Chapter 3 (T-7, Financial Market) (Banking)

Question 1

Q. With reference to the ‘Asset Quality Review’ recently seen in the news, consider the following statements:(2016 prelims)

1. It is a mechanism to review the asset quality of listed companies in India.
2. It is initiated by the Reserve Bank of India to review the assets of the banking sector.

Which of the statements given above is/are correct?

Question 2

In the 4R framework, examine the need for Reforms and the reforms undertaken.

Answer 2

Need for reforms:
1. Poor Risk-Assessment.
2. Incentive-Disincentive Culture.
3. High NPAs(13%, 2018)

Reforms Under-taken:
1. BHC(Bank-holding Company), govt will tranfer its ownership rights[not yet applicable].
2. BBB(Bank Board Beauru)(Currently applicable).
3. FSIB(Financial Services Inter-mediary Beaureu)[Proposed].

Question 3

List 7 types of banks

Answer 3

1. SBI (SBI Act,1955)
2. Nationalized Banks
3. Regional Rural Bank(RRB,1975)
4. Co-operative Banks.
5. Commercial Banks(Companies Act, 1956,2013)
6. Statutory Banks(2nd schedule, RBI act, 1934)
7. Development Financial Institutions(DFI)

Question 4

Backdrop story of SBI

Answer 4

SBI was ‘Imperial Bank’ established by British, they used to receive their salary, etc through it. Later, in 1955 it got re-established as SBI.

Question 5

Purpose of Nationalized banks

Answer 5

While the stated aim of bank nationalization(69&80) was financial inclusivity, the term must be interpreted broadly — not merely as access to banking, but as active, affordable, and empowering integration of the underserved into the financial ecosystem, serving both developmental and redistributive objectives of the state.

Question 6

What are RRB?

Regional Rural Bank.

Answer 6

egional Rural Banks are government-owned, regional-level banking institutions established under the RRB Act, 1976, to bridge the gap between rural credit needs and formal banking services.
Center-50%
State-15%
Sponcered Bank-35%

Question 7

What are Cooperative Banks.

Answer 7

A bank are establised by the people for their mutual benifit.
They are first established as societies under state RCS. If it wants to become a bank then banking licence from RBI.
Have 3-tier structure:
1. Begin as PACS, come together and form RCB.
2. At District, DDCB, under which there are RCB & UCB.
3. State-level SCB.

RCS-Registrar Of Cooperative Societies.
PACS-Primary Agri Credit Society

DCCB-District Central Cooperative Banks.

Question 8

What are Scheduled Banks.

Answer 8

Scheduled banks are banks which are registered under the 2nd schedule of RBI act. They agree to higher regulations in return for additional benifits(LAF,MSF,etc)

Only Scheduled Commercial banks have access to MSF.

Question 9

Development Finance Institutions

Answer 9

The objective is credit-availiblity in areas and sectors which are ignored by banking institutions(Agri, Infra, etc).
NABARD Act, 1982, primariliy a refinancing agency and has supervisiory functions.

Question 10

Post-Liberalization reforms in the banking sector.

Answer 10

In 1990s, RBI re-opened its bank licencing window for the first time after nationalization. Private entities (NBFCs) like HDFC, ICICI got licencing rights in 1993-94 to operate as commercial banks.

Question 11

Banking Financial Inclusivity initiatives.

Answer 11

1. Branch Licencing Policy.
2. Lead Bank Scheme-No enforcement power.
3. Zero-Balance Account.
4. Bank Correspondant or Bank Mitr.

Question 12

Memronics on NBFCs

Answer 12

DID NOT CARE
1. Cannot accept DD.
2. Cannot issue cheque.
3. Deposits (only time for certain banks)filler.
4. No payment access.
5. other regulaters.
6. time-deposits.
7. Capital Markets.
8. Approval required.
9. Regulated by RBI.
10. Excluded from bank definition.

Question 13

Jan Dhan Yojna

Answer 13

Launched in 2014, with the primary aim of financial inclusion. It aimed at unbanked population.

📚 Common Themes to Revise:

1. Zero-balance account with RuPay card
2. ₹1 lakh accident insurance (increased to ₹2 lakh for accounts opened after Aug 28, 2018)
3. Convergence with Mudra, Atal Pension Yojana
4. Special push for women account holders
5. Focus on financial literacy, not just financial access
6. Limitations: high % of dormant accounts, lack of financial awareness

Question 14

What are small banks

Answer 14

It was authorized in 2014 after Nachiket More Committee recommendation, with primary aim of financial inclusion of unserved section(MSME, Farmers,etc), it can accept deposits and lend loans of small value, but cannot set-up subsidary.

Question 15

Payments bank

Answer 15

To provide basic banking services like deposits, remittance, and payment but cannot offer loans.
Deposit limit of 2L. can invest only in g-sec and stable instruments.