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Cause–Effect reasoning: Identify the relationship between Statement I and Statement II. S1: The Reserve Bank of India has recently imposed restrictions on a few small banks. S2: Small private and co-operative banks are not in a position to withstand competition from bigger public sector banks. Choose the correct cause–effect option.

Difficulty: Medium

Statement I is the cause and Statement II is its effect.
Statement II is the cause and Statement I is its effect.
Both statements I and II are independent causes.
Both statements I and II are effects of independent causes.
Both statements I and II are effects of a common cause.

Correct Answer: Statement II is the cause and Statement I is its effect.

Explanation:

Given data

S1: RBI restrictions on some small banks.
S2: Structural weakness/competitiveness issues of small banks vs public sector banks.

Concept / Approach
Regulatory restrictions are typically reactive to prudential concerns—capital adequacy, liquidity stress, or competitiveness/viability issues. Hence S2 provides a plausible rationale for S1.

Option check
B: Bank fragility (S2) ⇒ supervisory restrictions (S1). ✔ A/C/D/E: Do not fit the supervisory–risk sequence described.

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