RRBs & Co-operative — Set 6

Correct Answer: B. Fixed by bylaws

• **Fixed by bylaws** = Each co-operative bank's bylaws specify the maximum individual shareholding limit; this is not a uniform national figure but is set by the society itself to ensure broad-based member ownership. • **Typical cap: 1/5th of total paid-up capital** — Many state co-operative acts prescribe that no individual shall hold more than one-fifth (20%) of the total paid-up share capital, but the exact limit appears in each bank's registered bylaws. • 💡 Option A (10%) is wrong because no universal 10% national cap exists in co-operative banking law; Option C (50%) is wrong because such a high individual holding would defeat the democratic co-operative principle; Option D (No limit) is wrong because unlimited individual holding is explicitly prohibited to prevent domination by single members.

Correct Answer: C. Banking Regulation Act 1949 (Extended in 1966)

• **Banking Regulation Act 1949 (Extended in 1966)** = When the Banking Laws (Application to Co-operative Societies) Act, 1965 extended the Banking Regulation Act to co-operative banks from 1 March 1966, it brought them under RBI's banking supervision while state governments retained administrative control — creating the 'dual control' arrangement. • **2020 amendment reduced dual control** — The Banking Regulation (Amendment) Act, 2020 significantly shifted the balance toward RBI, allowing it to supersede a co-operative bank's board and initiate mergers or liquidation independently. • 💡 Option A (RBI Act 1934) is wrong because the RBI Act does not directly govern co-operative bank management; Option B (NABARD Act 1981) is wrong because NABARD deals with agricultural refinance, not co-operative bank regulation; Option D (RRB Act 1976) is wrong because the RRB Act governs Regional Rural Banks, which are not co-operative societies.

Correct Answer: B. Scheduled Commercial Banks

• **Scheduled Commercial Banks** = RRBs are included in the Second Schedule of the RBI Act, 1934, giving them the legal status of Scheduled Commercial Banks; this entitles them to borrow from the RBI and maintain accounts with it. • **Mandated to maintain CRR and SLR** — As Scheduled Commercial Banks, RRBs must comply with Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements, though at rates sometimes concessional compared to large commercial banks. • 💡 Option A (Private Banks) is wrong because RRBs are publicly-owned institutions with government shareholding; Option C (Unscheduled Banks) is wrong because all RRBs are listed in Schedule 2 of the RBI Act; Option D (Development Banks) is wrong because development banks (like NABARD, SIDBI) do not accept public deposits the way RRBs do.

Correct Answer: B. Sir Frederick Nicholson

• **Sir Frederick Nicholson** = Sir Frederick Nicholson studied European co-operative credit models (especially Raiffeisen banks in Germany) and submitted reports in 1895 and 1897 recommending a similar co-operative structure for India, directly inspiring the Co-operative Credit Societies Act, 1904. • **Famous slogan: 'Find Raiffeisen'** — Nicholson's catchphrase referred to Friedrich Wilhelm Raiffeisen, the German pioneer of rural co-operative banking, whose model Nicholson wanted replicated in Indian villages. • 💡 Option A (Mahatma Gandhi) is wrong because Gandhi was involved in social and independence movements, not the formal co-operative legislation of 1904; Option C (Jawaharlal Nehru) is wrong because he was not yet prominent in 1904 and did not inspire this Act; Option D (Lord Curzon) is wrong because while he was Viceroy when the Act passed, it was Nicholson's intellectual contribution that shaped it.

Correct Answer: D. 15-20 years

• **15-20 years** = Land Development Banks (LDBs), also called Agriculture and Rural Development Banks (ARDBs), specialise in long-term credit ranging from 15 to 20 years for capital-intensive agricultural investments. • **Mortgage-based lending** — Loans are typically secured against land as collateral and used for permanent land improvement activities like digging wells, installing pump sets, land levelling, and purchasing farm machinery. • 💡 Option A (1-2 years) is wrong because such short-term credit is the domain of PACS and DCCBs for crop loans; Option B (Below 6 months) is wrong because sub-six-month credit is for seasonal agricultural operations, not capital assets; Option C (Only 10 days) is wrong because a 10-day credit period is irrelevant to any agricultural financing instrument.

Correct Answer: D. 2005

• **2005** = The Government of India launched the amalgamation (merger) of RRBs in 2005, combining all RRBs sponsored by the same bank in the same state into a single entity to improve operational efficiency and capital base. • **Reduction in RRB count** — From 196 RRBs before amalgamation, the number fell to 82 by 2010 and further to 43 by 2021, following multiple phases of state-level consolidation. • 💡 Option A (1975) is wrong because that was the year RRBs were established, not merged; Option B (2020) is wrong because 2020 marked the Banking Regulation Amendment, not the start of RRB amalgamation; Option C (1991) is wrong because 1991 was the year of economic liberalisation, not RRB consolidation.

Correct Answer: A. Sponsor Bank is a mentor and shareholder

• **Sponsor Bank is a mentor and shareholder** = The Sponsor Bank holds 35% equity in the RRB, provides managerial support by deputing experienced officers, offers a line of credit, and assists in staff training — acting simultaneously as an investor and institutional mentor. • **Not a regulator** — Supervision of RRBs is done by NABARD (on behalf of RBI), not by the Sponsor Bank; this separation prevents the Sponsor Bank from using the RRB purely as a subsidiary. • 💡 Option B (Competitor) is wrong because RRBs serve the rural underserved segment; Sponsor Banks largely operate in urban and semi-urban markets with little direct competition; Option C (Regulator) is wrong because NABARD is the regulatory supervisor for RRBs, not the Sponsor Bank; Option D (No relationship) is wrong because the entire structure of an RRB is built around this mandatory tripartite relationship.

Correct Answer: B. Reserve Bank of India

• **Reserve Bank of India** = PACS (Primary Agricultural Credit Societies) are not classified as 'banks' under the Banking Regulation Act, 1949 and therefore fall completely outside RBI's regulatory jurisdiction. • **Who does regulate PACS** — They are governed exclusively by the respective State Co-operative Societies Acts and administered by the Registrar of Co-operative Societies of each state; NABARD provides indirect supervision through its inspection role. • 💡 Option A (Registrar of Co-operative Societies) is wrong because the Registrar does regulate PACS as part of its state-level mandate; Option C (State Government) is wrong because state governments set the legal framework under which PACS operate; Option D (None of these) is wrong because multiple authorities do regulate PACS — just not the RBI.

Correct Answer: C. Mobilizing rural savings

• **Mobilizing rural savings** = One of the core mandates of RRBs is to collect savings from rural households through savings accounts, recurring deposits, and fixed deposits, channelling idle rural money into productive investment. • **Financial inclusion role** — By bringing unbanked rural populations into the formal financial system, RRBs reduce dependence on informal moneylenders charging exploitative interest rates. • 💡 Option A (Issuing currency) is wrong because only the Reserve Bank of India has the sole authority to issue currency notes in India; Option B (Foreign exchange for tourists) is wrong because RRBs do not have a forex dealer's licence and serve only rural domestic banking needs; Option D (Regulating the stock market) is wrong because stock market regulation is SEBI's mandate, entirely unrelated to RRBs.

Correct Answer: C. 15%

• **15%** = Under the RRB Act, 1976, the ownership structure of an RRB is fixed: Central Government 50%, Sponsor Bank 35%, and State Government 15% of the paid-up share capital. • **Why 15% for the State** — The State Government's minority stake ensures local administrative co-operation and alignment with state development priorities, while keeping primary control with the Central Government and the Sponsor Bank. • 💡 Option A (25%) is wrong because no shareholder holds exactly 25% in an RRB; Option B (50%) is wrong because 50% belongs to the Central Government, not the State; Option D (35%) is wrong because 35% is the Sponsor Bank's share, not the State Government's.