Samacheer Kalvi Class 11 Commerce Solutions Chapter 11 Types of Banks

Exercise

I. Choose the Correct Answer

Question 1. Which bank is not an Industrial Bank?
(a) ICICI
(b) HSBC
(c) SIDBI
(d) IDBI
Answer: (b) HSBC
In simple words: HSBC is not an industrial bank because it mainly focuses on commercial and investment banking services, rather than providing long-term finance for industrial projects.

🎯 Exam Tip: Remember to differentiate between commercial banks (like HSBC) and development/industrial banks (like ICICI, SIDBI, IDBI) based on their primary functions and target clients.

Question 2. The Local Area Banks are promoting
(a) Rural savings
(b) Business savings
(c) Industrial development
(d) Agricultural development
Answer: (a) Rural savings
In simple words: Local Area Banks encourage people in villages to save money. This helps keep money within the local community for local growth.

🎯 Exam Tip: Focus on keywords like "Local Area" which indicate a localized impact, often in rural or semi-urban areas.

Question 3. Foreign banks are begun their operation since
(a) 1978
(b) 1979
(c) 1980
(d) 1981
Answer: (c) 1980
In simple words: Many foreign banks started their work in India from the year 1980 onwards. This marked a new phase of international banking presence.

🎯 Exam Tip: Specific dates or periods related to financial reforms or new types of institutions are common knowledge points in banking. Try to recall the broad era.

II. Very Short Answer Questions

Question 1. Give the meaning of Commercial Banks.
Answer: Commercial banks are financial institutions that take money from the public as deposits. They also lend money to various groups like traders, individuals, farmers, and businesses. Their main goal is to make a profit from these activities. They play a crucial role in a country's economic activities by providing essential financial services.
In simple words: Commercial banks accept deposits from people and give out loans to businesses and individuals to make a profit.

🎯 Exam Tip: When defining commercial banks, always include their two main functions: accepting deposits and granting loans, and mention their profit motive.

Question 2. What do you mean by Industrial Banks?
Answer: Industrial banks are financial organizations that get money by selling special investment papers and taking deposits from individuals. They use these funds to give out loans, often secured by property, for personal use and industrial growth. These banks are also known as Development banks because they focus on long-term development. They aim to support big industrial projects rather than daily transactions.
In simple words: Industrial banks gather funds to give loans for long-term industrial projects and personal needs, often also called Development banks.

🎯 Exam Tip: Emphasize that industrial banks focus on "long-term finance" and "development" for industries, distinguishing them from commercial banks.

Question 3. Briefly explain about Correspondent Banks?
Answer: A correspondent bank is a bank that acts on behalf of another bank in a foreign country. This helps the first bank to offer international services to its customers, even without having its own branch there. For instance, it can facilitate international fund transfers or trade finance. This arrangement allows banks to expand their global reach without establishing a physical presence.
In simple words: A correspondent bank helps another bank do business in a foreign country where it doesn't have its own office.

🎯 Exam Tip: The key idea for correspondent banks is "acting on behalf of another bank in a foreign country" for international transactions.

Question 4. What are Foreign Banks?
Answer: Foreign banks are banks that have their main office in a different country but operate branches in India. These banks follow India's banking rules and were 42 in number in 2017, all of them scheduled banks, showing their regulated status. They bring global banking practices and competition to the Indian market. Such banks play a role in international trade and finance.
In simple words: Foreign banks have their head office abroad but run branches in India, following Indian banking laws.

🎯 Exam Tip: When describing foreign banks, mention their foreign origin, operations in India, adherence to local regulations, and their scheduled status.

III. Short Answer Questions

Question 1. Write a short note on Local Area Banks, Give two examples.
Answer: Local Area Banks (LABs) were started by the RBI in August 1996. These are small private banks mainly found in villages and smaller towns. Each LAB works only in two or three nearby districts. Their main goal is to collect savings from people in rural areas and then use that money for investments in the same local regions. This helps in localized economic growth. For example, the Coastal Local Area Bank in Vijayawada, Andhra Pradesh, and Subhadra Local Area Bank Limited in Kolhapur, Maharashtra, are two such banks.
In simple words: Local Area Banks (LABs) are small private banks in rural areas that collect local savings and invest them back into their local districts.

🎯 Exam Tip: Remember the founding year (1996), their localized operation (2-3 districts), and their dual objective: mobilizing rural savings and investing locally.

Question 2. What are the objectives involved in Regional Rural Banks?
Answer: Regional Rural Banks (RRBs) were set up under an Act in 1976. They are jointly owned by the Central Government, State Government, and a sponsor bank in a 50:15:35 share ratio. These banks aim to help the economy in villages grow. They support cooperative societies and collect savings from rural people. RRBs also provide money to village craftspeople, small business owners, and farmers, aiming to reduce their reliance on local moneylenders. Their focus is specifically on rural development and financial inclusion.
In simple words: Regional Rural Banks help rural economies grow, collect savings, provide loans to farmers and artisans, and reduce dependence on moneylenders.

🎯 Exam Tip: Key points for RRBs are their formation year (1976), ownership structure (50:15:35 ratio), and their focus on rural economic development and financial services for farmers and artisans.

Question 3. Mention the purposes of Agricultural and Co-operative banks
Answer: Agricultural and Cooperative banks primarily aim to serve their members by helping with rural and farming development, rather than making a profit. They are usually located in towns and villages, not big cities. These banks offer fewer services than commercial banks because their rules only allow them to do certain activities. Their core mission is to uplift rural communities by providing accessible financial support. These banks are vital for fostering economic self-sufficiency in rural areas.
In simple words: Agricultural and Cooperative banks focus on rural and farming development for their members, operating in villages with limited services, and not prioritizing profit.

🎯 Exam Tip: Highlight "service to members," "rural and agricultural development," and "not profit earning" as core purposes for these banks.

IV. Long Answer Questions

Question 1. Explain the various types of banks on the basis of their functions: (Any 5)
Answer: Banks can be classified into several types based on their specific functions:
1. **Central Bank:** A Central Bank is the main bank of any country. Its job is to control how much money (currency) and credit is in circulation. These banks are called by different names in different countries. They are usually independent or semi-independent bodies. Their main aim is to keep the country's economy stable and help it grow. In India, the Reserve Bank of India (RBI) is our central bank, guiding monetary policy.
2. **Commercial Bank:** Commercial banks take deposits from the public and give loans to various groups like traders, individuals, farmers, and businesses, aiming to make a profit. They also offer services such as sending money, keeping valuables safe, collecting cheques, and issuing letters of credit. These banks usually have a head office and many branches across the country, forming the backbone of the retail banking system. Examples include State Bank of India and Karur Vysya Bank.
3. **Development Banks:** These banks provide large amounts of money for big investments, expanding businesses, and modernizing industries. They are also known as industrial banks. Their main goal is not to make a profit, but to help the country grow and create jobs. They offer loans for medium to long periods, usually from five to twenty years, to support long-term economic projects. Examples include the Industrial Finance Corporation of India (IFCI) and MUDRA bank, which helps small businesses.
4. **Cooperative Banks:** Cooperative banks in India are owned by their members, who are usually farmers, small traders, or other individuals. These banks operate in both cities and villages. Their main aim is to serve their members by supporting rural and agricultural development, not primarily to make a profit. They offer fewer services compared to commercial banks due to their specific rules. The National Cooperative Development Corporation (NCDC) also helps these banks by providing funds for cooperative societies and projects like water management and agricultural insurance, ensuring community well-being.
5. **Foreign Banks:** Foreign banks have their main offices in other countries but run branches in India. They usually set up offices only in large cities and port areas. These banks often have higher profits than local Indian banks. As of 2017, there were 42 foreign banks in India, and all of them were scheduled banks, meaning they were regulated by the RBI. Examples include Bank of America (USA) and Deutsche Bank (Germany), bringing international financial expertise to India.
In simple words: Banks are grouped by what they do: Central Banks control money, Commercial Banks handle daily deposits and loans, Development Banks fund big projects, Cooperative Banks help their members in rural areas, and Foreign Banks operate globally with branches in other countries.

🎯 Exam Tip: For functional classification, ensure you name the bank type, briefly define its core purpose, mention its key activities, and provide a relevant example. Focus on differentiating features for each type.

Question 2. Write a note on small Finance Banks:
Answer: Small Finance Banks (SFBs) are private banks created to provide financial services in areas where banking access is limited or unavailable. An example is Ujjivan SFB Limited in Bengaluru, Karnataka. Their main goals are to collect savings from rural areas and provide loans to small and marginal farmers, tiny and small businesses, and other informal sector groups. This helps bring more people into the formal banking system and promotes financial inclusion, reaching those traditionally underserved by larger banks.
In simple words: Small Finance Banks are private banks that serve people in unbanked areas, collecting savings and giving loans to small farmers and businesses to promote financial inclusion.

🎯 Exam Tip: When writing about SFBs, highlight their role in "financial inclusion," serving "unbanked/underbanked" regions, and catering to "small and marginal" customers.

Question 3. What do you mean by Payment Bank?
Answer: Payment Banks are made to help small businesses, families with less money, and workers who move around. They spread out financial services and payment options more widely. These banks need to be fully connected everywhere right from the start. They offer banking services right at people's homes, with a small fee based on the amount. They give out ATM and Debit cards, offer internet banking, and let people send money to others. Their main goal is to make basic banking easier for everyone, especially those who do not have access to traditional banks. But these banks cannot give loans or credit cards. The RBI first allowed these banks with 'in principle' licenses in August 2015.
In simple words: Payment Banks help small businesses and workers manage money. They offer basic services like cards and transfers but cannot give loans. They make banking simple and accessible.

🎯 Exam Tip: To score full marks, mention the key services of Payment Banks and clearly state what they are *not* allowed to do, like lending money.

Question 4. Is there India that needs large-sized banks?
Answer: Yes, India needs bigger banks. For example, the Industrial and Commercial Bank of China is the world's biggest bank, holding over USD 3,893.23 billion in assets. In India, Punjab National Bank is the largest nationalized bank, but it has only USD 100 billion in assets and ranks 717 globally. After merging with its five associate banks and Bharatiya Mahila Bank on April 1, 2017, SBI's assets grew to USD 573 billion. This helped SBI reach the top 50 global banks, improving from its earlier rank of 272. The National Bank of Australia, for instance, has USD 578.46 billion in assets and ranks 49th. Bigger banks can handle larger projects and compete better in the international market, which helps a country's economy grow. To compete globally, India needs many more large banks. This is why the government is considering merging many nationalized banks.
In simple words: Yes, India needs bigger banks to compete globally. Countries like China have huge banks. Indian banks are much smaller. Merging banks can make them stronger and help India's economy grow.

🎯 Exam Tip: When discussing the need for large banks, always compare with global examples and mention the benefits like global competitiveness and economic growth.