KSLU Solved Question Papers
Banking Law
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 8
2023 Mar Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 8 Banking Law 2023 Mar Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Model answers written and edited by the munotes.in editorial desk.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2023 Mar examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2023 Mar examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2023 Mar 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
Instructions printed on the paper
- N.B. (1) Answer all five Units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answer 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.
Q1
Unit I
(a)Explain the origin and development of Banking in India.[10]
Answer
For full marks, cover: the phases in order with their dates: indigenous bankers and the hundi; the agency houses and why they failed; the three Presidency banks and the Imperial Bank (1921); the Swadeshi joint-stock banks; the Reserve Bank (1935, public ownership 1949); the Banking Companies Act, 1949; the State Bank (1955); social control and nationalisation (1968, 1969, 1980; Rustom Cavasjee Cooper); regional rural banks; the reforms after 1991; recent changes; Joseph Kuruvilla on the 1960 failures.
1. Indigenous banking
India had bankers long before European banks came. The shroff, sahukar, seth and mahajan took deposits, lent money, financed trade and dealt in hundis. A hundi is an indigenous bill of exchange in an Indian language. It let a merchant in one city pay a supplier in another without carrying cash. The Negotiable Instruments Act, 1881 left the hundi alone. Section 1 saves local usage relating to instruments in an oriental language. But indigenous bankers usually lent their own money and mixed banking with trade. Both are now forbidden to a bank.
2. The agency houses
In late eighteenth century Calcutta, British agency houses combined trade with banking. They used depositors' money in their own trading ventures. When trade collapsed in the 1820s and 1830s, they failed and the depositors lost their money. This is the root of section 8 of the Banking Regulation Act, 1949, which forbids a bank to trade in goods.
3. The Presidency banks and the Imperial Bank
| Bank | Founded | Later |
|---|---|---|
| Bank of Calcutta | 2 June 1806 | Renamed Bank of Bengal on 2 January 1809 |
| Bank of Bombay | 15 April 1840 | Amalgamated in 1921 |
| Bank of Madras | 1 July 1843 | Amalgamated in 1921 |
| Imperial Bank of India | 27 January 1921 | Became the State Bank of India on 1 July 1955 |
The Imperial Bank was privately owned and did commercial banking. It also held Government balances and acted as banker to other banks. But it did not issue notes, since the Government had taken the note issue in 1861.
4. Swadeshi joint-stock banks
In the early twentieth century, the Swadeshi movement led Indian businessmen to found banks owned and run by Indians. Several still trade today. Many others failed and took their depositors' savings with them. These failures made regulation unavoidable.
5. The Reserve Bank of India
The Hilton Young Commission recommended a central bank in 1926. The Reserve Bank of India Act, 1934 followed, and the Reserve Bank began work on 1 April 1935. It began as a shareholders' bank. It became publicly owned from 1 January 1949. It was created to manage currency and to bank for the Government, not to license other banks.
6. The Banking Companies Act, 1949
For fourteen years after 1935 there was no general banking statute. The Banking Companies Act, 1949 filled the gap. It required a licence, cash and liquid reserves, inspection and obedience to the Reserve Bank's directions, and it stopped trading in goods. In 1965 it was extended to co-operative banks and renamed the Banking Regulation Act, 1949.
The new law was tested when the Palai Central Bank in Kerala failed in 1960. In Joseph Kuruvilla Vellukunnel v. Reserve Bank of India, AIR 1962 SC 1371, the Reserve Bank applied to wind it up after inspections found large bad advances and a run on the bank. A director challenged the Reserve Bank's power. The Supreme Court upheld it by three to two, holding that banks deal with depositors' money and form a class apart. The judgment records 123 bank failures in 1947 to 1949 alone. The same collapse led to the Deposit Insurance Corporation Act, 1961.
7. The State Bank, social control and nationalisation
- 1955. The State Bank of India Act, 1955 took over the Imperial Bank, to carry banking to rural India.
- 1968. Social control under the Banking Laws (Amendment) Act, 1968 reshaped bank boards and controlled lending to insiders.
- 1969. On 19 July 1969 fourteen banks, each with deposits of fifty crore rupees or more, were nationalised. In Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248, the Supreme Court struck down the 1969 Act for discrimination and illusory compensation. Parliament re-enacted it in 1970.
- 1980. Six more banks were nationalised.
8. Regional rural banks
Regional rural banks were set up from 1975 and given their own statute, the Regional Rural Banks Act, 1976. They lend to small farmers, labourers and artisans. Under "One State, One RRB", they fell from forty-three to twenty-eight on 1 May 2025.
9. Reform after 1991
The Narasimham Committee reports of 1991 and 1998 changed direction. New private banks were licensed, interest rates were freed, and banks had to meet international capital and bad-loan standards. Recovery laws followed: the Recovery of Debts Act, 1993 (Debts Recovery Tribunals), the SARFAESI Act, 2002 and the Insolvency and Bankruptcy Code, 2016.
10. Recent changes
From 2015 the Reserve Bank licensed small finance banks and payments banks. Public sector banks were merged between 2017 and 2020, leaving twelve. Co-operative banks came fully under the Reserve Bank in 2020. The Banking Laws (Amendment) Act, 2025 changed nomination, governance and reporting rules. Digital banking through UPI now carries most retail payments.
Conclusion. Banking in India grew from indigenous bankers and hundis, through the agency houses and the Presidency banks. It reached a statutory central bank in 1935 and a full banking code in 1949. Its later growth was driven by failures and by policy. The Palai Central Bank failure in Joseph Kuruvilla led to deposit insurance. Nationalisation, tested in Rustom Cavasjee Cooper, put most banks in public hands. Since 1991 reforms, new kinds of bank, mergers and the 2025 Act have shaped today's system.
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