Financial Institutions — Indian Economy

Q.1

WBCS prelims 2024

Which of the following Insurances is related to loss of wealth?

A. Life Insurance

B. General Insurance

C. Crop Insurance

D. Social Insurance

Explanation

Why Correct: General Insurance covers non-life assets such as property, vehicles, and goods against loss or damage, directly compensating for the loss of wealth. It includes policies like fire, marine, and motor insurance.
Distractor Analysis: Life Insurance provides a financial payout upon the death or maturity of the insured person, protecting dependents rather than wealth itself. Crop Insurance compensates farmers for loss of agricultural yield due to natural calamities, which is a specific sub-category of general insurance. Social Insurance is a government-backed scheme (e.g., health or pension) providing social security, not directly tied to wealth loss.
Takeaway: General Insurance is also known as 'non-life insurance' and is governed by the Insurance Act, 1938 in India, with the Insurance Regulatory and Development Authority of India (IRDAI) as the regulator.

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Q.2

WBCS prelims 2024

Which one of the following is not the attribute/main function of NABARD?

A. Apex institution of rural sector

B. Promoting integrated rural development

C. Long-term credit to State Government for share capital of co-operative society

D. Apex financial institution of industrial credit

Explanation

Why Correct: NABARD (National Bank for Agriculture and Rural Development) is the apex institution for agriculture and rural development, not for industrial credit. Its primary functions include providing credit for agriculture, small-scale industries, cottage and village industries, handicrafts, and other allied economic activities in rural areas. The apex financial institution for industrial credit is the Industrial Development Bank of India (IDBI) or the Small Industries Development Bank of India (SIDBI) for small industries.
Distractor Analysis: NABARD is indeed the apex institution for the rural sector, providing and regulating credit for agriculture and rural development. Promoting integrated rural development is a core function of NABARD, which works to ensure the overall development of rural areas through credit and other support. Providing long-term credit to State Governments for the share capital of cooperative societies is a specific function of NABARD, which helps strengthen the cooperative credit structure in states.
Takeaway: NABARD was established in 1982 on the recommendations of the B. Sivaraman Committee. It is the successor to the Agricultural Credit Department of the Reserve Bank of India and the Rural Planning and Credit Cell of the RBI.

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Q.3

WBCS prelims 2017

The SEBI was given statutory recognition in 1992 on the recommendation of

A. the Chakraborty Commission

B. the Chelliah Committee

C. the Tendulkar Committee

D. the Narasimham Committee

Explanation

Why Correct: The Narasimham Committee (1991) on financial sector reforms recommended statutory status for SEBI, leading to the SEBI Act, 1992.
Distractor Analysis: The Chakraborty Commission dealt with banking sector issues. The Chelliah Committee focused on tax reforms. The Tendulkar Committee addressed poverty estimation.
Takeaway: The Narasimham Committee-I (1991) and Narasimham Committee-II (1998) are core to Indian banking and financial sector reforms.

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Q.4

WBCS prelims 2015

The credit co-operative institution at the village level is called –

A. Primary Agricultural Credit Society

B. Rural Agricultural Credit Society

C. Agricultural Loan Society

D. Rural Bank

Explanation

Why Correct: Primary Agricultural Credit Societies (PACS) are the grassroots units of the cooperative credit structure operating at the village level.
Distractor Analysis: Rural Agricultural Credit Society is not the official term; the correct term is Primary Agricultural Credit Society. Agricultural Loan Society is a generic description, not the specific institutional name. Rural Bank refers to Regional Rural Banks (RRBs), which operate at a higher level than the village.
Takeaway: The three-tier cooperative credit structure includes PACS at the village level, District Central Cooperative Banks (DCCBs) at the district level, and State Cooperative Banks (SCBs) at the state level.

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Q.5

WBCS prelims 2015

NABARD is associated with

A. Industrial development

B. Urban development

C. Rural development

D. development of railways

Explanation

Why Correct: NABARD (National Bank for Agriculture and Rural Development) is the apex development bank focused on agriculture and rural development.Distractor Analysis: Industrial development is the domain of bodies like SIDBI or IDBI. Urban development is handled by HUDCO or state agencies. Railway development falls under the Ministry of Railways.Takeaway: NABARD was established on 12 July 1982 under the NABARD Act 1981 to promote rural credit and development.

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Q.6

WBCS prelims 2015

Industrial credit is available from

A. IDBI

B. IFCI

C. SFCs

D. All of the above

Explanation

Why Correct: IDBI, IFCI, and SFCs are all specialized financial institutions that provide industrial credit in India.Distractor Analysis: IDBI is a development bank for industry. IFCI was the first development finance institution. SFCs provide credit at the state level. All three are correct sources.Takeaway: Key industrial finance institutions: IDBI (now a bank), IFCI (first DFI), and SFCs at state level.

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Q.7

WBCS prelims 2015

The EXIM Bank of India deals with

A. The peasants of India

B. The industrial workers of India

C. The exports and imports of India

D. The members of the Indian Parliament

Explanation

Why Correct: The Export-Import Bank of India (EXIM Bank) was established on January 1, 1982, under the Export-Import Bank of India Act, 1981, as the principal financial institution for financing, facilitating, and promoting India's international trade, specifically exports and imports.
Distractor Analysis: Peasants and rural credit fall under the mandate of NABARD, which was set up in 1982 to provide credit and other facilities for agriculture and rural development. Industrial workers receive support through schemes administered by the Employees' State Insurance Corporation (ESIC) and the Ministry of Labour and Employment, not through EXIM Bank. Members of the Indian Parliament are legislators whose functions relate to lawmaking and oversight, entirely outside the scope of a trade finance institution.
Takeaway: EXIM Bank's headquarters is in Mumbai, and it operates as a wholly owned subsidiary of the Government of India, with its authorized capital raised to Rs. 10,000 crore in 2021.

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Q.8

WBCS prelims 2014

Apex Bank for supplying agricultural credit is

A. Reserve Bank of India

B. State Bank of India

C. NABARD

D. (B) and (C) above

Explanation

Why Correct: NABARD, established on 12 July 1982, serves as the apex institution for agricultural and rural credit in India, providing refinance and policy support to rural financial institutions.
Distractor Analysis: The Reserve Bank of India acts as the central bank, regulating the monetary system and supervising banks, but it does not specialise in agricultural credit. The State Bank of India is a commercial bank that extends agricultural loans but lacks the apex refinancing and developmental role. The combination of SBI and NABARD is incorrect because SBI does not hold apex status for agricultural credit.
Takeaway: NABARD also oversees the Rural Infrastructure Development Fund (RIDF) and regulates cooperative banks and regional rural banks, making it the key institution for rural finance in India.

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Q.9

WBCS prelims 2014

Term loan for expansion of industries in India is mainly provided by

A. Commercial Banks

B. Development Banks

C. Reserve Bank of India

D. Co-operative Banks

Explanation

Why Correct: Development banks, such as IDBI and NABARD, are specialized financial institutions that provide long-term loans for industrial expansion and development.
Distractor Analysis: Commercial banks primarily offer short-term working capital loans. RBI is the central bank and does not directly lend for industrial term loans. Co-operative banks focus on agricultural and rural credit, not large industrial expansion.
Takeaway: IDBI was established in 1964 as the principal development financial institution for industrial term lending.

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Q.10

WBCS prelims 2010

The apex body which operates micro-finance scheme by promoting self-help groups of individuals from a homogeneous class through banks or non-government organisations is

A. Regional Rural Bank

B. Grameen Bank

C. State Bank of India

D. National Bank of Agriculture and Rural Development

Explanation

Why Correct: NABARD (National Bank for Agriculture and Rural Development) is the apex development bank that promotes micro-finance through SHG-bank linkage programs.
Distractor Analysis: Regional Rural Banks are scheduled commercial banks at the regional level, not the apex body. Grameen Bank is a microfinance institution in Bangladesh. State Bank of India is a commercial bank, not an apex development institution for microfinance.
Takeaway: NABARD, established on 12 July 1982, is the apex institution for agricultural and rural development finance in India.

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Q.11

WBCS prelims 2007

The National Bank for Agriculture and Rural Development (NABARD) was established in

A. 1981

B. 1982

C. 1983

D. 1984

Explanation

Why Correct: NABARD was established on 12 July 1982 by an Act of Parliament (the National Bank for Agriculture and Rural Development Act, 1981).
Distractor Analysis: 1981 is the year the Act was passed, not the establishment date. 1983 and 1984 are years after NABARD began operations.
Takeaway: NABARD was set up on the recommendations of the B. Sivaraman Committee to provide credit for agriculture and rural development.

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Q.12

WBCS prelims 2006

What is meant by SEBI?

A. Women’s Welfare Organization

B. Integrated Credit Scheme

C. International Sports Authority

D. Security and Exchange Board of India

Explanation

Why Correct: SEBI stands for the Securities and Exchange Board of India, the statutory regulator of India's securities and commodity market.
Distractor Analysis: Women’s Welfare Organization is unrelated; Integrated Credit Scheme is a lending programme; International Sports Authority is not an Indian entity.
Takeaway: SEBI was established in 1988 and given statutory powers in 1992.

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