Statement: A large private bank plans to retrench one-third of its employees after heavy losses over the past three quarters.\nCourses of Action:\nI. The Government should notify the public to immediately stop all transactions with the bank.\nII. The Government should direct the bank to refrain from retrenchment.\nIII. The central bank should initiate an inquiry into the bank’s activities and submit a report.

Introduction / Context:
A planned retrenchment of one-third workforce signals severe financial/operational distress in a private bank. The appropriate response must protect financial stability and depositors while avoiding panic and undue executive interference.

Given Data / Assumptions:

• Losses across three quarters suggest persistent issues (asset quality, provisioning, cost structure).
• Systemic risk depends on size and interconnectedness.
• The central bank (prudential regulator) is the proper authority for supervision.

Concept / Approach:
I (urge public to stop transactions) would trigger a run, harming depositors and the system. II (block retrenchment) is heavy-handed and may impede a viable restructuring. III proposes a supervisory inquiry—proportionate, standard, and stabilizing—leading to a corrective action plan.

Step-by-Step Solution:
1) Central bank conducts targeted inspection: capital adequacy, NPA recognition, ALM gaps, governance.2) If needed, impose Prompt Corrective Action and time-bound recovery steps.3) Communicate to prevent panic while safeguarding depositor interests.

Verification / Alternative check:
Supervisory oversight addresses root causes without sparking runs or political overreach.

Why Other Options Are Wrong:
I: Incites panic and systemic risk. II: Interferes with corporate decisions absent regulatory findings.

Common Pitfalls:
Speculative media leaks; delayed supervisory action.

Final Answer:
Only III follows.