KSLU Solved Question Papers
Banking Law
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 8
2014 Jun Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 8 Banking Law 2014 Jun Question Paper with Solutions
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 2014 Jun examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2014 Jun examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2014 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 5 Questions. (2) Answers should be either in English or Kannada completely. (3) Figures to the right indicate marks.
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.
Q1
Write a note on
(a)Discuss origin and evolution of Banking Institution in India.[15]
Answer
For full marks, cover: the idea of a banking institution and why India built several kinds; the growth of each family in turn: indigenous bankers and their decline (Bhavesh D. Parish v. Union of India); commercial banks (Presidency banks, Imperial Bank, State Bank, joint-stock banks, nationalisation and Rustom Cavasjee Cooper, new private banks, mergers); the central bank; co-operative banks (the 1904 Act, the three tiers, banking law from 1966 and 2020, Pandurang Ganpati Chaugule); regional rural banks (1975, the 2025 amalgamation); development financial institutions (IFCI, ICICI, IDBI, NABARD, EXIM Bank, NHB, SIDBI, NaBFID); deposit insurance; the differentiated banks of 2015 (payments and small finance banks); non-banking financial companies; a table of the institutions; an assessment.
What a banking institution is, and why India has many kinds
A banking institution is a body that collects savings and supplies credit. India did not grow one kind of bank. It built a family of institutions, each created to fill a gap the others left. Commercial banks served trade and industry in the cities. Co-operative and rural banks served farmers. Development institutions gave long-term finance. The central bank held them together. The story of Indian banking is the story of how each family grew.
1. Indigenous bankers
For centuries, shroffs, sahukars, chettiars and multanis lent money, took deposits and financed trade with hundis, which passed across the country like bills of exchange. They knew their customers personally and lent quickly, often at high interest.
Their decline came as organised banking spread and the law tightened. Section 45S of the Reserve Bank of India Act, as substituted in 1997, barred individuals, firms and unincorporated bodies from accepting public deposits. In Bhavesh D. Parish v. Union of India, (2000) 5 SCC 471, shroffs organised as partnership firms challenged it. They financed traders and farmers from partners' capital and public deposits. The Supreme Court upheld section 45S. It did not stop their business, only their taking of public deposits. There is no fundamental right to do business with other people's money. Indigenous bankers survive today only on their own funds.
2. Commercial banks
The Presidency banks and the Imperial Bank. Three Presidency banks led the way. They were the Bank of Bengal (founded in 1806 as the Bank of Calcutta), the Bank of Bombay (1840) and the Bank of Madras (1843). They were merged in 1921. Together they became the Imperial Bank of India. It did some central banking work until 1935.
The State Bank. The Imperial Bank became the State Bank of India on 1 July 1955, under the State Bank of India Act, 1955. It was meant to carry banking into rural areas. Its associate banks were merged into it in 2017.
Joint-stock banks. Indian-owned joint-stock banks, many started during the Swadeshi movement, grew in the early twentieth century. Many were small and weak, and hundreds failed. That record led to the Banking Companies Act, 1949, now the Banking Regulation Act.
Nationalisation. Fourteen large banks were nationalised on 19 July 1969 and six more on 15 April 1980. In Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248, the Supreme Court struck down the first Act. It found the Act discriminatory and the compensation it offered illusory. Parliament re-enacted it in 1970. For two decades public sector banks dominated Indian banking.
New private banks and consolidation. After the 1991 reforms, new private banks were licensed from 1993. Further licences followed in 2004 and 2014, and on tap later. Public sector banks were consolidated through mergers until 1 April 2020, leaving twelve.
3. The central bank
The Reserve Bank of India began work on 1 April 1935 as a shareholders' bank. It was nationalised from 1 January 1949. It issues currency and is banker to Government and banks. It regulates and supervises the system under the Reserve Bank of India Act, 1934 and the Banking Regulation Act. Every other institution in this answer grew under its control.
4. Co-operative banks
Origins. The Co-operative Credit Societies Act, 1904 allowed rural credit societies, to free farmers from moneylenders. The Co-operative Societies Act, 1912 widened this.
Structure. Rural co-operative credit grew in three tiers. There are primary agricultural credit societies in villages, district central co-operative banks and a State co-operative bank at the top. Urban co-operative banks serve towns.
Banking law. Co-operative banks came under the Banking Regulation Act in 1966, through section 56, with the States still controlling their registration and management. This dual control was a known weakness. The 2020 amendment strengthened the Reserve Bank's control over their management, capital and audit.
The courts. In Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., (2020) 9 SCC 215, borrowers said co-operative banks were not banks, so they could not use SARFAESI. A Constitution Bench held that their banking is governed by Parliament's power over banking. They are banking companies under section 5(c) read with section 56 of the Banking Regulation Act, and banks for SARFAESI.
5. Regional rural banks
Regional rural banks were set up from 1975, under the Regional Rural Banks Act, 1976. Each is jointly owned by the Central Government, a State Government and a sponsor bank. They combine local feel with commercial discipline, lending to small farmers, labourers and artisans. They have been merged in rounds. From 1 May 2025, 26 were amalgamated, bringing their number from 43 to 28.
6. Development financial institutions
Commercial banks lent mainly for short periods. Long-term finance needed special institutions:
- IFCI (1948), ICICI (1955) and IDBI (1964) for industry; ICICI and IDBI later became banks;
- NABARD (Act of 1981) for agriculture and rural development, which also supervises rural co-operative banks and regional rural banks;
- 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.
7. Deposit insurance
Bank failures in 1960 led to the Deposit Insurance Corporation, working from 1 January 1962, now the DICGC. Each depositor is covered up to Rs 5 lakh per bank. Deposit insurance made small banks safer for ordinary savers.
8. Differentiated banks and NBFCs
In 2015 the Reserve Bank licensed payments banks, which take small deposits but cannot lend. It also licensed small finance banks, which lend mainly to small borrowers and must meet a higher priority sector target. Alongside banks, non-banking financial companies grew into large lenders, regulated by the Reserve Bank under Chapter IIIB of its Act.
The institutions at a glance
| Institution | Began | Purpose |
|---|---|---|
| Indigenous bankers | Ancient | Trade credit, hundis |
| Imperial Bank, then SBI | 1921, 1955 | Commercial and Government banking |
| Reserve Bank | 1935 | Central bank and regulator |
| Co-operative banks | 1904 | Rural and urban small credit |
| Nationalised banks | 1969, 1980 | Banking for national goals |
| Regional rural banks | 1975 | Rural credit |
| DFIs | 1948 to 2021 | Long-term finance |
| Deposit insurance | 1962 | Depositor safety |
| Payments and small finance banks | 2015 | Inclusion |
What drove each stage
Each new institution answered a failure or a gap. The bank failures of the 1940s produced the Banking Companies Act, 1949. The failures of 1960 produced deposit insurance. Farmers left out by commercial banks got co-operative credit and then regional rural banks. Industry's need for long-term money produced the development institutions. The exclusion of the poor led to nationalisation and, later, to payments and small finance banks. Mounting bad loans led to SARFAESI in 2002 and the Insolvency and Bankruptcy Code in 2016. Growth in Indian banking has always followed need.
An assessment
The growth has been a success in reach: banking now covers almost every village, and most adults have an account. It has been less even in quality. Weak co-operative banks, bad loans in public sector banks and failures of NBFCs show that growth needs regulation to keep pace. The latest stage is digital, with payments moving to mobile phones and UPI.
Conclusion. Banking institutions in India grew in layers. Indigenous bankers came first, now confined to their own funds (Bhavesh D. Parish). Next came commercial banks, from the Presidency banks to the State Bank, nationalisation (Rustom Cavasjee Cooper) and new private banks. The Reserve Bank, co-operative banks (Pandurang) and regional rural banks followed. Development institutions, deposit insurance and the differentiated banks of 2015 completed the picture. Each was created to meet a need the others could not, under the Reserve Bank's watch.
The rest of the answers
The first answer is free. The rest come with the KSLU B.A. LL.B. Semester 8 solved papers.
You have read the question paper and its first answer in full. Buy the solved papers once and you can read every answer of every solved paper in this semester.
Solved papers: ₹499 Already bought it? Sign in
The question paper itself stays free.
Found an error in this volume? Report it and we will check it against the paper.