Page 79 - Understanding Economics for Class 10

(i) Some people fail to provide the required set of documents to get a loan.
(ii) Irregular wages and no fixed job is also one reason because it increases the chances of
default or non-repayment of loans.
(iii) Certain borrowers are added to the list of NPAs.(NON- Performing assets)
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(iv) There is a high risk in approving loans to entrepreneurs.
(v) Sometimes borrower lacks in offering collateral.

8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this
necessary?
Ans. The functioning of formal sources of loans is supervised by the Reserve Bank of India. In
following ways it manages the functioning of the banks:
(i) Out of the deposits received by Banks, a minimum cash balance is maintained. It is
monitored by RBI whether banks are maintaining it or not.
(ii) RBI also makes sure that banks are giving loans not only to profit-making businesses and
traders but also to small cultivators, small scale industries, to small borrowers etc
(iii) Periodically, information on how much banks are lending, to whom, at what interest rate,
etc. have to be submitted to the RBI by banks.
It is necessary for the smooth functioning of the banking system. It keeps a check on the unfair
practices that might be followed by banks in the absence of any supervision. Supervision is required
to ensure everyone who in need of credit gets it that too at a reasonable rate.

9. Analyse the role of credit for development.
Ans. Credit is one of the major aspects of the development of a country.
(i) Affordable credit plays a very important role in the country’s development.
(ii) People need loans for different reasons, and to meet this requirement, credit is very important.
(iii) In India, a major part of the population is engaged in agricultural activities. credit plays a
very crucial role in agricultural activities.
(iv) People can borrow money and use modern farming methods to grow crops which are more
reliable than the traditional methods of growing crops.
(v) Apart from this, there are small-scale industries, businesses and various other sectors where
credit can help people and ultimately result in the development of the country.

10. Manav needs a loan to set up a small business. On what basis will Manav decide whether to
borrow from the bank or the moneylender? Discuss.
Ans. Basis on which Manav will decide whether to borrow from the bank or the moneylender are:
(i) Collateral- If Manav has collateral to offer then he would seek loan from the bank but if he
doesn’t have collateral to offer he has to take loan from the informal sources like money
lender.
(ii) Taking loan from bank requires lot of time, if Manav is in hurry and does not have time
to complete all the formalities then he would take loan from the money lender.
(iii) Rate of interest- if the rate of interest charged by the money lender is very high then he
will definitely try to get a loan from the bank.
(iv) If he needs loan for a very short period of time then he can take loan from money lender
instead of going to bank.

11. In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
(i) Why might banks be unwilling to lend to small farmers?
(ii) What are the other sources from which the small farmers can borrow?

E-70 Economics Class X