KSLU Solved Question Papers
Banking Law
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 8
2015 Dec (100 marks) Examination
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Mumbai
B.A. LL.B. (Five Years) Sem 8 Banking Law 2015 Dec (100 marks) Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2015 Dec (100 marks) examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2015 Dec (100 marks) 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 · 13 questions answered
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.
Q1Discuss briefly the functions of Reserve Bank of India along with its promotional role.[16]
Answer
For full marks, cover: Part A, the functions in brief (currency, banker to Governments, banker's bank, monetary policy, foreign exchange, regulation and supervision), with the demonetisation case (Vivek Narayan Sharma v. Union of India); Part B, the promotional role, meaning and why a central bank in India took it on; its strands: building institutions (State Bank, deposit insurance, IDBI, NABARD, National Housing Bank, credit information); rural and co-operative credit (Pandurang Ganpati Chaugule); priority sector lending and the Lead Bank Scheme; financial inclusion and literacy; payment infrastructure; enabling innovation (regulatory sandbox, account aggregators); export and small enterprise credit; consumer protection and transparency (Reserve Bank of India v. Jayantilal N. Mistry); limits and criticism; a table.
Part A: the functions in brief
The Reserve Bank of India, set up under the Reserve Bank of India Act, 1934, has six main functions.
- Currency. It has the sole right to issue bank notes (section 22), which are legal tender (section 26).
- Banker to Governments. It keeps their accounts, makes their payments and manages the public debt (sections 20, 21 and 21A).
- Banker's bank. Banks keep their cash reserves with it (section 42), and it lends to them and settles their payments.
- Monetary policy. A Monetary Policy Committee sets the repo rate to meet an inflation target of 4 per cent (sections 45ZA and 45ZB). The rate was raised to 5.50 per cent on 7 October 2026.
- Foreign exchange. It holds the reserves and administers the Foreign Exchange Management Act, 1999.
- Regulation and supervision of banks under the Banking Regulation Act, 1949, of NBFCs under Chapter IIIB of its Act and of payment systems.
The currency function tested. 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 Reserve Bank's Central Board's recommendation. A Constitution Bench upheld the notification by four to one. Nagarathna J. dissented, holding that the Government needed legislation for so sweeping a step.
Part B: the promotional role
What it means, and why
A promotional (or developmental) role means actively building and directing the financial system so that credit reaches the whole economy. It goes beyond keeping prices stable and banks safe. At independence, Indian banking served mainly traders in cities. Farmers depended on moneylenders, and long-term industrial finance hardly existed. The Reserve Bank was the one institution with the expertise and reach to change that, and it took the task on.
1. Building institutions
The Reserve Bank helped create a set of institutions, each meant to fill a gap.
- The State Bank of India (1955), formed from the Imperial Bank on the recommendation of the Rural Credit Survey, to carry banking into rural areas.
- Deposit insurance (1962), now the Deposit Insurance and Credit Guarantee Corporation, its wholly owned subsidiary, to protect small depositors.
- IDBI (1964), set up first as the Reserve Bank's subsidiary, to finance industry.
- NABARD (Act of 1981), which took over the Reserve Bank's agricultural credit work.
- The National Housing Bank (Act of 1987), set up as its subsidiary to promote housing finance.
- Credit information: support for credit information companies, later placed on a statutory footing by the Credit Information Companies (Regulation) Act, 2005.
2. Rural and co-operative credit
From its early years the Reserve Bank had an agricultural credit department. It refinanced State co-operative banks and strengthened the three-tier co-operative structure. Later, through NABARD, it supported regional rural banks.
Its control over co-operative banks has grown. In Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., (2020) 9 SCC 215, borrowers argued that co-operative banks were not "banks". On that view they could not use SARFAESI to recover loans. A Constitution Bench held that their banking business falls under Parliament's banking power. So they are banks under the Banking Regulation Act and SARFAESI, and can recover their dues like other banks. Strong co-operative banks are central to rural credit.
3. Priority sector lending and the Lead Bank Scheme
- Priority sector. The Reserve Bank requires banks to lend a share of their credit to agriculture, micro and small enterprises, education, housing, renewable energy and weaker sections. Under the Priority Sector Lending Directions, 2025, domestic banks must lend 40 per cent of adjusted net bank credit.
- Lead Bank Scheme. From 1969, each district has a lead bank that coordinates credit planning with the State and other banks.
4. Financial inclusion and literacy
The Reserve Bank pressed banks from 2005 to open basic accounts, use business correspondents in villages and simplify KYC. Those steps prepared the ground for the Jan Dhan accounts opened from 2014. It also runs financial literacy programmes, teaching people to save, borrow wisely and avoid fraud.
5. Payment infrastructure
It built and runs RTGS and NEFT, now open round the clock. It supported the creation of the National Payments Corporation of India, which built IMPS and UPI. Cheap, fast payments help small businesses and individuals as much as large firms.
6. Enabling innovation
- Regulatory sandbox (from 2019): fintech firms may test new products under the Reserve Bank's supervision before full rollout.
- Account aggregators: a framework, under its NBFC directions, for customers to share financial data with lenders on consent.
- Digital rupee: e-rupee pilots since late 2022.
7. Export and small enterprise credit
It has supported export credit through refinance and interest rules, and keeps micro and small enterprises within priority sector targets. It also sets rules for timely credit and restructuring when such firms face stress.
8. Consumer protection and transparency
It runs the Integrated Ombudsman Scheme, 2026, from 1 July 2026, and sets rules on fair charges and fraud liability.
Transparency as part of promotion. In Reserve Bank of India v. Jayantilal N. Mistry, (2016) 3 SCC 525, applicants sought the Reserve Bank's inspection report on a co-operative bank under the Right to Information Act. The Reserve Bank refused, claiming it held such reports in trust for banks. The Supreme Court held that its duty is to the public and depositors. Information about how banks are run must be disclosed, subject to the Act's exemptions. Public confidence, which promotion depends on, rests on such openness.
An example of the role at work
Consider a small farmer in a village. A few decades ago his only source of credit was the local moneylender. Today a regional rural bank branch can lend him crop loans counted towards the priority sector target. The branch is sponsored by a commercial bank and refinanced by NABARD. He receives his subsidy into a basic savings account and pays for seed by UPI on his phone. If the bank fails him, he can complain to the ombudsman free of charge. Each of these links was built or guided by the Reserve Bank's promotional role. None of them would exist if the central bank had confined itself to issuing notes and setting interest rates.
Limits and criticism
- Directed credit and bad loans. Pushing credit to favoured sectors sometimes produced loans that were never repaid.
- Conflicting aims. Promoting growth can clash with controlling inflation and keeping banks safe.
- Institutions now independent. Several institutions it created have moved out of its ownership, such as NABARD and the National Housing Bank. Its role has shifted from building to regulating.
The promotional role at a glance
| Strand | Example |
|---|---|
| Institutions | State Bank, DICGC, IDBI, NABARD, NHB |
| Rural credit | Co-operative refinance; RRBs through NABARD |
| Directed credit | Priority sector, Lead Bank Scheme |
| Inclusion | Basic accounts, business correspondents, literacy |
| Payments | RTGS, NEFT, NPCI, UPI |
| Innovation | Sandbox, account aggregators, e-rupee |
| Protection | Ombudsman, fair practice rules |
Conclusion. The Reserve Bank's functions are currency (Vivek Narayan Sharma), banking for Governments and banks, monetary policy, foreign exchange and regulation. Its promotional role goes further. It built institutions from the State Bank to NABARD, strengthened rural and co-operative credit (Pandurang), directed credit to priority sectors and spread banking and literacy. It also created payment systems, enabled safe innovation and protected consumers through openness (Jayantilal N. Mistry) and the ombudsman. The role has moved from building to guiding, but remains central to India's development.
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