A farmer took a crop loan from a cooperative bank. Because his crop failed, he could not repay the principal and interest on the scheduled date. In the language of the IED Glossary, this is a case of:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Default
Default means failing to repay the principal and interest of a loan on the scheduled date. The farmer could not repay on time, so this is a default.
Option (1) Collateral — Incorrect. Collateral is an asset pledged with the lender to get a loan, such as land.
Option (2) Overdraft — Incorrect. An overdraft lets a person withdraw more than the balance in a bank account.
Option (3) Debt-trap — Incorrect. A debt-trap is a state where a borrower can never clear the loan. Moneylenders kept poor farmers in one through high interest and false accounts.
Option (4) Default — Correct. Failure to repay on the scheduled date is a default.
NCERT (2026-27): Glossary: “Default – Failure to make repayment of the principal and interest on a debt e.g. sovereign debt (loan obtained by the government) to the lenders, say, international financial institutions, on the scheduled date, causing loss of credibility as a debtor.” |