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B.A. LL.B. (Five Years) Sem 8 Banking Law 2012 Jun Question Paper with Solutions - KSLU

KSLU Solved Question Papers

Banking Law

Previous Year Question Paper with Solution

B.A. LL.B. (Five Years) · Sem 8

2012 Jun Examination

munotes.in

Mumbai

First published on munotes.in on 21 October 2026.

Published by munotes.in, Mumbai.

Model answers written and edited by the munotes.in editorial desk.

Passages from this volume may be quoted, in print, online or by an AI system, with credit: name munotes.in and link to this volume's page. The volume may not be reproduced as a whole. Full terms at munotes.in/content-license.

munotes.in is an independent study resource for students of Karnataka State Law University. It is not affiliated with Karnataka State Law University, and is not endorsed by it.

The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.

The question paper reproduced here is the paper as set by Karnataka State Law University at the 2012 Jun examination.

The Paper as Set

The questions in this volume are the questions asked at the 2012 Jun examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.

Duration 3 hours · Total marks 100 · 20 questions answered

Instructions printed on the paper

N.B. (1) Answer all questions. (2) All questions carry equal marks. (3) Answers should be written either in English or Kannada Completely.

How to use this volume

Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.

Read the original question paper

Q1

Write short note on

(a)Discuss the various types of banks and their functions.[15]

Answer

For full marks, cover: why banks are of many types, and the bases of classification (function, ownership, regulation); scheduled and non-scheduled banks (section 2(e) and section 42(6) of the Reserve Bank of India Act, 1934); each type with its legal base and functions: the central bank (Vivek Narayan Sharma v. Union of India); commercial banks: public sector (SBI Act, 1955; Acquisition Acts, 1970 and 1980), private and foreign; co-operative banks (Pandurang Ganpati Chaugule); regional rural banks (All India Regional Rural Bank Officers Federation); small finance and payments banks; development financial institutions; local area banks; a table; how the types relate.

Why banks are of many types

No single kind of bank can serve every need. A large city business, a small farmer, an exporter and a street vendor need different services. India therefore has many types of banks, each set up under its own law or licence and each with its own functions. They can be classified by function, by ownership and by regulation.

Scheduled and non-scheduled banks

Under section 2(e) of the Reserve Bank of India Act, a scheduled bank is "a bank included in the Second Schedule". Section 42(6) directs the Reserve Bank to include a bank that has paid-up capital and reserves of at least five lakh rupees. Its affairs must also not be conducted to the detriment of depositors. A scheduled bank keeps its cash reserve with the Reserve Bank and may borrow from it. Most commercial, regional rural and State co-operative banks are scheduled. A bank outside the Schedule is non-scheduled.

1. The central bank

The Reserve Bank of India, set up under the Reserve Bank of India Act, 1934, is the apex bank. It does not serve the public.

Its functions are:

issuing currency (section 22);
acting as banker to the Governments and to banks;
conducting monetary policy through the Monetary Policy Committee;
managing foreign exchange; and
regulating and supervising banks.

Its note-issue power. In Vivek Narayan Sharma v. Union of India, 2023 SCC OnLine SC 1, the Central Government had withdrawn all Rs 500 and Rs 1,000 notes on 8 November 2016 under section 26(2). It acted on the Central Board's recommendation. A Constitution Bench upheld the notification by four to one. Nagarathna J. dissented, holding that so drastic a step needed legislation.

2. Commercial banks

Commercial banks take public deposits and lend for profit, within sections 5(b) and 6 of the Banking Regulation Act, 1949. Their functions are deposits, loans and advances, credit creation, agency services and utility services.

Public sector banks. The State Bank of India was created by the State Bank of India Act, 1955. The nationalised banks were taken over under the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980. The Government holds a majority stake. There are twelve public sector banks since 1 April 2020.
Private sector banks. Companies licensed under section 22 of the Banking Regulation Act, including the "new" banks licensed from 1993.
Foreign banks. Banks incorporated abroad, operating through branches or wholly owned subsidiaries in India.

3. Co-operative banks

Co-operative banks are owned by their members and serve them on the principle of mutual help. Rural co-operative credit runs in three tiers: village primary societies, district central co-operative banks and a State co-operative bank. Urban co-operative banks serve towns. They are registered under State or multi-State co-operative laws. But in banking matters they are governed by the Banking Regulation Act through section 56, strengthened in 2020.

In Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., (2020) 9 SCC 215, borrowers argued that co-operative banks were not "banks" for SARFAESI recovery. A Constitution Bench held that their banking business falls under Parliament's power over banking. So they are banking companies under section 5(c) read with section 56, and banks for SARFAESI.

4. Regional rural banks

Regional rural banks were set up from 1975 under the Regional Rural Banks Act, 1976. Each is owned by the Central Government, a State Government and a sponsor bank. They lend to small and marginal farmers, agricultural labourers, artisans and small traders. They combine a local, rural character with the discipline of a commercial bank. After a round of amalgamations from 1 May 2025, there are 28.

Their staff. In All India Regional Rural Bank Officers Federation v. Government of India, decided on 7 March 2002, RRB staff sought pay parity with sponsor bank staff. The Supreme Court enforced its earlier judgment that RRB pay is fixed by the Central Government under section 17(1) of the 1976 Act. That pay had to keep parity with nationalised bank employees. It also held that an employer's capacity to pay is not relevant to the wage structure.

5. Small finance banks and payments banks

Licensed by the Reserve Bank from 2015 as differentiated banks:

Small finance banks take deposits and lend mainly to small borrowers, small businesses and farmers. They carry a priority sector target of 60 per cent.
Payments banks take small deposits and provide payment and remittance services, but cannot lend.

6. Development financial institutions

These supply long-term or specialised finance:

NABARD (Act of 1981) for agriculture and rural development;
the EXIM Bank (Act of 1981) for foreign trade;
the National Housing Bank (Act of 1987) for housing finance;
SIDBI (Act of 1989) for small industry; and
NaBFID (Act of 2021) for infrastructure.

They mostly lend to or refinance other institutions rather than take deposits from the public.

7. Local area banks

Small private banks licensed for a few contiguous districts, to mobilise rural savings and lend locally. Only a handful exist.

The types at a glance

Type	Legal base	Main functions
Central bank	RBI Act, 1934	Currency, monetary policy, regulation
Public sector banks	SBI Act, 1955; Acquisition Acts	Full commercial banking; Government business
Private and foreign banks	BR Act, s.22 licence	Full commercial banking
Co-operative banks	Co-operative laws; BR Act, s.56	Members' credit, rural and urban
Regional rural banks	RRB Act, 1976	Rural credit to small borrowers
Small finance banks	Reserve Bank licence	Credit to small borrowers
Payments banks	Reserve Bank licence	Deposits and payments; no lending
DFIs	Separate Acts, 1981 to 2021	Long-term and specialised finance

Which bank for which need

The types make more sense when matched to the people they serve. A student should be able to say, for any borrower, which kind of bank is built for him and why.

A small farmer in a village usually banks with a regional rural bank or a co-operative society. NABARD refinances both.
A trader or manufacturer in a town needs a commercial bank for current accounts, cash credit and bill finance.
An exporter uses a commercial bank for packing credit and foreign exchange, and the EXIM Bank stands behind larger deals.
A street vendor or migrant worker may begin with a payments bank account for receiving and sending money.
A small business owner with little collateral may find a small finance bank more willing to lend.
A family buying a house borrows from a commercial bank or housing finance company, refinanced through the National Housing Bank.

How the types relate

The types work as one system, and none stands alone. The Reserve Bank regulates and lends to the rest. Commercial banks sponsor regional rural banks. NABARD refinances co-operative banks and regional rural banks and supervises them. Development institutions lend through banks. Each type fills a gap the others leave, so that credit reaches every part of the economy. Co-operative banks weakened after repeated failures. So the 2020 amendment widened the Reserve Bank's powers over them, to bring them closer to the standards of commercial banks.

Conclusion. Banks in India are of many types. They are scheduled or non-scheduled, and classed by function and ownership. The Reserve Bank is the central bank (Vivek Narayan Sharma). Commercial banks, public, private and foreign, take deposits and lend. Co-operative banks serve their members under banking law (Pandurang). Regional rural banks serve rural borrowers, with staff paid on par with nationalised banks. Small finance and payments banks widen inclusion, and development institutions supply long-term finance.

B.A. LL.B. (Five Years) Sem 8 Banking Law 2012 Jun Question Paper with Solutions

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