Operation Twist Flashcards
What was the main obstacle preventing commercial banks from lending to private sector companies?
The problem of bad loans or non-performing assets (NPAs) made banks reluctant to take on additional risk.
Explain the goal of Operation Twist.
Operation Twist aimed to lower the interest rates on corporate bonds, making it cheaper for companies to borrow money. This was intended to stimulate investment, job creation, and economic growth.
How did the RBI plan to reduce interest rates on corporate bonds through Operation Twist?
The RBI aimed to decrease the yields (interest rates) on long-term government securities (G-Secs). This would make corporate bonds relatively more attractive to investors, driving down their interest rates as well.
Define “yield” in the context of bonds.
Yield refers to the return an investor receives on a bond, typically expressed as a percentage of the bond’s price.
What are NPAs, and why were they a concern for the economy?
NPAs (Non-Performing Assets) are loans where the borrower has defaulted on payments. High levels of NPAs make banks hesitant to lend, hindering economic growth as businesses struggle to access funding.
