Bank credit to the industrial sector has started shrinking. Its decline has been a serious concern as credit growth is essential to revive investment. The problem's origins lie in the incomplete reforms of the last 25 years. An institutional change that should have followed. the 1991 reforms should have been setting up of a resolution corporation for banks. In a market economy with booms and busts, banks should be allowed to be set up and to fall. Today, we cannot shut down banks because there is no proper system to shut them down. Weak loss-making banks continue to need more capital.

Correct Option (C)

The passage explicitly identifies the absence of a proper system to shut down banks as a significant issue. It states that weak, loss-making banks continue to require capital because there is no effective institutional mechanism to manage their failure. This directly supports the inference that India lacks the necessary institutional framework to deal with bank failures.

Incorrect Options:

The passage highlights a specific problem concerning shrinking bank credit to the industrial sector and its underlying causes related to incomplete reforms and the absence of a bank resolution mechanism. It does not make a general statement about the entire Indian banking system's inability to contribute to economic growth.

While the passage refers to "incomplete reforms of the last 25 years" and the need for an institutional change that "should have followed the 1991 reforms," it does not assert that the 1991 economic reforms broadly failed to improve the economy to expected levels. The focus is specifically on a missing institutional mechanism for bank resolution.

The passage does not discuss foreign investments as an alternative source of credit for the industrial sector. Its central theme revolves around domestic institutional deficiencies in handling failing banks and their impact on credit availability.