After GST and demonetisation rising interest rates are set to hurt SMEs Interest rates for loans aga...........

Logical Reasoning(SBI-PO) Statement - Arguments

Direction: The question given below consists of a statement, followed by three arguments numbered I, II and III. You have to decide which of the arguments is/are ‘strong’ arguments and which is/are ‘weak’ arguments and accordingly choose your answer from the alternatives given below each question.

After GST and demonetisation, rising interest rates are set to hurt SMEs. Interest rates for loans against property (LAP) extended to small and medium sized enterprises (SMEs) are set to rise in the coming months of 2018 ‘ Rising interest rates, in addition to the muted operating environment for small businesses in India, will lead to an increase in delinquencies on LAP extended to SMEs’. The introduction of the goods and services tax (GST) in July 2017 and the government's demonetization policy have placed stress on the SME sector, which rising interest rates will exacerbate.

Which of the following can be logically inferred from the statement above

In addition to rising delinquencies over the last few years would force lenders to be more cautious while underwriting loans. This would limit refinancing options, adversely affecting existing borrowers.

But losses will be limited because these loans are secured and have relatively low loan-to-value ratios.

Rising interest rates will limit refinancing options and increase repayment amounts, increasing risks for asset backed securities (ABS) backed by LAP to SMEs.

The ABS (asset backed securities) backed by LAP extended to SMEs have non-amortizing cash reserves, substantial excess spread and the possibility to extend the life of the loans and hence the life of the transactions.

None can be inferred.

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Explanation:

The correct answer is option 1, i.e. In addition to rising delinquencies over the last few years would force lenders to be more cautious while underwriting loans. This would limit refinancing options, adversely affecting existing borrowers.
Option 1 is the most appropriate inference that can be made based on the information provided. It captures all the important points like ‘rising delinquencies’, ‘effect of limit on the refinancing options thereby, affecting the customers’ are evident both from the given statement and the option choice.
Rest of the arguments can be rejected.

Option (2) is very unpredictable and it cannot be said with surety about the loss limitation.

Both options (3) and (4) can also be rejected as no idea of ABS (asset backed securities) is evident from the information provided in the given statement.
Thus, the most appropriate answer is option 1.