History of Banking — Set 2

Correct Answer: B. 6

• **6 banks** = on April 15, 1980, the Indira Gandhi government nationalised 6 more commercial banks with demand and time liabilities exceeding ₹200 crore each. • **Banks in 1980 phase** — Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab & Sind Bank, and Vijaya Bank were the six nationalised in this second phase. • After both phases (14 in 1969 + 6 in 1980), the public sector controlled nearly 90% of banking business in India — reshaping India's financial landscape for decades. • 💡 8 is wrong — no nationalisation phase covered 8 banks; 4 is wrong — not the count for any Indian bank nationalisation phase; 14 is wrong — that was the count for the first phase in 1969, not the 1980 phase.

Correct Answer: D. Narasimham Committee

• **Narasimham Committee** = the Committee on the Financial System (1991), chaired by M. Narasimham — recommended sweeping banking reforms including allowing new private sector banks, reducing SLR/CRR, deregulating interest rates, and strengthening RBI's supervisory role. • **New private banks licensed** — as a direct outcome, RBI issued licences in 1994 to ICICI Bank, HDFC Bank, Axis Bank (UTI Bank), and others — ushering in a competitive, technology-driven era in Indian banking. • A second Narasimham Committee in 1998 focused on further consolidation, recommending mergers to create 3-4 large international-level banks. • 💡 Verma Committee is wrong — it dealt with weak/sick public sector banks, not 1991 entry reforms; Urjit Patel Committee is wrong — it focused on monetary policy framework (inflation targeting, 2014); Raghuram Rajan Committee is wrong — it focused on financial sector reforms in 2008, not 1991 banking liberalisation.

Correct Answer: D. Kolkata

• **Kolkata (Calcutta)** = when RBI commenced operations on April 1, 1935, its headquarters were in Calcutta — chosen because it was then India's financial capital and the seat of the imperial government. • **Moved to Mumbai in 1937** — the headquarters were permanently transferred to Bombay (Mumbai) in 1937, which has remained the RBI's seat ever since as India's commercial and financial hub. • The RBI's first Governor, Sir Osborne Smith (1935–1937), served entirely during the Calcutta-HQ period; the move to Mumbai occurred under the second Governor, Sir James Taylor. • 💡 Mumbai is wrong as the first HQ — it became HQ only from 1937, two years after RBI's founding; Delhi is wrong — Delhi is the political capital but has never been RBI's headquarters; Chennai is wrong — it hosts an important RBI regional office but was never the main headquarters.

Correct Answer: B. Allahabad Bank

• **Allahabad Bank** = established on April 24, 1865 in Allahabad by a group of Europeans — the oldest joint-stock bank founded in India, predating PNB by nearly 30 years. • **Merged into Indian Bank in 2020** — as part of the government's bank consolidation plan, Allahabad Bank merged with Indian Bank on April 1, 2020; its 155-year legacy lives on within Indian Bank. • A joint-stock bank is owned by shareholders (as opposed to cooperative or government-owned banks); Allahabad Bank held that distinction as India's longest-surviving such entity until its merger. • 💡 Bank of Baroda is wrong — founded in 1908 by Maharaja Sayajirao Gaekwad III, 43 years after Allahabad Bank; Punjab National Bank is wrong — founded in 1894, 29 years after Allahabad Bank; State Bank of India is wrong — it was constituted in 1955 from the Imperial Bank of India, 90 years after Allahabad Bank.

Correct Answer: D. 1959

• **1959** = the State Bank of India (Subsidiary Banks) Act was passed in 1959 — empowering SBI to take over eight former princely-state-linked banks as its subsidiaries. • **Eight associate banks** — these included State Bank of Hyderabad, State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Saurashtra, State Bank of Indore, and State Bank of Jaipur (some later merged among themselves). • All seven remaining associate banks were eventually merged into SBI in 2017, making SBI the single largest bank in India with a vastly expanded network. • 💡 1955 is wrong — that is the year the SBI Act was passed and Imperial Bank became SBI, not the Subsidiary Banks Act; 1964 is wrong — no major SBI legislation was enacted that year; 1969 is wrong — that is the year 14 commercial banks were nationalised, unrelated to the SBI subsidiaries framework.

Correct Answer: A. Sir Osborne Smith

• **Sir Osborne Smith** = first Governor of the RBI (April 1, 1935 – June 30, 1937), a British banker who had previously served with the Bank of New South Wales and the Imperial Bank of India. • **First Indian Governor: C.D. Deshmukh** — Chintaman Dwarkanath Deshmukh became the first Indian to serve as RBI Governor in 1943, during World War II; he later became India's Finance Minister. • Sir Osborne Smith resigned before completing his term due to disagreements with the Government of India; James Taylor succeeded him as the second Governor (1937–1943). • 💡 C.D. Deshmukh is wrong — he was the first Indian Governor (1943), not the first Governor overall; Benegal Rama Rau is wrong — he served as the fifth Governor (1949–1957); James Taylor is wrong — he was the second Governor (1937–1943), succeeding Sir Osborne Smith.

Correct Answer: C. Prathama Bank

• **Prathama Bank** = established on October 2, 1975 in Moradabad, Uttar Pradesh — the first Regional Rural Bank in India, sponsored by Syndicate Bank under the Regional Rural Banks Act, 1976. • **RRBs' purpose** — RRBs were set up to provide credit and banking services to small farmers, agricultural labourers, and rural artisans who had limited access to formal banking; the Narasimham Working Group recommended their creation. • October 2 was chosen symbolically — it is Gandhi Jayanti — reflecting the intent to serve rural India in the Gandhian tradition. • 💡 Malwa Gramin Bank is wrong — it is an RRB from Punjab, established later than Prathama Bank; Pandyan Grama Bank is wrong — it is an RRB from Tamil Nadu, established after 1975; Varada Grameena Bank is wrong — it is an RRB from Karnataka, not the first RRB.

Correct Answer: B. Nariman Committee

• **Nariman Committee** = the Study Group on Organisational Framework for the Implementation of Social Objectives (1969), chaired by F.K.F. Nariman — formally recommended the Lead Bank Scheme. • **How the scheme works** — each district is assigned one bank as the 'lead bank'; that bank coordinates credit planning, financial inclusion, and priority-sector lending in the district in collaboration with other banks and government agencies. • The Gadgil Study Group had earlier identified the need for a geographic area-based approach to banking, but it was the Nariman Committee that formalised the Lead Bank Scheme specifically. • 💡 Narasimham Committee is wrong — it focused on financial sector reforms in 1991 and 1998, not the Lead Bank Scheme; Gadgil Study Group is wrong — it provided early groundwork but the Nariman Committee gave the final, formal recommendation; Tandon Committee is wrong — it dealt with working capital norms for bank lending to industry, not the Lead Bank Scheme.

Correct Answer: D. Bank of India

• **Bank of India** = opened the first overseas branch of an Indian bank in London in 1946, marking India's entry into international banking before independence. • **Global expansion** — Bank of India later expanded to continental Europe and East Africa; it was also the first Indian bank to open a branch in Japan and continental Europe, cementing its position as a pioneer in international banking. • This achievement predates State Bank of India's existence (SBI was constituted in 1955), making SBI ineligible for any pre-1955 firsts in international banking. • 💡 Bank of Baroda is wrong — while it is a major international bank today, it was not the first to open a London branch in 1946; State Bank of India is wrong — it did not exist as SBI until 1955, nine years after Bank of India's London branch; Central Bank of India is wrong — despite being founded in 1911, it did not open the first overseas branch.

Correct Answer: D. Liberalization, Privatization, Globalization

• **Liberalization, Privatization, Globalization** = the three pillars of India's 1991 economic reforms triggered by a severe balance-of-payments crisis — LPG is the standard acronym used across economics and banking exams. • **Banking impact** — Liberalisation removed interest rate controls and reduced SLR/CRR; Privatisation allowed new private sector banks (HDFC, ICICI); Globalisation invited foreign banks and enabled Indian banks to expand abroad. • The Narasimham Committee (1991) designed the banking sector blueprint aligned with these LPG principles, transforming India's highly controlled banking system into a competitive market. • 💡 Legal, Public, General is wrong — this combination has no meaning in economic or banking policy; Liquidity, Profitability, Growth is wrong — these are banking performance metrics, not reform policy terms; Loan, Payment, Guarantee is wrong — these are banking products, not the components of the 1991 economic reforms.