Test: Types of Banks - UGC NET MCQ

Statement 1 is incorrect because payments banks are not authorized to provide loans or credit cards; their services are limited to savings accounts, money transfers, and bill payments. Statement 2 is correct as Airtel Payments Bank and India Post Payments Bank are indeed examples of payments banks operating in India. Therefore, the correct answer is Option B, indicating that only Statement 2 is correct.

• The Assertion is true as foreign banks do provide a wide range of services, including corporate and retail banking.
• The Reason is also true; however, it does not accurately explain the Assertion. While RRBs contribute to the banking landscape, they do not limit the services offered by foreign banks, which cater to different market segments.
• Therefore, the correct answer is Option B, as both statements are true, but the Reason does not serve as a correct explanation for the Assertion.

- Assertion Analysis: The assertion is true. Private sector banks, such as HDFC Bank and ICICI Bank, have indeed increased their market share significantly due to their competitive strategies and customer service improvements.

- Reason Analysis: The reason is also true. Private sector banks tend to innovate more in terms of technology and product offerings, providing a range of services that cater to diverse customer needs.

- Explanation Relationship: The reason directly explains the assertion. The innovation in products and services is a key factor in why private sector banks have gained market share, making this option correct.

- Statement 1 is correct as it accurately describes the purpose of Small Finance Banks (SFBs), which is to cater to the financial needs of underserved segments, including small businesses and farmers.

- Statement 2 is incorrect because the major Small Finance Banks are not traditional banks like State Bank of India or Punjab National Bank; they include banks such as AU Small Finance Bank, Equitas Small Finance Bank, Ujjivan Small Finance Bank, and Jana Small Finance Bank.

Therefore, the correct answer is Option A: 1 Only.

Regional Rural Banks (RRBs) are established specifically to meet the financial needs of rural populations, providing accessible banking services such as loans, savings, and financial advice tailored to the agricultural and rural sectors. This focus helps improve financial inclusion and supports rural development, making RRBs crucial for enhancing the economic conditions of rural communities.

- Assertion Analysis: The assertion is true. Private banks often offer higher interest rates on deposits to attract customers.

- Reason Analysis: The reason is true as well. Intense competition among private banks indeed leads them to offer better rates.

- Explanation Relationship: However, the reason does not fully explain the assertion since other factors, like operational costs and target clientele, also influence interest rates. Hence, this option is correct.

The Reserve Bank of India (RBI) is responsible for regulating the Indian banking system and overseeing monetary policy. This includes managing inflation, ensuring financial stability, and controlling the supply of money in the economy. An interesting fact is that the RBI also plays a crucial role in maintaining foreign exchange reserves, which are essential for stabilizing the currency and facilitating international trade.

The merger of Andhra Bank and Corporation Bank took place with Union Bank of India. This merger is part of a broader trend in the banking sector where several public sector banks have consolidated to enhance efficiency and financial stability. Mergers can help banks achieve larger scale operations, reduce costs, and improve customer service by leveraging combined resources. An interesting fact is that these mergers are often aimed at creating stronger institutions that can better compete in both domestic and international markets.

• The Assertion is correct: Scheduled banks are indeed pivotal in the financial system as they can accept demand deposits and grant loans, which facilitates economic activities.
• The Reason is also correct: Non-scheduled banks lack regulation by the Reserve Bank of India and focus on specialized markets.
• However, the Reason does not explain the Assertion, as the roles and functions of scheduled banks are independent of the characteristics of non-scheduled banks.

Investment Banks are primarily associated with underwriting, facilitating mergers, and providing advisory services in capital markets, whereas the types of banks classified in India include Commercial Banks (which encompass Public Sector Banks and Private Sector Banks), Cooperative Banks, and Regional Rural Banks. This classification reflects the diverse banking needs across urban and rural areas in India.