[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 11 March 2022 – Economy – INSIGHTSIAS

Solution: b)

The Local Area Banks (LABs) are small private banks, conceived as low cost structures which would provide efficient and competitive financial intermediation services in a limited area of operation, i.e., primarily in rural and semi-urban areas.

LABs were created following an announcement made by the then Finance Minister in the Union Budget in August 1996.

The promoters of the bank may comprise of private individuals, corporate entities, trusts and societies.

Since LABs are being set up in district towns, their activities are focused on the local customers with lending primarily to agriculture and allied activities, small scale industries, agro-industrial activities, trading activities and the non-farm sector. LABs are also required to observe the priority sector lending targets.

Solution: b)

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

Solution: d)

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

1. NBFC cannot accept demand deposits;
2. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;

iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Solution: b)

The market share of UCBs is very small (about 3 per cent) because over 90 per cent of their loan ticket size is less than ₹5 lakh, and historically they are well spread out only in a few States. The States where UCBs have a good presence are: Maharashtra, Gujarat, Karnataka, Tamil Nadu and Kerala.

The BR Act, 1949, is an Act meant for banking companies. The Act was amended in 1965 to bring cooperative banks under RBI regulation. The control of the RBI was partial and it shared the control with the registrar of cooperative societies of States.

The recent Banking Regulation (Amendment) Act 2020 enables the RBI to get all the powers, including those hitherto exclusively with the registrar of cooperative societies.

Solution: a)

Ever-greening loans is lending a new loan to a borrower on the verge of default, near the repayment date of an existing loan, to facilitate its repayment (Tantri, 2020). Such transactions go undetected as banks are not required to disclose them, unlike restructurings that warrant disclosures.