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High levels of NPAs in banks can lead to which broader economic issue?

hard Q9 of 15
Banking Awareness - Basics Of Banking & Banking Terminology
High levels of NPAs in banks can lead to which broader economic issue?
AReduced lending to productive sectors
BHigher money supply
CIncrease in bank deposits
DLower inflation automatically
Step-by-Step Solution

  1. Step 1: Identify systemic impact

    NPAs weaken bank balance sheets.

  2. Step 2: Link with credit flow

    Banks become cautious in lending.

  3. Final Answer:

    Reduced lending to productive sectors → Option A

  4. Quick Check:

    Weak banks lend less to economy ✅
Quick Trick: More NPAs = less fresh lending.
Common Mistakes:
  • Assuming NPAs boost money supply.
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