# Banking Structure & Regulation for UPSC: Bank Types, Basel III, NPAs, SARFAESI, IBC & 2025-26 Health Check Source: https://tracknation.in/story/banking-structure-regulation-for-upsc-bank-types-basel-iii-npas-sarfaesi-ibc-2025-26-health-check (TrackNation — free UPSC notes with PYQs) > India's banking system for UPSC — bank types (PSBs, private, RRBs, SFBs, payments banks, co-operatives, NBFCs), regulation (CRR/SLR, Basel III 11.5%, PCA, DICGC ₹5 lakh, priority-sector lending), NPAs and resolution (SARFAESI, DRT, IBC and its 2026 amendment, bad bank), and the 2025-26 Economic Survey data — GNPA 2.2%, CRAR 17.2%, RRB consolidation to 28, FI-Index — with practice questions and real PYQs. ## Structure of the Indian Banking System 🎯 **Exam priority: High-yield.** *Banking is among the five most-tested economy areas: bank types and licensing, NPAs and resolution tools, Basel norms, priority-sector lending, deposit insurance. Since 2024 UPSC asks it through exact-fact statements ("can NBFCs access the LAF?", "NBFCs cannot accept demand deposits"), so master the precise rules.* Indian banks entered 2026 with the cleanest balance sheets in decades — gross NPAs at 2.2%, capital at 17.2% — after a decade that began with a bad-loan crisis. This note gives you the structure, the rules, and the story. ## Structure of the Indian banking system | **Category** | **Key facts** | | **RBI** | Apex regulator under the RBI Act 1934 and the **Banking Regulation Act, 1949**; licenses and supervises banks, NBFCs and (since the 2020 amendment) the banking business of co-operative banks | | **Scheduled commercial banks (SCBs)** | Listed in the **Second Schedule** of the RBI Act (paid-up capital ≥ ₹5 lakh and not harmful to depositors) — public-sector banks, private banks, foreign banks, small finance banks, payments banks, RRBs | | **Public-sector banks (PSBs)** | 14 big banks nationalised in **1969** and 6 in **1980**; merged since 2017 (SBI + associates; Bank of Baroda 2019; 2020 mergers of PNB, Canara, Union and Indian Bank groups) to **12 PSBs** | | **Regional Rural Banks (RRBs)** | Set up in **1975** (RRB Act 1976) to serve small and marginal farmers; owned 50% Centre, 35% sponsor bank, 15% State. Consolidated on the **One-State-One-RRB** principle from **196 to 28** (1 May 2025) | | **Small Finance Banks (SFBs)** | Serve unserved/underserved segments; must give **75% of lending to priority sectors** and half of loans in small tickets | | **Payments Banks** | Accept deposits (cap ₹2 lakh per customer) and offer payments/remittances but **cannot lend or issue credit cards** | | **Co-operative banks** | Urban co-operative banks, State co-operative banks and District Central Co-operative banks; the two-tier rural structure is supervised by **NABARD**; urban ones by the RBI | | **All-India financial institutions** | NABARD (agriculture and rural), SIDBI (MSMEs), EXIM Bank (trade), NHB (housing) — development finance institutions, not deposit-taking banks | - **NBFCs** (non-banking financial companies) lend and invest but **cannot accept demand deposits**, are not part of the payment and settlement system, cannot issue cheques drawn on themselves and their depositors **do not get DICGC deposit insurance**. Not every financial entity needs RBI registration — companies regulated by other regulators (venture funds, stock-brokers, insurance firms, Nidhi companies) are exempt. UPSC 2026 asked these four points in one question. - **Licensing:** the RBI has an "on-tap" licensing framework for universal banks and SFBs; it does not grant licences to big industrial houses for banks directly. In 2024 UPSC also asked about foreign banks' wholly owned subsidiaries — they need a minimum capital, which is stated in RBI's guidelines (the claim that there is none is wrong). ## Prudential Regulation: Liquidity, Basel III, PCA, Deposit Insurance, PSL Banks are regulated because depositors' money is at stake. The toolkit has four layers: liquidity, capital, early warning and insurance. ## Prudential regulation - **Liquidity:** CRR (3.0% of NDTL after the 2025 cuts) and SLR (18%) — covered in Article 4. Basel III adds the **Liquidity Coverage Ratio** (enough high-quality liquid assets for 30 days of stress; 100% since January 2019) and the **Net Stable Funding Ratio** (100% since October 2021). - **Capital — Basel III:** banks must hold capital against risk-weighted assets: **CRAR (capital to risk-weighted assets ratio)** minimum **9%** in India plus a **2.5% capital conservation buffer** = **11.5%**; a **countercyclical buffer** and a **leverage ratio** were added after the 2008 crisis. Basel II had three pillars (minimum capital, supervisory review, market discipline); Basel I (1988) covered credit risk only with an 8% minimum. - **Domestic Systemically Important Banks (D-SIBs):** SBI, ICICI Bank and HDFC Bank must hold extra capital because their failure would shake the system. - **Prompt Corrective Action (PCA):** the RBI's early-warning framework — a bank breaching thresholds on capital (CRAR), asset quality (net NPA) or profitability (return on assets) faces restrictions such as curbs on dividends, branch expansion and lending, up to management action. - **Deposit insurance:** the **Deposit Insurance and Credit Guarantee Corporation (DICGC)**, a subsidiary of the RBI, insures bank deposits up to **₹5 lakh per depositor per bank** (principal + interest, since 2020); since the 2021 amendment, depositors of a bank under moratorium get their insured money within 90 days. The insurance premium is paid by banks, not depositors. It covers banks (including co-operative banks, RRBs) — **not NBFCs**. ## Priority Sector Lending (PSL) - Banks must direct **40% of their adjusted net bank credit** (or credit equivalent of off-balance-sheet exposure, whichever is higher) to **priority sectors**: agriculture (target about 18%, of which 10% to small and marginal farmers), micro enterprises (7.5%), weaker sections (12%) and others such as housing, education, renewable energy, social infrastructure. **RRBs and SFBs have a higher target of 75%** — the Survey notes RRBs have consistently exceeded it. - Shortfalls are parked in the **Rural Infrastructure Development Fund (RIDF)** at NABARD and similar funds; tradable **PSL certificates** let banks that exceed targets sell the surplus. ## Committees, Reforms and Mergers UPSC likes to attach a committee to a reform — in 2026 it asked a four-row "committee–objective–body" match. Learn the standard ones. ## Committees that shaped Indian finance | **Committee (year)** | **Subject / main recommendation** | **Set up by** | | **Chakravarty (1985)** | Review of the monetary system — monetary targeting with feedback | RBI | | **Narasimham I (1991)** | Financial-system reforms: cut SLR/CRR, prudential norms, capital adequacy, free interest rates, phase down priority-sector directed credit | Government | | **R.N. Malhotra (1993)** | Insurance-sector reforms — led to private entry and the IRDA (1999) | Ministry of Finance | | **Narasimham II (1998)** | Banking-sector reforms: stronger NPA norms, 9% CRAR, bank mergers, LAF | Government | | **L.C. Gupta (1998)** | Roadmap for introducing **derivatives trading** in India | SEBI | | **Rangarajan (2008)** | Financial inclusion | Government | | **Y.H. Malegam (2010)** | Reforms in the **microfinance** sector (NBFC-MFI norms) | RBI | | **Nachiket Mor (2013-14)** | Comprehensive financial services for small businesses and low-income households — the idea of payments banks and small finance banks | RBI | | **Urjit Patel (2014)** | Monetary Policy Framework — flexible inflation targeting with CPI | RBI | | **P.J. Nayak (2014)** | Governance of boards of banks in India; Bank Board Bureau | RBI | ## Mergers and ownership - 2017: SBI merged with its five associate banks and Bharatiya Mahila Bank; 2019: Vijaya and Dena merged into Bank of Baroda; April 2020: four mergers (PNB + OBC + United Bank; Canara + Syndicate; Union + Andhra + Corporation; Indian Bank + Allahabad) reduced the PSBs to **12**. July 2023: HDFC Ltd (a housing-finance NBFC) merged into HDFC Bank — the "non-bank with bank" merger the Survey notes in its credit data. - The **Banks Board Bureau** (2016) was created to improve governance of PSB boards; the **Financial Services Institutions Bureau** has since replaced it for appointments. ## NPAs and the Resolution Toolkit: SARFAESI, DRT, IBC The 2010s are remembered for non-performing assets. Knowing the classification and the toolkit is half the Prelims marks in this area. ## What is an NPA? - A loan becomes a **non-performing asset** when interest or principal is **overdue for more than 90 days**. NPAs are classified as **sub-standard** (up to 12 months as an NPA), **doubtful** (longer) and **loss assets** (uncollectable). **Gross NPA** is the total of such loans; **Net NPA** is gross NPA less provisions. **Slippage** is fresh additions to NPAs; the **provision coverage ratio** shows how much of the bad loans is provided for. ## The resolution toolkit | **Tool** | **What it does** | **Key point** | | **SARFAESI Act, 2002** | Secured creditors enforce security and take possession **without going to court**; also governs **Asset Reconstruction Companies (ARCs)** registered with the RBI | Not applicable to **agricultural land** or unsecured loans | | **Debt Recovery Tribunals (DRTs)** | Adjudicate bank dues above ₹20 lakh — under the *Recovery of Debts and Bankruptcy Act, 1993* | Separate from SARFAESI | | **Lok Adalats** | Settle small recovery cases | Compromise settlements | | **Insolvency and Bankruptcy Code, 2016** | Time-bound, **creditor-driven** resolution via NCLT; Committee of Creditors; regulator is **IBBI** | CIRP to finish within **330 days** including extensions; resolution or liquidation | | **Bad bank** (NARCL + IDRCL, 2021-22) | National Asset Reconstruction Company buys large stressed loans; India Debt Resolution Company manages them | Government-guaranteed security receipts | | **4R strategy** | Recognition of bad loans, Resolution, Recapitalisation, Reforms | Followed the RBI's Asset Quality Review (2015-16); the earlier *Indradhanush* (2015) was the government's seven-pillar reform plan for PSBs | - **IBC outcomes in the Survey:** recovery rate through the IBC rose from **28.3% (FY24) to 36.6% (FY25)** against 31.5% through SARFAESI; S&P upgraded India's insolvency regime from "Group C" to **"Group B"** (3 December 2025), noting average recoveries up from 15–20% to about 30% and timelines cut from 6–8 years to about 2. Of CIRP cases closed by September 2025, **57% ended in a going-concern rescue** and 43% in liquidation; the resolution-to-liquidation ratio rose from 20% (FY18) to 91% (FY25). - **The weakness:** the Code mandates completion in 330 days but the **actual average is 713 days** (853 days for cases closed in FY25); the NCLT has about 30,600 pending cases and just 30 benches. The **Pre-Packaged Insolvency Resolution Process (2021)** for MSMEs had only 14 admissions in four years. - **Reform:** the **IBC (Amendment) Act, 2026** — passed by Parliament at the end of March / start of April 2026 — adds a **Creditor-Initiated Insolvency Resolution Process**, makes admission of a case mandatory once debt and default are shown, and creates frameworks for group and cross-border insolvency. *(Provisions as reported by law-firm and news summaries; check the gazette text.)* ## 2025-26 Health Check and Financial Inclusion The Economic Survey 2025-26 paints a bank-by-bank picture of strength — with a few warning lights. ## 2025-26 health check - **Asset quality:** the gross NPA ratio of SCBs is at a **multi-decadal low of 2.2%** and the net NPA at a **record low of 0.5%**; **CRAR is 17.2%** (September 2025). Sector-wise GNPA: industry 1.9%, services 1.8%, personal loans 1.1%, **agriculture 6.0%** — the weak spot, now 36.3% of total GNPA. The slippage ratio fell from 7.1% (FY18) to 1.3% (FY26 to September); the NPA recovery rate doubled from 13.2% (FY18) to 26.2% (FY25). - **Profitability:** return on assets about 1.4%, return on equity 13.6% (March 2025); profit after tax grew 16.9% in FY25. - **Credit:** outstanding bank credit grew **14.5% (YoY, 31 Dec 2025)** against 11.2% a year earlier (data include the July 2023 merger of HDFC Ltd — a non-bank — with HDFC Bank). Personal loans led (12.8%), with **gold loans up 125.3%** as gold prices soared; lending to **MSMEs grew 21.8%** (micro and small 24.6%). Large firms are shifting to bonds and other non-bank sources, which grew 23.8%. - **RRBs:** consolidation from 196 to 28 lifted performance — GNPA fell to 5.4% (the lowest in 13 years), the credit–deposit ratio hit 73.8% (the highest in 35 years) and CRAR rose to a record 14.4%. - **Regulatory clean-up:** the RBI consolidated over 9,000 circulars into **238 function-specific Master Directions**, set up a regulatory review cell (October 2025), and issued a **FREE-AI framework** for responsible AI in finance. Microfinance had a bad FY25 (loans down 14%), and the RBI cut the qualifying-assets requirement for NBFC-MFIs from 75% to 60% (June 2025). ## Financial inclusion - The RBI's **Financial Inclusion Index (FI-Index)** — a single value from 0 (complete exclusion) to 100 — has three sub-indices: **Access (35%), Usage (45%) and Quality (20%)**. The composite rose to **67.0 in March 2025** from 64.2 a year earlier. UPSC asked for exactly these three sub-indices in 2026. - **Banking Laws (Amendment) Act, 2025** (notified April 2025): depositors can name **up to four nominees** (from 1 November 2025), the "substantial interest" threshold for bank directorships was raised from ₹5 lakh to **₹2 crore**, the maximum tenure of co-operative bank directors rose from 8 to 10 years, and public-sector banks can transfer unclaimed shares, interest and bond-redemption amounts to the **Investor Education and Protection Fund**. ## Why this matters for UPSC - Expect "*how many of the following*" questions mixing NBFC, payments-bank and SFB rules; precise recall wins. Link the NPA story to IBC reform and to the 2025 data (GNPA 2.2%, CRAR 17.2%). ## Further Reading - NCERT Economics textbooks (Class 11–12), the Economic Survey, the Union Budget documents and RBI publications cited in this note — the primary sources behind every figure above. ## Test Yourself: Practice Questions & PYQs Twelve practice questions on bank types, regulation, NPAs and the 2025-26 data, followed by real UPSC questions on banking. ## Practice Questions **Q1.** With reference to Non-Banking Financial Companies (NBFCs) in India, consider the following statements: 1. NBFCs cannot accept demand deposits. 2. NBFCs form part of the payment and settlement system and can issue cheques drawn on themselves. 3. Depositors of deposit-taking NBFCs are covered by DICGC deposit insurance. Which of the statements given above is/are correct? - (a) 1 and 2 only - (b) 1, 2 and 3 - (c) 1 only - (d) 2 and 3 only **Answer: (c)** — Only statement 1 is correct: NBFCs are outside the payment system, cannot issue cheques on themselves, and DICGC cover is not available to NBFC depositors. **Q2.** Under Basel III norms as applied in India, the minimum capital adequacy requirement including the capital conservation buffer is - (a) 10.25 per cent - (b) 9 per cent - (c) 8 per cent - (d) 11.5 per cent **Answer: (d)** — 9% minimum CRAR + 2.5% capital conservation buffer = 11.5%. (Basel I's 8% is the old, credit-risk-only minimum.) **Q3.** Which of the following is/are measures introduced by Basel III? 1. Leverage ratio 2. Liquidity Coverage Ratio 3. Net Stable Funding Ratio 4. Operational-risk capital charge - (a) 1 and 2 only - (b) 1, 2, 3 and 4 - (c) 1, 2 and 3 only - (d) 2, 3 and 4 only **Answer: (c)** — Basel III added the leverage ratio and the LCR/NSFR liquidity standards (plus buffers). The operational-risk capital charge came with Basel II. **Q4.** With reference to the SARFAESI Act, 2002, which one of the following statements is correct? - (a) It applies to loans secured by agricultural land - (b) It sets the CIRP timeline of 330 days - (c) It establishes the Debt Recovery Tribunals - (d) It allows secured creditors to enforce security without court intervention **Answer: (d)** — SARFAESI enables non-judicial enforcement and regulates ARCs; agricultural land is excluded, DRTs come from the 1993 Recovery of Debts Act and the 330-day CIRP limit is in the IBC. **Q5.** The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures bank deposits up to - (a) ₹1 lakh per depositor - (b) ₹5 lakh per depositor per bank - (c) ₹5 lakh per account - (d) ₹10 lakh per depositor per branch **Answer: (b)** — Cover is per depositor per bank (principal + interest) — a depositor with several accounts in one bank is covered up to ₹5 lakh in total. NBFC deposits are not covered. **Q6.** Which one of the following is NOT permitted to a Payments Bank in India? - (a) Issuing debit cards - (b) Accepting demand deposits - (c) Offering remittance services - (d) Extending loans to customers **Answer: (d)** — Payments banks cannot lend or issue credit cards; they accept limited deposits and provide payments services. **Q7.** Which of the following describes the 'Prompt Corrective Action' framework of the RBI? - (a) An early-warning framework that imposes restrictions on banks breaching thresholds on capital, asset quality or profitability - (b) A scheme for transferring NPAs to a bad bank - (c) A credit guarantee scheme for MSMEs - (d) Penalty on banks for CRR shortfalls **Answer: (a)** — PCA triggers corrective restrictions (dividends, branch expansion, lending, management) when a bank crosses trigger thresholds. **Q8.** The Financial Inclusion Index (FI-Index) of the RBI comprises which of the following sub-indices? - (a) Access, Usage and Quality - (b) Credit, Savings and Insurance - (c) Availability, Affordability and Accountability - (d) Banking, Pension and Literacy **Answer: (a)** — FI-Index = Access (35%), Usage (45%), Quality (20%); the composite value was 67.0 in March 2025 (64.2 in March 2024). **Q9.** As per the Economic Survey 2025-26, which of the following statements about Regional Rural Banks (RRBs) is correct? 1. Their number was reduced from 196 to 28 under the One-State-One-RRB principle. 2. Their consolidated CRAR reached an all-time high. 3. Their priority-sector-lending target is 40 per cent. - (a) 1, 2 and 3 - (b) 1 and 2 only - (c) 2 and 3 only - (d) 1 only **Answer: (b)** — Statements 1 and 2 are correct; RRBs have a 75% PSL target, which they consistently exceeded. **Q10.** Statement-I: Gross NPAs of Indian scheduled commercial banks reached a multi-decadal low in 2025. Statement-II: The recovery rate through the Insolvency and Bankruptcy Code was higher than through the SARFAESI Act in FY25. Which one of the following is correct in respect of the above statements? - (a) Statement-I is not correct but Statement-II is correct - (b) Both Statement-I and Statement-II are correct but Statement-II does not explain Statement-I - (c) Statement-I is correct but Statement-II is not correct - (d) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I **Answer: (b)** — Both are in the Survey (IBC 36.6% vs SARFAESI 31.5%). IBC recoveries are one contributor among several (provisioning, credit discipline, economic upturn), so Statement-II does not by itself explain the low GNPA. **Q11.** A loan is classified as a Non-Performing Asset when interest or principal remains overdue for more than - (a) 90 days - (b) 180 days - (c) 60 days - (d) 30 days **Answer: (a)** — The 90-day norm; sub-standard (up to 12 months), doubtful and loss assets follow. **Q12.** Under the Insolvency and Bankruptcy Code, 2016, the Corporate Insolvency Resolution Process is to be completed within a maximum of - (a) 180 days - (b) 90 days - (c) 330 days (including extensions and litigation) - (d) two years **Answer: (c)** — The Survey notes the actual average duration is 713 days (853 in FY25) — far above the statutory limit. ### UPSC Previous Year Questions (PYQs) *Real UPSC Prelims questions, checked against the official paper and answer key.* **Q1.** (2019) What was the purpose of Inter-Creditor Agreement signed by Indian banks and financial institu- tions recently? - (a) To act as independent regulator in case of application for loans of Rs. 50 core or more - (b) The lessen the Government of India's perennial burden of fiscal deficit and current account deficit. - (c) To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium - (d) To support the infrastructure projects of Central and State Governments **Answer: (c)** — The Inter-Creditor Agreement (2018) is a framework among banks and financial institutions in a consortium so that stressed assets of ₹50 crore or more can be resolved faster by a majority decision. **Q2.** (2019) The Chairman of public sector banks are selected by the - (a) Management of the concerned bank - (b) Union Ministry of Finance - (c) Banks Board Bureau - (d) Reserve Bank of India **Answer: (c)** — The Banks Board Bureau (2016) was created to select/recommend heads of public-sector banks and improve their board governance — UPSC's key accepts it as the body that selects the chairmen. **Q3.** (2019) The Service Area Approach was implemented under the purview of - (a) Lead Bank Scheme - (b) National Skill Development Mission - (c) the Integrated Rural Development Programme - (d) Mahatma Gandhi National Rural Employment Guarantee Scheme **Answer: (a)** — The Service Area Approach assigned bank branches to villages under the Lead Bank Scheme (1969) so that each village had a designated bank for rural credit. **Q4.** (2019) Which of the following is not included in the assets of a commercial bank in India? - (a) Advances - (b) Deposits - (c) Money at call and short notice - (d) Investments **Answer: (b)** — A bank's assets are what it lends or holds — advances, investments, money at call. Deposits are its liabilities (owed to depositors). **Q5.** (2022) With reference to the 'Banks Board Bureau (BBB)', which of the following statements are correct? 1. The Governor of RBI is the Chairman of BBB. 2. BBB recommends for the selection of heads of Public Sector Banks. 3. BBB helps the Public Sector Banks in developing strategies and capital raising plans. Select the correct answer using the code given below: - (a) 2 and 3 only - (b) 1 and 2 only - (c) 1 and 3 only - (d) 1, 2 and 3 **Answer: (a)** — The Banks Board Bureau was headed by an eminent person, not the RBI Governor (1 wrong); it recommends heads of PSBs (2 ✔) and helps PSBs with business strategy and capital-raising plans (3 ✔). **Q6.** (2026) With reference to different Committees in India, consider the following details: Sl. No. | Committee | Objective | Organization under which it was formed 1. R.N. Malhotra Committee | Comprehensive reforms of Insurance sector in India | Insurance Regulatory and Development Authority 2. L.C. Gupta Committee | Preparing a roadmap for the introduction of derivatives trading in India | Securities and Exchange Board of India 3. Urjit R. Patel Committee | Preparing a roadmap for reforming bank lending to the Housing sector | Reserve Bank of India 4. Y.H. Malegam Committee | Preparing a roadmap for reforms in Microfinance sector in India | Reserve Bank of India In which of the above rows are all the details correctly matched? - (a) 2 and 4 - (b) 1, 3 and 4 - (c) 2 only - (d) 2 and 3 **Answer: (a)** — Only L.C. Gupta (derivatives, SEBI) and Y.H. Malegam (microfinance, RBI) are correct. The Malhotra Committee (1993) was set up by the Finance Ministry — IRDA did not exist then — and the Urjit Patel Committee dealt with the monetary policy framework, not housing finance. **Q7.** (2026) Consider the following statements about the Non-Banking Financial Companies (NBFCs) in India: 1. NBFCs cannot accept demand deposits. 2. All the NBFCs operating in India have to be registered with the RBI. 3. NBFCs form part of the payment and settlement system and can issue cheque drawn on itself. 4. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to the depositors of deposit taking NBFCs. Which of the statements given above is/are correct? - (a) 1, 2 and 3 - (b) 4 only - (c) 2, 3 and 4 - (d) 1 and 4 **Answer: (d)** — NBFCs cannot accept demand deposits and DICGC cover is not available to their depositors (1 and 4 ✔). Not all financial companies are registered with the RBI (some are regulated by other bodies), and NBFCs are not part of the payment system and cannot issue cheques on themselves. **Q8.** (2026) Which one of the following correctly represents the three key sub-indices of the Financial Inclusion Index (FI-Index) of the Reserve Bank of India (RBI)? - (a) Credit access, Insurance depth, and Pension coverage - (b) Access, Affordability, and Transparency - (c) Access, Usage, and Quality - (d) Banking access, GDP contribution, and Financial literacy **Answer: (c)** — The RBI's FI-Index measures financial inclusion through three sub-indices: Access (35%), Usage (45%) and Quality (20%). **Q9.** (2018) Consider the following statements: 1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues. 2. CAR is decided by each individual bank. Which of the statements given above is/are correct? - (a) Both 1 and 2 - (b) Neither 1 nor 2 - (c) 1 only - (d) 2 only **Answer: (c)** — Capital adequacy is the own-fund cushion a bank must hold against its risk-weighted assets to absorb losses when borrowers fail to repay (statement 1 is right). The ratio is prescribed by the regulator — the RBI, following Basel norms — and not decided by each bank (statement 2 is wrong). **Q10.** (2018) With reference to the governance of public sector banking in India, consider the following statements: 1. Capital infusion into public sector banks by the Government of India has steadily increased in the last decade. 2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected. Which of the statements given above is/are correct? - (a) Neither 1 nor 2 - (b) Both 1 and 2 - (c) 1 only - (d) 2 only **Answer: (d)** — The merger of SBI's associate banks with SBI (2017) was a step to consolidate public-sector banking (statement 2 is right). Capital infusion has not risen steadily year after year — it has varied with the government's budgets — so statement 1 is wrong. **Q11.** (2021) With reference to 'Urban Cooperative Banks' in India consider the following statements: 1. They are supervised and regulated by local boards set up by the State Governments. 2. They can issue equity shares and preference shares. 3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966. Which of the statements given above is/are correct? - (a) 1 only - (b) 1, 2 and 3 - (c) 1 and 3 only - (d) 2 and 3 only **Answer: (d)** — Urban co-operative banks can issue equity and preference shares (2) and were brought under the Banking Regulation Act, 1949 by the 1966 amendment (3). They are not regulated by local boards set up by State governments — banking functions are regulated by the RBI — so statement 1 is wrong. ### Mains Practice Questions Use these to frame full-length answers. You don't have to answer one exactly — they show the angles UPSC tests, so let them guide which points you cover. - Discuss the structure of the Indian banking system and the role of the RBI as regulator. - What is an NPA? Examine the tools available to resolve bad loans (SARFAESI, DRT, IBC, bad bank) and their relative effectiveness. - Explain Basel III norms and the Prompt Corrective Action framework. How do they strengthen financial stability? - Assess the state of the Indian banking sector in 2025-26 using asset quality, capital and credit growth indicators, and the challenges that remain (IBC delays, agriculture NPAs). ### UPSC Mains — Previous Years’ Questions on this topic (last 10 years) These are the **actual GS Mains questions** UPSC has asked on this theme — real proof of how, and when, it is tested. Try to write a full answer to each. - 2026 (GS-III): Examine the view that financial inclusion is an integral part of social and economic inclusion in a country like India. Also throw light on the usefulness of the R.B.I.'s Financial Inclusion Index. - 2022 (GS-III): Is inclusive growth possible under market economy ? State the significance of financial inclusion in achieving economic growth in India. - 2016 (GS-III): Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional finance fold. Do you agree with this for financial inclusion of the poorer section of the Indian society? Give arguments to justify your opinion.