KSLU Solved Question Papers
Banking Law
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 8
2022 Oct Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 8 Banking Law 2022 Oct Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2022 Oct examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2022 Oct examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2022 Oct 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 80 · 20 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.
Q1
Unit I
(a)Explain the various types of banks and their functions.[10]
Answer
For full marks, cover: a short classification of banks; for each type, its main functions: the Reserve Bank (note issue, banker to Government and banks, regulation); commercial banks (primary and secondary functions, section 6 of the Banking Regulation Act, 1949); co-operative banks; regional rural banks; development banks; small finance and payments banks; foreign banks; Vivek Narayan Sharma and ICICI Bank v. Official Liquidator of APS Star Industries; a summary table.
The types in brief
Banks in India can be grouped by what they do. At the top is the central bank, the Reserve Bank of India. Below it are commercial banks (public, private and foreign), co-operative banks, regional rural banks and the newer small finance and payments banks. Beside them stand the development banks. Each type has its own functions, set by its statute or licence.
1. The Reserve Bank of India (central bank)
- Issue of currency. Under section 22 of the Reserve Bank of India Act, 1934, it has the sole right to issue bank notes in India.
- Banker to Government. It keeps the accounts of the Central and State Governments, makes payments for them and manages public debt.
- Banker's bank. Banks keep their cash reserve with it, and it lends to them as the lender of last resort.
- Monetary policy and credit control. Through the repo rate, the cash reserve ratio and open market operations, it controls credit to keep prices stable.
- Regulator and supervisor. Under the Banking Regulation Act, 1949, it licenses, inspects and directs banks.
- Foreign exchange and payment systems. It manages foreign exchange under the Foreign Exchange Management Act, 1999 and regulates payment systems.
In Vivek Narayan Sharma v. Union of India, 2023 SCC OnLine SC 1, the notification of 8 November 2016 withdrew legal tender from the old Rs 500 and Rs 1,000 notes. It was challenged as beyond section 26(2) of the 1934 Act. A Constitution Bench upheld it by four to one. It held that the power extends to all series of a denomination, and is safeguarded because it must be exercised on the Central Board's recommendation. The case shows how central the currency function is.
2. Commercial banks
Primary functions.
- Accepting deposits: savings, current, fixed and recurring deposits.
- Lending: loans, cash credit, overdrafts and the discounting of bills.
Secondary functions. Section 6(1) of the Banking Regulation Act lists the other forms of business a banking company may do. Section 6(2) forbids anything else. They include:
- Agency services: collecting cheques, bills and dividends, paying insurance premiums, buying and selling securities for customers, and acting as executor or trustee.
- Utility services: lockers, safe custody, remittances by draft and electronic transfer, letters of credit, guarantees, foreign exchange and underwriting.
An example of what banking includes. In ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd., (2010) 10 SCC 1, the question was whether a bank could assign its loans to another bank. The Supreme Court held that such an assignment is within the business of banking under section 6. It is not trading in goods, which section 8 forbids. This opened the way for the sale of bad loans to asset reconstruction companies.
3. Co-operative banks
- They accept deposits from members and the public in their area.
- They give short and medium term loans, mainly to farmers through primary societies, and to small traders and artisans in towns.
- State co-operative banks finance the district central banks below them.
- They channel refinance from NABARD to rural borrowers.
4. Regional rural banks
Section 18 of the Regional Rural Banks Act, 1976 sets their business. They carry on banking and lend especially to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs in their area.
5. Development banks
They give long-term finance to one sector under their own Acts. NABARD refinances and supervises rural credit. SIDBI finances small industry. The EXIM Bank finances foreign trade. The National Housing Bank finances and regulates housing finance.
6. Small finance banks and payments banks
- Small finance banks accept deposits and lend mainly to small farmers, micro enterprises and the unserved. Under the 2025 priority sector Directions, 60 per cent of their adjusted net bank credit goes to the priority sector.
- Payments banks accept small deposits and provide remittance, bill payment and card services. They may not lend.
7. Foreign banks
They work through branches or Indian subsidiaries. They finance foreign trade, provide foreign exchange and serve multinational companies, besides ordinary banking.
| Type | Main functions | Main law |
|---|---|---|
| Reserve Bank | Currency, banker to Government and banks, monetary policy, regulation | RBI Act, 1934; Banking Regulation Act, 1949 |
| Commercial banks | Deposits, loans; agency and utility services | Banking Regulation Act, s.6 |
| Co-operative banks | Member deposits, farm and small loans | State law; Banking Regulation Act, s.56 |
| Regional rural banks | Credit to small farmers, labourers, artisans | RRB Act, 1976, s.18 |
| Development banks | Long-term sectoral finance and refinance | Their own Acts |
| Small finance and payments banks | Small loans; deposits and payments without lending | Licence terms |
Conclusion. Each type of bank has its own functions. The Reserve Bank issues currency, banks for the Government and other banks, and regulates the system. Vivek Narayan Sharma shows the reach of its note issue power. Commercial banks accept deposits and lend, and also give agency and utility services within section 6. The ICICI Bank case shows that section 6 includes assigning loans. Co-operative banks, regional rural banks and small finance banks serve smaller and rural borrowers. Development banks give long-term finance, and payments banks only take deposits and make payments.
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