The resolution of bankruptcy cases of Indian banks under the Insolvency and Bankruptcy Code should help bring non-performing assets (NPA) situation under some control Despite the slow pace of resolutions by the National Company Law Tribunal, the Code can be helpful in cleaning up bank books, in future credit cycles. The recapitalisation of public sector banks too can help increase the capital cushion of banks and induce them to lend more and boost economic activity. But bad debt resolution and recapitalisation are only a-part of the solution as they, by themselves, can do very little to rein in reckless lending that has pushed the Indian banking system to its current sorry state. Unless there are systemic reforms that address the problem of unsustainable lending, future credit cycles will continue to stress the banking system.

Correct Option (D)

The passage explicitly states that while measures like the Insolvency and Bankruptcy Code (IBC) and recapitalisation can address existing non-performing assets (NPAs) and boost lending, they are only partial solutions. The core problem identified is "reckless lending" and "unsustainable lending," which requires "systemic reforms" to prevent future credit cycles from stressing the banking system. Therefore, structural reforms are presented as the necessary long-term solution to the bad loans problem.

Incorrect Options:

• Option (A): The passage advocates for "systemic reforms" to address the root cause of reckless lending, which is a broader concept than merely close monitoring and regulation by the Central Government. While oversight is important, the passage emphasizes fundamental changes to prevent unsustainable lending practices.
• Option (B): The passage highlights "reckless lending" as the issue. Lowering interest rates to induce more lending, without addressing the underlying systemic flaws that lead to unsustainable lending, could potentially exacerbate the bad loans problem rather than solve it. The focus is on the quality and sustainability of lending, not just its volume.
• Option (C): The passage does not discuss the merger of banks as a solution. Its emphasis is on addressing the problem of "unsustainable lending" through "systemic reforms," which pertains more to lending practices, risk management, and governance rather than the consolidation of banking entities.