RRBs & Co-operative — Set 3

Correct Answer: B. Khusro Committee

• **Khusro Committee** = The A.M. Khusro Committee (Agricultural Credit Review Committee), set up in 1989, was the first panel to formally recommend the amalgamation of weak and unviable RRBs to improve their financial health. • **Amalgamation waves followed** — Based on subsequent committees, the government carried out large-scale RRB mergers in 2005-06 and 2012-13, reducing the number of RRBs from 196 to 43. • Amalgamated RRBs have a wider area of operation and better capital base than the original small units. • 💡 Option A (Bhandari Committee) is wrong because the Bhandari Committee (1994) focused on recapitalisation of RRBs, not their amalgamation; Option C (Vyavasaya Committee) is wrong because no such committee is associated with RRB amalgamation recommendations; Option D (Narasimham Committee II) is wrong because Narasimham II (1998) focused on banking sector reforms broadly, not specifically on RRB amalgamation.

Correct Answer: B. NABARD

• **NABARD** = NABARD (National Bank for Agriculture and Rural Development) is the apex institution that provides refinance to both RRBs and Co-operative Banks to fund rural lending. • **Two-tier refinance** — NABARD offers short-term refinance (for seasonal agricultural operations) and medium/long-term refinance (for investment credit) to these institutions. • NABARD also provides capacity-building support, technology upgrades, and development assistance alongside refinance. • 💡 Option A (NHB) is wrong because the National Housing Bank provides refinance to housing finance companies, not to RRBs or co-operative banks for rural lending; Option C (SIDBI) is wrong because SIDBI (Small Industries Development Bank of India) provides refinance for small and micro industrial enterprises, not agricultural rural credit; Option D (EXIM Bank) is wrong because EXIM Bank finances India's international trade and export promotion, not domestic rural credit.

Correct Answer: C. Second Schedule

• **Second Schedule** = Most RRBs are listed as scheduled banks in the Second Schedule of the Reserve Bank of India Act 1934. • **Benefits of being scheduled** — A scheduled bank has the right to borrow from the RBI at the bank rate and to maintain a Current Account with the RBI; it also carries a higher level of public trust. • Inclusion requires the bank to satisfy the RBI that its affairs are not conducted in a manner detrimental to depositors' interests. • 💡 Option A (Fourth Schedule) is wrong because no Fourth Schedule relevant to bank scheduling exists under the RBI Act; Option B (First Schedule) is wrong because the First Schedule of the RBI Act deals with the constitution of the RBI's Central Board, not bank listing; Option D (Third Schedule) is wrong because the Third Schedule of the RBI Act relates to the form and manner of balance sheet presentation, not scheduled bank classification.

Correct Answer: C. Regional Rural Banks

• **Regional Rural Banks** = RRBs are NOT a type of co-operative credit institution; they are a distinct category of scheduled commercial banks jointly owned by the Central Government, State Government, and a Sponsor Bank. • **Statutory difference** — RRBs are established under the RRB Act 1976, while co-operative credit institutions are registered under the Co-operative Societies Acts and governed by co-operative principles. • Unlike co-operatives, RRBs do not follow the 'one member, one vote' rule and are profit-oriented within their rural mandate. • 💡 Option A (Central Co-operative Banks) is wrong because DCCBs are genuine co-operative institutions at the district tier; Option B (State Co-operative Banks) is wrong because StCBs are the apex co-operative credit bodies at the state level; Option D (Primary Agricultural Credit Societies) is wrong because PACS are the core grassroots co-operative credit units in the rural structure.

Correct Answer: C. Primary Co-operative Banks

• **Primary Co-operative Banks** = Urban Co-operative Banks (UCBs) are officially termed 'Primary Co-operative Banks' because they operate at the primary (first) tier of the urban co-operative credit structure. • **Urban clientele** — UCBs cater primarily to small businesses, traders, salaried employees, and households in urban and semi-urban areas, distinct from rural co-operatives. • As of 2023, there are approximately 1,500 UCBs in India, supervised by the RBI for banking and the Registrar of Co-operative Societies for administration. • 💡 Option A (Secondary Co-operative Banks) is wrong because there is no official classification called 'Secondary Co-operative Banks' in India's co-operative banking framework; Option B (Rural Apex Banks) is wrong because 'Rural Apex Banks' refers to State Co-operative Banks at the top of the rural credit structure, not UCBs; Option D (Village Banks) is wrong because the term 'Village Banks' informally refers to PACS in the rural context, not to UCBs.

Correct Answer: D. High level of NPAs and political interference

• **High level of NPAs and political interference** = Co-operative banks frequently suffer from high Non-Performing Assets (NPAs) due to poor loan recovery, especially from politically influential borrowers, and suffer governance lapses when local committees prioritise patronage over prudent banking. • **PMC Bank crisis (2019)** — The collapse of Punjab and Maharashtra Co-operative Bank in 2019 exposed how political interference and regulatory gaps can endanger depositors' savings in UCBs. • The 2020 Banking Regulation Act amendment was specifically enacted to fix governance and accountability gaps in co-operative banks. • 💡 Option A (Lack of rural presence) is wrong because rural co-operative banks (PACS, DCCBs) actually have one of the widest rural networks in India; Option B (Excessive automation) is wrong because co-operative banks are generally technology-laggards, not over-automated; Option C (Low interest rates) is wrong because co-operative banks often charge competitive or slightly higher rates; low rates are not identified as their primary governance challenge.

Correct Answer: A. PACS

• **PACS** = Primary Agricultural Credit Societies (PACS) most closely embody 'Unit Banking' because each PACS is a stand-alone entity serving only one village or a small group of villages, with no branch network. • **Single-window, single-location** — Unlike commercial banks with multi-branch networks, PACS have one physical location and deal exclusively with members of that locality, fulfilling the pure unit-banking concept. • Each PACS is an independent legal entity; there is no common ownership between PACS in different villages. • 💡 Option B (Sponsor Bank) is wrong because Sponsor Banks are large public sector banks with extensive branch networks nationwide, the opposite of unit banking; Option C (DCCB) is wrong because DCCBs operate across an entire district and have multiple branches serving many PACS; Option D (StCB) is wrong because State Co-operative Banks operate at the state level and serve the entire state's co-operative network through multiple branches.

Correct Answer: D. A Public Sector Commercial Bank

• **A Public Sector Commercial Bank** = The RRB Act 1976 mandates that a public sector commercial bank act as the Sponsor Bank for each RRB, holding 35% equity and providing managerial support. • **Examples of Sponsor Banks** — State Bank of India sponsors the largest number of RRBs; Punjab National Bank, Bank of Baroda, and Canara Bank also sponsor multiple RRBs across different states. • The Sponsor Bank's name was historically part of the RRB's identity (e.g., SBI sponsored Gramin Bank units), though this has changed post-amalgamation. • 💡 Option A (A Private Sector Bank) is wrong because the law explicitly requires the Sponsor to be a nationalised/public sector bank, not a private bank; Option B (RBI) is wrong because the RBI is the regulator and cannot simultaneously be an equity owner and operator of commercial banks; Option C (NABARD) is wrong because NABARD's role is refinance and supervision, not equity sponsorship of individual RRBs.

Correct Answer: B. Short-term Rural Co-operatives

• **Short-term Rural Co-operatives** = The Vaidyanathan Committee (Task Force on Revival of Rural Co-operative Credit Institutions), constituted in 2004, recommended a comprehensive revival package specifically for the short-term rural co-operative credit structure (StCBs, DCCBs, and PACS). • **Rs 13,596 crore revival package** — The committee recommended this amount to recapitalise weak co-operatives and improve governance through legal and institutional reforms in state co-operative laws. • A separate Vaidyanathan Committee II (2006) addressed long-term co-operative credit institutions (LDBs). • 💡 Option A (Commercial Banks) is wrong because commercial bank reforms were the focus of Narasimham Committees I and II (1991, 1998), not Vaidyanathan; Option C (NBFCs) is wrong because NBFC regulation falls under separate RBI Task Forces and committees, not the Vaidyanathan Committee; Option D (Foreign Exchange) is wrong because foreign exchange reforms were driven by the FEMA Act 1999 and Tarapore Committee recommendations, not Vaidyanathan.

Correct Answer: D. Granting loans to small farmers and artisans

• **Granting loans to small farmers and artisans** = The core statutory mandate of RRBs under the RRB Act 1976 is to provide credit and other banking facilities to small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs in rural areas. • **Area restriction** — RRBs are authorised to operate only within their notified district(s), ensuring hyperlocal rural focus; they cannot lend to large corporations or operate globally. • RRBs also accept deposits, provide remittance services, and disburse government welfare payments in rural India. • 💡 Option A (Issuing credit cards only) is wrong because credit card issuance is not the primary function of RRBs and many RRBs do not issue them at all; Option B (Operating globally) is wrong because RRBs have no international operations — they are restricted to their notified local area; Option C (Lending to large industries) is wrong because large industrial lending falls under the domain of commercial banks and development finance institutions, and is explicitly outside the RRB mandate.