Banking · Principles of Lending
Assertion (A): According to the principle of Diversity of Risks, a bank should avoid over-concentration of its loan portfolio in a single industry or geographical location to mitigate the impact of localized economic downturns. Reasoning (R): The Reserve Bank of India mandates sectoral caps and exposure limits under its Prudential Norms to ensure that the failure of a specific sector, such as Real Estate or Infrastructure, does not lead to systemic instability in the banking sector.
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- 1Both A and R are true and R is the correct explanation of A.✓
- 2Both A and R are true but R is not the correct explanation of A.
- 3A is true but R is false.
- 4A is false but R is true.
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Both A and R are true and R is the correct explanation of A.
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