CAIIB BRBL Module A UNIT 5 MCQ – Public sector banks, private sector banks, regional rural banks, differentiated banks, co-operative banks, and local area banks

Correct Answer: C. Special Statutes enacted by Parliament. Public sector banks like SBI, Nationalized banks, and RRBs derive their existence and operational guidelines from specific Acts passed by the Parliament, distinct from the general company law or solely the Banking Regulation Act.

Correct Answer: D. Government of India. These public sector banking institutions are characterized by the fact that the central government maintains the controlling interest or majority shareholding.

Correct Answer: B. It applies only in a limited manner, with some provisions being inapplicable. While these banks must adhere to banking regulations, their specific founding statutes take precedence in certain areas, making some parts of the Banking Regulation Act not applicable to them.

Correct Answer: B. Private Sector Banks have the majority stake held by private individuals or entities. The defining feature of a Private Sector Bank is that the controlling ownership rests with private parties, unlike Public Sector Banks where the government holds the majority stake.

Correct Answer: C. Companies Act. Most significant private banks established post-liberalization were incorporated under the framework of the Companies Act, alongside adherence to the Banking Regulation Act.

Correct Answer: C. The Central Act related to Co-operative Societies (Multi-State Co-operative Societies Act). Co-operative banks with operations extending beyond a single state fall under the jurisdiction of the central legislation governing multi-state co-operative entities.

Correct Answer: D. Section 56. This specific section within the Banking Regulation Act details how its provisions are adapted and applied to banks operating under the co-operative structure.

Correct Answer: C. It caters to the needs of a specific sector or demographic segment. Differentiated banks are specialized institutions focusing on particular niches within the banking market, serving specific societal groups or population segments.

Correct Answer: C. Fintech Banks, Digital Banks, Small Finance Banks, and Payments Banks. These types of banks represent the modern concept of differentiated banking, focusing on specific services or customer bases, often leveraging technology.

Correct Answer: B. To pool and mobilize rural savings for local economic development credit. Local Area Banks were conceived to gather savings from rural areas and channel these funds back into the same local communities as loans for economic growth.

Correct Answer: C. State Bank of India Act, 1955. This specific Act led to the creation of SBI, taking over the undertaking of the Imperial Bank.

Correct Answer: C. Body Corporate with perpetual succession. SBI is constituted as a body corporate, meaning it has a separate legal identity and can continue indefinitely, irrespective of changes in membership or management.

Correct Answer: C. Ten per cent. The SBI Act imposes a default restriction, limiting the voting power of individual shareholders (excluding the government) to a maximum of ten per cent of the total voting rights.

Correct Answer: C. The Central Board of the State Bank. The overall management and strategic direction of SBI rests with its Central Board.

Correct Answer: B. The Central Government, through the Reserve Bank of India. The Central Government can guide SBI on significant policy issues concerning public interest, but such directives must be communicated via the RBI.

Correct Answer: C. Consultation with the Reserve Bank and previous sanction of the Central Government. Making regulations requires the SBI Board to consult with the RBI and obtain prior approval from the Central Government.

Correct Answer: C. Five years. The initial appointment tenure for the top leadership positions like Chairman and MDs in SBI is capped at five years, although reappointment is possible.

Correct Answer: D. At places where SBI has a branch and RBI does not have a branch, if required by RBI. SBI assumes the agency role for RBI’s government transactions specifically in locations where RBI lacks its own presence but SBI operates.

Correct Answer: C. The business of banking. SBI is authorized to conduct the fundamental activities defined as ‘banking’ under the Banking Regulation Act, alongside other specified financial services.

Correct Answer: B. 31st March. Unless otherwise specified by the Central Government, the standard financial year-end for SBI, requiring closure of accounts, is March 31st.

Correct Answer: D. To both the Central Government and the Reserve Bank of India. SBI is required to submit its key annual financial statements and audit reports to both the central government and the central bank.

Correct Answer: C. The State Bank itself, with the previous approval of the Reserve Bank. While SBI makes the appointment, it requires prior consent from the RBI.

Correct Answer: C. 1st April 2017. This date marks the official completion of the merger, consolidating these entities into the State Bank of India.

Correct Answer: C. To develop the rural economy by providing credit facilities. RRBs were specifically created to boost rural development through credit and financial services targeted at agriculture, rural trade, industry, and small entrepreneurs.

Correct Answer: B. Central Govt 50%, Sponsor Bank 35%, State Govt 15%. The capital structure of an RRB involves the Central Government holding the largest share (50%), followed by the sponsoring commercial bank (35%), and the respective State Government (15%).

Correct Answer: C. A compact area comprising a few districts with homogeneous agro-climatic conditions. RRBs typically operate within a limited, geographically defined rural region, usually spanning a few districts sharing similar agricultural and environmental characteristics.

Correct Answer: C. The Sponsor Bank, in consultation with NABARD (or Central Govt in other cases). The bank that sponsors the RRB is responsible for appointing the Chairman, typically after consulting with NABARD.

Correct Answer: C. Absence from three consecutive meetings without leave from the board. Continuous absence from three board meetings without prior permission results in the disqualification and removal of an RRB director.

Correct Answer: C. The Sponsor Bank. The sponsoring commercial bank plays a key role in overseeing the performance and functioning of the RRB it has sponsored.

Correct Answer: C. To minimize overheads, optimize technology use, enhance capital base and area of operation. The consolidation aims to create stronger, more efficient RRBs by reducing costs, improving technology adoption, increasing capital and operational reach, and enhancing their lending capacity.

Correct Answer: C. Nationalized Banks. These banks became public sector entities when the government acquired existing private banks through specific legislation known as the Bank Nationalization Acts.

Correct Answer: C. The Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980. These specific Acts facilitated the government takeover and establishment of Nationalized Banks.

Correct Answer: D. The Central Government. At the point of nationalization, the ownership of these banks was fully transferred to the Central Government.

Correct Answer: C. 51 per cent. Legislation mandates that the Central Government must always retain a majority stake, ensuring continued public sector control.

Correct Answer: A. One per cent. To maintain dispersed shareholding influence apart from the government, individual non-government shareholders’ voting power is restricted.

Correct Answer: C. A body corporate with perpetual succession. Like SBI, Nationalized Banks are established as distinct legal entities that can exist indefinitely and conduct business in their own name.

Correct Answer: C. The Board of Directors of the bank. The overall governance and operational management of a Nationalized Bank are vested in its Board.

Correct Answer: B. The Central Government. The Board operates under the framework set by law and can also be guided by instructions issued by the Central Government, particularly on policy matters.

Correct Answer: C. The Central Government, in consultation with the Reserve Bank of India. Section 9 of the Acts grants the Central Government the power to create detailed operational schemes, requiring consultation with the RBI.

Correct Answer: C. It must be laid before the Parliament. Such schemes require parliamentary oversight and become legally binding once presented and approved as per parliamentary procedure.

Correct Answer: C. The Nationalized Banks (Management and Miscellaneous Provisions) Schemes, 1970 and 1980. These government-framed schemes elaborate on the management structure and operational rules for the boards of Nationalized Banks.

Correct Answer: C. Director representing workmen employees and a director representing officer employees. The board composition includes specific representation for both workmen and officer staff categories.

Correct Answer: B. Chartered Accountant with not less than fifteen years’ experience. One directorship position nominated by the government requires this specific professional background and experience level, with RBI consultation.

Correct Answer: B. Three. The number of directors elected by public shareholders is capped, with the actual number depending on the percentage of public shareholding in the bank.

Correct Answer: C. ‘Fit and Proper’ criteria. Prospective directors are assessed based on established standards regarding their suitability, background, and ethical standing to ensure sound governance.

Correct Answer: C. Members of Parliament, state legislatures, and local governments. To avoid potential conflicts of interest, active members of legislative bodies or local governments are typically barred from PSB directorships under these guidelines.

Correct Answer: C. At least six times in a year. The management schemes prescribe a minimum number of board meetings annually, ensuring regular oversight.

Correct Answer: C. Fifteen days. Directors must ordinarily receive at least fifteen days’ advance notice before a scheduled board meeting.

Correct Answer: B. One-third of the number of directors holding office on that day. A minimum number of directors, calculated as one-third of the current board strength, must be present for the meeting to proceed legally.

Correct Answer: C. Credit Approval Committee. This committee is explicitly named alongside the Management Committee as having board-delegated authority, particularly concerning the sanctioning of loans.

Correct Answer: D. Section 51. This section serves as the reference point within the Banking Regulation Act to determine the extent of its applicability to India’s public sector banks.

Correct Answer: B. Because their specific establishing Acts (like the SBI Act or Nationalization Acts) contain provisions that may modify or override those sections. The principle of specific legislation prevailing over general legislation means the banks’ own statutes take precedence where provisions overlap or conflict.

Correct Answer: A. Section 10. This provision, applicable to PSBs, regulates employment practices, specifically banning managing agencies and restricting certain types of employee roles or remuneration.

Correct Answer: C. Excessive commission on share sales, charges on unpaid capital, and dividend payments under certain conditions. These sections impose controls on specific financial activities like share issuance costs and dividend distribution.

Correct Answer: B. Section 17. This section ensures that public sector banks build up reserves by transferring a portion of their profits to a statutory reserve fund.

Correct Answer: B. Restrictions on the nature of subsidiary companies and RBI’s power to control advances. These sections limit the types of subsidiaries banks can have and empower the RBI to regulate lending activities.

Correct Answer: C. Opening new places of business, transferring existing ones, and maintenance of required asset percentages. These provisions govern branch network expansion and ensure banks maintain sufficient liquid assets.

Correct Answer: B. Section 29 (excluding sub-section 3). This section mandates the structure and content of the primary financial statements that public sector banks must prepare.

Correct Answer: C. Special Audit ordered by RBI. Applicable portions of Section 30 grant RBI the power to order a special audit of a bank under certain circumstances.

Correct Answer: C. To submit various returns and information to the Reserve Bank of India. This section mandates the regular reporting of specified data by banks to the regulator.

Correct Answer: B. Power to conduct inspections. This key supervisory section allows the RBI to examine the books and accounts and overall affairs of public sector banks.

Correct Answer: C. Authority to issue binding directions to banks in the public interest or interest of depositors. This section provides RBI with broad powers to issue mandatory instructions to banks on various operational and policy matters.

Correct Answer: B. To issue directions to banks to initiate the insolvency resolution process for stressed assets. This section provides a mechanism, involving both the government and RBI, to address defaults through the insolvency framework.

Correct Answer: B. Power to issue directions concerning the resolution of stressed assets. Complementing 35AA, this section allows RBI to issue specific instructions regarding the management and resolution of non-performing assets.

Correct Answer: B. Section 36 (except sub-section 1(d)). This section details several supervisory and regulatory powers vested in the RBI to maintain banking system stability.

Correct Answer: C. Rules for record preservation, return of paid instruments, and nomination facilities for deposits/lockers. These sections deal with operational aspects concerning customer accounts, instruments, and succession planning for account holders.

Correct Answer: C. Penalties, cognizance of offences, RBI’s power to impose penalties, and application of fines. These sections provide the legal framework for enforcing compliance by outlining punishments for violations.

Correct Answer: C. Such claims are barred. This section protects the regulatory authorities from legal claims arising directly from the implementation of the Act’s provisions.

Correct Answer: D. Section 52. This section empowers the Central Government to frame necessary rules to supplement the provisions contained within the Banking Regulation Act.

Correct Answer: C. Power to exempt specific banks or situations from certain provisions of the Act. This section allows the government flexibility to grant exemptions from the Act’s requirements in specific, justified cases.

Correct Answer: C. Applicable in a limited way as specified by Section 51, due to overriding provisions in their own statutes. The applicability is selective, determined by Section 51 and the principle that the specific laws establishing these banks can override general banking law.

Correct Answer: C. Policy to dilute the government’s shareholding in these banks. Amendments were made to facilitate reduction in government ownership and allow for public participation in the equity of these banks.

Correct Answer: B. Decreased from ₹100 to ₹10. This amendment reduced the nominal value of each SBI share, making them more accessible to smaller investors.

Correct Answer: B. Changed the limit from a maximum of 200 shares to a maximum of ten per cent of the issued capital. The amendment shifted the basis of the voting restriction from a fixed number of shares to a percentage of the total capital.

Correct Answer: C. To facilitate public holding of shares in nationalized banks. These amendments were aimed at enabling nationalized banks to issue shares to the public and list on stock exchanges.

Correct Answer: B. ₹1,500 crore, divided into shares of ₹10 each. The amendments set an initial authorized capital base with a specific share denomination.

Correct Answer: B. Banks were allowed to declare dividends to shareholders. Previously, profits were primarily transferred to the government; this amendment permitted distribution to all shareholders.

Correct Answer: C. Desire to increase the number of public sector banks. The explicit goal was to reduce the number of PSBs to create fewer, larger, and stronger banks.

Correct Answer: C. 1st April 2020. This date marks the official implementation of the announced PSB mergers.

Correct Answer: D. Punjab National Bank (PNB). PNB became the anchor bank absorbing OBC and United Bank of India in this consolidation.

Correct Answer: B. 12. The consolidation process reduced the total count of PSBs to twelve.

Correct Answer: C. The State law governing co-operative societies in that particular state. Co-operative entities operating within one state are subject to that state’s specific co-operative legislation for formation and internal governance.

Correct Answer: C. The Multi-State Co-operative Societies Act. Co-operative banks with interstate operations fall under this central Act designed for entities operating across state borders.

Correct Answer: B. The Banking Laws (Application to Co-operative Societies) Act, 1965. This Act formally extended the regulatory framework of the BR Act to cover co-operative banks.

Correct Answer: C. State Co-operative Banks, Central Co-operative Banks, and Primary Co-operative Banks. The definition specifically encompasses these three tiers of the co-operative banking structure.

Correct Answer: C. Its byelaws must permit admission of any other co-operative society as a member. The definition actually requires that the byelaws do not permit membership of other co-operative societies (with specific exceptions related to state funding).

Correct Answer: B. To act as the principal co-operative society in a state, mainly financing other co-operative societies. It serves as the apex co-operative bank at the state level, channeling funds to lower tiers.

Correct Answer: B. The principal co-operative society in a district, mainly funding other co-operative societies within that district. It operates at the district level, bridging the state apex bank and primary societies.

Correct Answer: C. Primary credit societies. While generally restricted, primary credit societies are specifically allowed an exemption from this naming convention.

Correct Answer: B. ₹1 lakh. Co-operative banks must meet this minimum capital requirement to be eligible to operate.

Correct Answer: D. Scheduled Primary Co-operative Banks and scheduled State Co-operative Banks. Co-operative banks included in the RBI Act’s Second Schedule follow the standard CRR norms specified therein, while others follow Section 18 of the BR Act.

Correct Answer: C. No, this practice is prohibited. Granting loans secured by the bank’s own shares is explicitly forbidden for co-operative banks.

Correct Answer: B. Unsecured loans or advances. The Act places restrictions specifically on providing unsecured credit facilities to directors and related entities.

Correct Answer: C. Prohibited such financial accommodation. RBI issued directives explicitly forbidding co-operative banks from providing loans or other financial facilities to their directors or relatives to prevent conflicts of interest.

Correct Answer: D. The Reserve Bank of India (RBI). Under Section 22 of the BR Act (as applicable), RBI is the licensing authority for co-operative banks.

Correct Answer: B. No, they are exempt from this requirement. The licensing requirement under Section 22 specifically excludes primary credit societies.

Correct Answer: C. The National Bank for Agriculture and Rural Development (NABARD). Applications from state and central co-operative banks for branch opening are normally channeled through NABARD.

Correct Answer: C. Not less than 25% and up to 40%. This section requires maintenance of additional liquid assets, with the specific percentage within this range determined by RBI notification.

Correct Answer: C. Third Schedule. Co-operative banks must prepare their annual financial statements adhering to the formats provided in this schedule.

Correct Answer: C. The National Bank for Agriculture and Rural Development (NABARD). Due to its supervisory role over these tiers, NABARD also receives copies of their financial reports.

Correct Answer: C. The registration may be cancelled. Cancellation of the banking license is one of the specified grounds upon which DICGC can de-register an insured co-operative bank.

Correct Answer: B. RBI’s prior sanction is required for winding up orders or schemes of arrangement/amalgamation. This ensures RBI oversight in major restructuring or dissolution events for eligibility under deposit insurance.

Correct Answer: B. Failure to meet the minimum paid-up capital and reserve requirements specified in Section 11 of the BR Act. Inadequate capitalisation is a specific ground upon which RBI can initiate winding-up proceedings via the DICGC Act.

Correct Answer: B. If it refuses to meet a lawful demand within two working days (if RBI office present) or five working days (if elsewhere), and RBI certifies this inability. This provides a specific, time-bound test for determining insolvency based on failure to meet payment obligations.

Correct Answer: C. Deposit Insurance and Credit Guarantee Corporation Act, 1961. This Act establishes the framework for deposit insurance coverage, which extends to eligible co-operative banks.

Correct Answer: B. Yes, if required in the public interest or to protect depositors, for a period up to five years. The law governing an eligible co-operative bank must empower RBI to supersede the board under specific circumstances to ensure its eligibility for deposit insurance.

Correct Answer: C. Co-operative Banks (specifically Urban and Multi-State Co-operative Banks). The amendment was largely driven by concerns over the financial health and governance of co-operative banks, leading to enhanced RBI oversight.

Correct Answer: B. Power to initiate a scheme for reconstruction or amalgamation. The amendment empowered RBI to formulate schemes for merging or restructuring banks facing financial difficulties.

Correct Answer: B. It cannot grant any loans or make investments in credit instruments. During a moratorium period imposed by RBI, the bank’s lending and investment activities are frozen to conserve resources.

Correct Answer: C. Equity, preference, or special shares, and unsecured debentures/bonds (with maturity ≥ 10 years). The amendment provided co-operative banks with more avenues to raise capital, contingent on RBI approval.

Correct Answer: C. No person is entitled to demand such payment. This provision aimed to protect the capital base of co-operative banks by preventing members from withdrawing their share capital on demand.

Correct Answer: C. Multi-State Co-operative Banks. The amendment gave RBI specific authority to supersede the boards of co-operative banks operating across multiple states, for reasons like public interest or depositor protection.

Correct Answer: C. The majority stake is held by private entities or individuals. Unlike public sector banks, control in private sector banks rests with non-governmental shareholders.

Correct Answer: D. Companies Act (1956 or 2013). Private banks are generally established as companies under the relevant Companies Act, alongside adhering to banking specific laws.

Correct Answer: C. Old Private Sector Banks (pre-1968) and New Private Sector Banks (post-1990s). This classification distinguishes between banks existing before major nationalization phases and those licensed during the liberalization era.

Correct Answer: B. 21. The provided text listed 21 active private sector banks based on data from March 2021.

Correct Answer: B. Freedom from legacy issues and effective use of advanced technology. Starting fresh allowed these banks to adopt modern technology and efficient practices, catering effectively to clients.

Correct Answer: C. To cater to the varied demands of different segments of the economy effectively. A diverse financial system with specialized institutions can better meet the specific needs of various sectors and population groups.

Correct Answer: C. Banks functioning in a niche segment, offering limited services or operating under different regulations. They differ from universal banks by specializing in certain areas, customer segments, or regulatory frameworks.

Correct Answer: C. Nachiket Mor Committee. This committee explored banking structures, including differentiated models like Payments Banks, to enhance financial inclusion.

Correct Answer: B. HDBS banks are full-service but differ by size/sector, while VDBS banks specialize in specific functions like payments or credit. HDBS involves variations within the universal bank model, whereas VDBS involves specialization in core banking functions.

Correct Answer: C. To provide small savings accounts and payment/remittance services to specific target groups like migrant labour and low-income households. Payments Banks were designed to enhance financial inclusion by focusing on basic deposit and payment services.

Correct Answer: C. Existing non-bank PPI issuers, NBFCs, mobile companies, corporate BCs, individuals/professionals, etc., owned/controlled by residents. The eligibility criteria were broad, allowing various resident-controlled entities with relevant experience to apply.

Correct Answer: C. Five years. Promoters needed to demonstrate a stable operational history of at least five years to meet the ‘fit and proper’ criteria.

Correct Answer: C. ₹2,00,000. The initial limit of ₹1 lakh was increased to ₹2 lakhs to provide greater flexibility for account holders.

Correct Answer: C. Credit cards. Due to their restriction on lending activities, Payments Banks are not permitted to issue credit cards.

Correct Answer: C. Yes, provided they are simple, non-risk sharing products. They can act as distributors for basic financial products where they do not bear the associated risk.

Correct Answer: B. They cannot undertake lending activities. The core restriction defining Payments Banks is their inability to provide loans or advances.

Correct Answer: C. 75 per cent. A significant portion of their deposits must be held in safe, liquid government securities.

Correct Answer: C. ₹100 crore. Payments Banks require a minimum capital base of ₹100 crore to start operations.

Correct Answer: B. 40 per cent for the first 5 years. Promoters must hold a significant stake initially for a minimum duration of five years.

Correct Answer: C. 15%. Despite not lending, Payments Banks are subject to a minimum capital adequacy ratio requirement.

Correct Answer: C. To further financial inclusion by providing savings vehicles and credit to underserved sections like small businesses and farmers. SFBs were conceptualized to deepen financial services access for marginalized segments.

Correct Answer: C. 10 years. Individual promoters needed substantial experience in the financial sector to qualify.

Correct Answer: C. Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs). The guidelines allowed these existing players focused on financial inclusion to transition into SFBs.

Correct Answer: D. No, there is no restriction on their area of operations. Unlike RRBs or LABs, SFBs were permitted to operate nationwide.

Correct Answer: D. 75 per cent. SFBs have a higher PSL target compared to universal banks, reflecting their financial inclusion mandate.

Correct Answer: B. At least 50 per cent of the portfolio should constitute loans and advances up to ₹25 lakh. This ensures a focus on lending to small borrowers.

Correct Answer: C. ‘On-tap’ licensing facility. This policy shift made the licensing process continuous, allowing eligible entities to apply whenever they are ready.

Correct Answer: B. ₹200 crore. The minimum capital requirement was increased for new applicants under the on-tap regime.

Correct Answer: B. Initial ₹100 crore, reach ₹200 crore in 5 years. A special dispensation was provided for converting UCBs, allowing them phased achievement of the higher capital norm.

Correct Answer: C. Five years. The guidelines provide a pathway for successful Payments Banks to graduate into SFBs after gaining operational experience.

Correct Answer: C. 1996. The LAB scheme was introduced in the mid-nineties as an initiative to boost rural credit.

Correct Answer: C. To bridge gaps in credit availability in rural and semi-urban areas. LABs were conceived to enhance institutional credit delivery in specific local areas.

Correct Answer: B. ₹5 crore. The initial capital requirement for LABs was set at ₹5 crore.

Correct Answer: B. Three geographically contiguous districts. LAB operations were meant to be geographically focused, usually limited to three adjoining districts.

Correct Answer: C. Agriculture, allied activities, MSME, agro-industries, trading, and non-farm activities. Their lending focus was directed towards the economic activities prevalent in their local area of operation.

Correct Answer: C. Yes, they are subject to RBI’s prudential norms and supervision. Despite being small and local, LABs fall under RBI’s regulatory purview for banking operations.

Correct Answer: C. Coastal Local Area Bank Ltd. The text identifies this as one of the two LABs operational at the time, with its HQ in Vijayawada.

Correct Answer: C. The opening of Differentiated Banks like Small Finance Banks, which offered advantages. The emergence of SFBs, with a similar focus but potentially broader scope or better framework, diminished the relevance of the LAB model.

Correct Answer: C. Majority ownership (Government vs Private). This is the primary legal and operational distinction between the two categories of banks.

Correct Answer: B. To promote specialized banking services catering to niche segments or specific needs like financial inclusion. Differentiated banking aims to foster specialization and cater more effectively to diverse economic requirements.

Correct Answer: C. Yes, subject to a maximum balance limit per individual customer. Payments Banks are allowed to accept demand deposits but within specified individual balance caps.

Correct Answer: B. Yes, they are subject to CRR and SLR requirements similar to other Scheduled Commercial Banks. SFBs must adhere to the standard reserve requirements applicable to the banking system.

Correct Answer: C. Immediately upon commencement of operations. The on-tap guidelines provide for immediate inclusion in the Second Schedule of the RBI Act upon starting business.

Correct Answer: C. To provide managerial and financial support and hold 35% share capital. Sponsor banks play a crucial role in establishing, funding (holding 35% stake), and guiding RRBs.