Banking Sector in India: UPSC Previous Year Questions (Indian Economy)
3 previous year UPSC Prelims questions on Banking Sector in India (Indian Economy). Choose an option to see the answer and explanation.
Explanations state facts as of the year each question was asked; words like “recently” refer to that year.
Showing 1–3 of 3 questions
UPSC 2016Indian Economy · Banking Sector in India
Q1. The establishment of ‘Payment Banks’ is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context? 1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks. 2. Payment Banks can issue both credit cards and debit cards. 3. Payment Banks cannot undertake lending activities. Select the correct answer using the code given below.
Explanation
Statement 1 is correct: The Reserve Bank of India’s guidelines for licensing Payments Banks specify that entities such as existing non-bank Prepaid Payment Instrument (PPI) issuers, mobile telephone companies, supermarket chains, and others owned and controlled by residents are eligible to promote Payments Banks. This initiative aims to leverage their extensive customer bases and distribution net-works to enhance financial inclusion.
Statement 2 is incorrect: Payments Banks are permitted to issue ATM or debit cards but are not allowed to issue credit cards. This restriction aligns with their mandate to provide basic banking services without engaging in credit risk activities. The restriction on credit cards is a key differentiator between Payment Banks and traditional banks.
Statement 3 is correct: As per RBI guidelines their primary role is to accept demand deposits, provide payment and remittance services, and distribute financial products like insurance and mutual funds, thereby promoting financial inclusion without assuming credit risk.
UPSC 2016Indian Economy · Banking Sector in India
Q2. The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? 1. It is a network of a bank’s branches which enables customers to operate their accounts from any branch of the bank on its network regardless of where they open their accounts. 2. It is an effort to increase RBI’s control over commercial banks through computerization. 3. It is a detailed procedure by which a bank with huge non-performing assets is taken over by another bank. Select the correct answer using the code given below.
Explanation
Statement 1 is correct: Core Banking Solution (CBS) is a centralized platform that connects all branches of a bank, allowing customers to access and manage their accounts from any branch, ATM, or online. It’s a software application that integrates various banking operations and provides a unified view of customer information. Statements 2 and 3 are incorrect:
The implementation of Core Banking Solutions is primarily driven by individual banks aiming to improve operational efficiency and customer service. Core Banking Solutions are unrelated to the processes of bank mergers or acquisitions. They are technological systems that enable centralized operations and do not pertain to the takeover procedures of banks with significant non-performing assets.
Additional insight:
Core Banking Solutions (CBS) is a centralized banking system that enables banks to handle their daily operations, such as deposit accounts, loan processing, fund transfers, and customer transactions, through one unified platform.With CBS, all bank branches are connected to a central database, allowing customers to access banking services easily, no matter which branch they use. This system supports real-time transaction processing and ensures that data is consistently updated across all branches. The Reserve Bank of India (RBI) uses E-kuber as its core banking solution, which was launched in 2012. E-kuber enables commercial banks to access their RBI current accounts anytime and from any location. It can be accessed via the internet or IN-FINET (Indian Financial Network), a secure network for member banks and financial institutions. INFINET serves as the communication backbone for the National Payments System.
UPSC 2016Indian Economy · Banking Sector in India
Q3. What is/are the purpose/purposes of the Marginal Cost of the Fund-Based Lending Rate (MCLR) announced by RBI? 1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances. 2. These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks. Select the correct answer using the code given below.
Explanation
MCLR is the lowest interest rate a bank can charge for loans. It helps banks calculate the minimum interest rate for different types of loans. The Reserve Bank of India (RBI) introduced the MCLR system on April 1, 2016, to make monetary policy transmission more effective and increase transparency in setting interest rates. It replaced the base rate system, which had been used since July 2010.
Statement 1 is correct: Bringing transparency in the methods followed by various banks for the determination of interest rate is one of the key objectives of MCLR regime. Before banks used various methods to set lending rates which lead to opacity and confusion for borrowers. MCLR introduced a standardized, transparent calculation method, requiring banks to disclose its components, helping borrowers better understand their loan rates.
Statement 2 is correct: By standardizing the methodology for calculating lending rates, the MCLR guidelines aim to ensure that interest rates are "fair" to Borrowers and Banks:
The transparent methodology prevents banks from arbitrarily charging high interest rates. The MCLR framework allows banks to factor in their actual cost of funds when determining lending rates, ensuring that they can maintain profitability.
Answer key for these questions
Q
UPSC year
Correct answer
1
2016
(b) 1 and 3 only
2
2016
(a) 1 only
3
2016
(c) Both 1 and 2
Frequently asked questions
How many previous year UPSC questions are there on Banking Sector in India?
This page covers 3 previous year UPSC Prelims GS Paper-I questions on Banking Sector in India (Indian Economy), asked from 1997 to 2025. Each has the correct answer and an explanation.
How should I use previous year UPSC questions for Prelims?
Attempt each question first, then open the answer and read the explanation for every option. Repeat by chapter, and track which statements UPSC reuses across years. Previous year questions show the exam pattern and difficulty level.
Which years are covered for Banking Sector in India?
Questions on Banking Sector in India (Indian Economy) are available for 24 years, from 1997 to 2025. Use the Year filter to practise a single paper.
