per cent. Also, nonperforming
assets (NPA) in the banking system have been rising at a
menacing pace. From a gross NPA level of l .4 lakh crore
in 201112,
this is estimated now at 3.4 lakh crore as of
March 2015. On the one hand, gross NPAs have risen nearly
three times, and on the other hand, there has been a
threefold
rise in mandatory investment required by ARCs.
As per a recent study by rating agency Crisil released on
May 12,2015, gross NPAs in the banking system are
projected to rise to 4 lakh crore. The ARCs with an
estimated capital base of 4,000 crore only stand helplessly
and grossly inadequate in terms of financial muscle to rise
to the occasion.
This necessitates the ARCs to build up their capital
base substantially for an effective participatory role in NPA
sales. In fact, ARCs have been set up to acquire NPAs of
banks or financial institutions with the objective of focused
management and optimal recovery, thereby relieving banks
and financial institutions of the burden of NPAs and
allowing the banks to focus on core activities.
In the Indian context, ARCs have been permitted to
float Trusts for resolution of the NPAs acquired and funding
is through issuance of security receipts, which are akin to
passthrough
certificates with underlying cash flow from
the NPAs acquired. However, in the absence of thirdparty
investor money, the bank that sells NPAs doubles up as
investor in security receipts — which is estimated around
53,000 crore, of which a substantial portion is invested by
the selling banks themselves. In effect, there is no effective
risk mitigation at the bank; credit risk being only substituted
by another risk — investment risk. For a real cleanup
of the
system, fresh money should come in.
A meaningful and plausible solution is to decontrol
ARCs by permitting them unrestricted access to capital
market for equity and delinking investment in security
receipts from only a select group of qualified institutional
buyers (QIBs) and throwing it open for all institutional
players in debt trading. Further, provisions like no sponsor
being able to hold in excess of 50 per cent equity should be
dispensed with, to enable promoters to bring in additional
equity without dependence on another set of investors.
21. Why was it suggested that ARCs be allowed to tap
the capital market? Select the most suitable answer.
(A) Because ARC industry needs a lot of money and
the only solution to this problem is to allow it to
tap capital market.
(B) ARC industry has a better experience of operating
in capital market.
(C) The existing investors lack adequate resources to
fund the expansions.
1) Only (A) 2) Only (B) 3) Only (C)
4) Only (A) and (B) 5) Only (B) and (C)
22. Which of the following statements is not true in the
context of the passage?
(A) After 2014 the central bank raised mandatory
investment in securities receipts issued by an
ARC from 5% to 15%.
(B) According to a key advisory group on asset
reconstruction companies reforms, to increase
public scrutiny and higher disclosures ARCs
should be permitted to operate in capital market.
(C) By March 2015, gross non performing assets
had quadrupled.
1) Only (A) 2) Only (B) 3) Only (C)
4) Only (A) and (B) 5) Only (B) and (C)
23. What is/are the objectives of setting up of ARCs?
1) To acquire NPAs of banks and financial institutions.
2) To relieve banks and financial institutions from the
burden of NPAs.
3) To raise equity from capital market.
4) Only l) and 2)
5) All 1), 2) and 3)
24. Which of the following statements regarding ARCs in
the Indian context reflects the true picture?
1) ARCs have been allowed to float trusts for
resolution of the NPAs acquired.
2) The funding of ARCs is through issuance of
security receipts.
3) Security receipts are similar to passthrough
certificates with underlying cash flow from the
NPAs acquired.
4) According to the author, to mitigate the risk at
the bank, ARCs should be decontrolled and
permitted free access to capital market.
5) All the above
25. What is the meaning of the phrase ‘menacing pace’
as used in the passage?
1) satisfactory speed 2) dangerous speed
3) slow speed 4) uniform speed
5) None of these
Directions (Q. 26-30): In the following passage, some
of the words have been left out, each of which is indicated
by a number. Find the suitable word from the options given
against each number and fill up the blanks with appropriate
words to make the paragraph meaningfully complete.
Only a mind that has gained a certain amount of
stability can (26) that the objects of experience, (27) the
cause of much ill, are not (28) or devoid of divine presence.
An object becomes the source of ill at that moment when
the intellect not only objectifies it, but also objectifies the
divine (29) due to which the object exists. Each object, in
fact, does not exist in itself. As such, the objects of (30) are
nonreal. It follows, then, that the intellect that objectifies
the nonreal
objects, too, is nonreal or apparent.
26. 1) disregard 2) exclude 3) apprehend
4) comprehend 5) overlook
27. 1) despite 2) although 3) when
4) still 5) albeit
28. 1) deprived 2) cut off 3) shown
4) robbed 5) bereft
29. 1) being 2) reality 3) presence
4) latency 5) distance
30. 1) perception 2) approach 3) ignorance
4) stupidity 5) conceit
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and answer the questions given below it. Certain words/
phrases have been given in bold to help you locate them
while answering some of the questions.
In December 2011, a key advisory group on asset
reconstruction companies (ARC) sector reforms, appointed
by the government, had recommended, among others, thus:
“Since ARC industry is capitalintensive,
and the existing
investors lack adequate resources to fund the expansions,
ARCs may be allowed to tap capital market. This will also
increase public scrutiny and higher disclosures.”
The advisory group also suggested that ARCs may
be allowed to raise equity from market in public issue of
shares. This has assumed critical importance, particularly
after August 2014, when the Reserve Bank has raised
mandatory investment in securities receipts issued by an
ARC from 5 per cent to 15 per cent. Also, nonperforming
assets (NPA) in the banking system have been rising at a
menacing pace. From a gross NPA level of l .4 lakh crore
in 201112,
this is estimated now at 3.4 lakh crore as of
March 2015. On the one hand, gross NPAs have risen nearly
three times, and on the other hand, there has been a
threefold
rise in mandatory investment required by ARCs.
As per a recent study by rating agency Crisil released on
May 12,2015, gross NPAs in the banking system are
projected to rise to 4 lakh crore. The ARCs with an
estimated capital base of 4,000 crore only stand helplessly
and grossly inadequate in terms of financial muscle to rise
to the occasion.
This necessitates the ARCs to build up their capital
base substantially for an effective participatory role in NPA
sales. In fact, ARCs have been set up to acquire NPAs of
banks or financial institutions with the objective of focused
management and optimal recovery, thereby relieving banks
and financial institutions of the burden of NPAs and
allowing the banks to focus on core activities.
In the Indian context, ARCs have been permitted to
float Trusts for resolution of the NPAs acquired and funding
is through issuance of security receipts, which are akin to
passthrough
certificates with underlying cash flow from
the NPAs acquired. However, in the absence of thirdparty
investor money, the bank that sells NPAs doubles up as
investor in security receipts — which is estimated around
53,000 crore, of which a substantial portion is invested by
the selling banks themselves. In effect, there is no effective
risk mitigation at the bank; credit risk being only substituted
by another risk — investment risk. For a real cleanup
of the
system, fresh money should come in.
A meaningful and plausible solution is to decontrol
ARCs by permitting them unrestricted access to capital
market for equity and delinking investment in security
receipts from only a select group of qualified institutional
buyers (QIBs) and throwing it open for all institutional
players in debt trading. Further, provisions like no sponsor
being able to hold in excess of 50 per cent equity should be
dispensed with, to enable promoters to bring in additional
equity without dependence on another set of investors.
21. Why was it suggested that ARCs be allowed to tap
the capital market? Select the most suitable answer.
(A) Because ARC industry needs a lot of money and
the only solution to this problem is to allow it to
tap capital market.
(B) ARC industry has a better experience of operating
in capital market.
(C) The existing investors lack adequate resources to
fund the expansions.
1) Only (A) 2) Only (B) 3) Only (C)
4) Only (A) and (B) 5) Only (B) and (C)
22. Which of the following statements is not true in the
context of the passage?
(A) After 2014 the central bank raised mandatory
investment in securities receipts issued by an
ARC from 5% to 15%.
(B) According to a key advisory group on asset
reconstruction companies reforms, to increase
public scrutiny and higher disclosures ARCs
should be permitted to operate in capital market.
(C) By March 2015, gross non performing assets
had quadrupled.
1) Only (A) 2) Only (B) 3) Only (C)
4) Only (A) and (B) 5) Only (B) and (C)
23. What is/are the objectives of setting up of ARCs?
1) To acquire NPAs of banks and financial institutions.
2) To relieve banks and financial institutions from the
burden of NPAs.
3) To raise equity from capital market.
4) Only l) and 2)
5) All 1), 2) and 3)
24. Which of the following statements regarding ARCs in
the Indian context reflects the true picture?
1) ARCs have been allowed to float trusts for
resolution of the NPAs acquired.
2) The funding of ARCs is through issuance of
security receipts.
3) Security receipts are similar to passthrough
certificates with underlying cash flow from the
NPAs acquired.
4) According to the author, to mitigate the risk at
the bank, ARCs should be decontrolled and
permitted free access to capital market.
5) All the above
25. What is the meaning of the phrase ‘menacing pace’
as used in the passage?
1) satisfactory speed 2) dangerous speed
3) slow speed 4) uniform speed
5) None of these
Directions (Q. 26-30): In the following passage, some
of the words have been left out, each of which is indicated
by a number. Find the suitable word from the options given
against each number and fill up the blanks with appropriate
words to make the paragraph meaningfully complete.
Only a mind that has gained a certain amount of
stability can (26) that the objects of experience, (27) the
cause of much ill, are not (28) or devoid of divine presence.
An object becomes the source of ill at that moment when
the intellect not only objectifies it, but also objectifies the
divine (29) due to which the object exists. Each object, in
fact, does not exist in itself. As such, the objects of (30) are
nonreal. It follows, then, that the intellect that objectifies
the nonreal
objects, too, is nonreal or apparent.
26. 1) disregard 2) exclude 3) apprehend
4) comprehend 5) overlook
27. 1) despite 2) although 3) when
4) still 5) albeit
28. 1) deprived 2) cut off 3) shown
4) robbed 5) bereft
29. 1) being 2) reality 3) presence
4) latency 5) distance
30. 1) perception 2) approach 3) ignorance
4) stupidity 5) conceit
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