It is stated that it is necessary to adopt suitable measures to prevent repetition of bad debts by learning from past experiences of mounting non performing assets in banks. In this course of action logical reasoning question, which of the following steps regarding loan approval and supervision should banks logically adopt to reduce future bad debts?

Introduction / Context:
This question deals with banking, bad debts, and non performing assets. The statement highlights that banks have learned from the past problem of mounting non performing assets and that suitable measures are necessary to prevent repetition of bad debts. Two courses of action are proposed: stricter evaluation of eligibility before granting loans, and close supervision of the work for which the loan was granted to ensure repayment of instalments. Our task is to judge whether one, both, or neither of these courses logically follows from the statement.

Given Data / Assumptions:

• Banks have experienced mounting non performing assets in the past.
• There is a need to adopt measures that prevent similar bad debts in the future.
• Course of action I: Before granting loans, banks should evaluate the eligibility of customers strictly.
• Course of action II: The work or project for which the loan is granted should be supervised minutely on a regular basis to ensure payment of instalments.
• We assume that non performing assets arise from poor credit appraisal, weak monitoring, or both.

Concept / Approach:
Preventing bad debts involves two broad stages of control: pre sanction assessment and post sanction monitoring. Effective credit risk management requires rigorous checks before granting loans and regular follow up afterward. Any course of action that strengthens either stage is relevant. We must check whether the proposed courses directly address these stages and whether they are reasonable responses to the problem.

Step-by-Step Solution:
Step 1: Examine course of action I. Stricter evaluation of loan eligibility includes assessing income, repayment capacity, credit history, collateral, and business viability. This directly addresses failures at the sanction stage, a major source of bad debts.Step 2: Examine course of action II. Even if the initial evaluation is sound, projects can fail due to mismanagement or diversion of funds. Close, regular supervision ensures that the loan is used for the intended purpose and that early warning signals of stress are detected.Step 3: Relate both courses to the statement. The statement calls for suitable measures to prevent repetition of bad debts. Strengthening both pre sanction and post sanction processes clearly qualifies as suitable and necessary measures.Step 4: Consider whether one course alone is sufficient. Stricter screening without monitoring can still lead to later slippages. Monitoring without good screening still allows weak borrowers in. Therefore using both is more consistent with the objective.Step 5: Conclude that both courses of action I and II logically follow.

Verification / Alternative check:
In modern risk management, banks adopt credit appraisal models and post sanction monitoring frameworks together. Regulatory guidelines also stress both aspects. The information in the statement calls for learning from past experiences, and experience shows that failures occur at both stages. Hence, a combination of strict eligibility checks and ongoing supervision is the most sensible. Using only one measure would not fully reflect the idea of learning comprehensively from past non performing assets.

Why Other Options Are Wrong:

• Option a (Only I follows) is incomplete, as it neglects the crucial role of monitoring after the loan is disbursed.
• Option b (Only II follows) is also incomplete, because monitoring alone cannot compensate for poor initial sanction decisions.
• Option c (Neither I nor II follows) is wrong since both actions directly address the causes of non performing assets.
• Option e (None of these) is wrong because a specific combination, both I and II, is clearly correct.

Common Pitfalls:
Some students view credit appraisal and monitoring as alternatives rather than complements. In examination questions, they sometimes choose only one course as correct because it looks more important. Another pitfall is ignoring the phrase learning from past experiences, which suggests a comprehensive response rather than a partial one. Recognising that prevention of bad debts is a multi stage process helps identify that both measures are necessary.

Final Answer:
Both course of action I and course of action II follow.