UPPSC 2024 Prelims GS Paper-I · Question 117 of 150

Correct — B, 1, 2 and 3. All three are textbook instruments of financial inclusion, i.e. of pushing formal banking outward to people and places the commercial banking system had left unserved. (1) Bank nationalisation: on the midnight of 19 July 1969 the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance took over 14 major commercial banks, each holding deposits above Rs 50 crore and together about 85 per cent of the country's bank deposits; a second round in 1980 added six more, after which the government controlled roughly 91 per cent of India's banking business. The declared purpose was to break the hold of a handful of business houses over credit and to force branch expansion and priority-sector lending into rural and small-town India — inclusion by ownership and by branch network. (2) Regional Rural Banks: created by an ordinance of 26 September 1975, the first five RRBs opened on 2 October 1975 and the framework was put on a statutory footing by the Regional Rural Banks Act, 1976. Their entire reason for existing was to combine the local feel of a cooperative with the discipline of a commercial bank and lend to small and marginal farmers, artisans and rural labourers — the first RRB, Prathama Bank, was headquartered at Moradabad in Uttar Pradesh and sponsored by Syndicate Bank. (3) Adoption of villages by bank branches: this is not a loose phrase but a named RBI practice. The Lead Bank Scheme, introduced by the RBI in December 1969 after the D.R. Gadgil Study Group (report October 1969) and the F.K.F. Nariman Committee (November 1969) endorsed an 'area approach', made one bank responsible for a district; the Service Area Approach of April 1989 went further and designated every rural and semi-urban branch to serve a defined block of 15 to 25 villages. Later financial-inclusion drives kept the same logic, with SLBC convenor banks allotted villages of population above 2,000 and then the smaller unbanked villages as well. So no statement can be dropped, and (b) is the only option that keeps all three.

• (a)Only 2 and 3 — Drops bank nationalisation, which is the single largest inclusion event in Indian banking history. Between 1969 and the early 1990s the branch network multiplied several times over, with the bulk of new branches opened in rural and semi-urban centres under a licensing policy that tied urban branches to rural ones, and priority-sector lending targets date from the same period. Excluding statement 1 is the commonest error here because candidates read nationalisation as a socialist ownership measure rather than as an access measure — it was both.
• (c)Only 1 and 2 — Drops the adoption of villages by bank branches, apparently on the assumption that it is a vague CSR-style gesture. It is not: it is the Service Area Approach of April 1989, an operational refinement of the Lead Bank Scheme under which each rural or semi-urban branch was allotted 15 to 25 villages for credit planning and service delivery. Its restrictive provisions were relaxed in December 2004, but the allotment principle survived into the modern financial-inclusion plans.
• (d)Only 3 — The most restrictive reading and clearly wrong. It rejects both nationalisation and the RRBs, the two structural steps that actually created a rural banking system for village adoption to operate within. Without the nationalised branch network and the RRBs there would have been few branches in the countryside to adopt any villages at all.

Financial inclusion means giving every household affordable access to formal financial services — a savings account, credit, remittances, insurance and pensions — instead of leaving it to moneylenders. India pursued this in three overlapping phases. First, the state-directed phase from 1969: nationalisation, the Lead Bank Scheme, branch licensing tied to unbanked areas, priority-sector lending, and the creation of RRBs (1975-76) and NABARD (1982). Second, the linkage phase from the 1990s: NABARD's SHG-Bank Linkage Programme (1992) and the Kisan Credit Card (1998). Third, the technology phase from the 2000s: no-frills accounts, business correspondents, PMJDY (28 August 2014), Aadhaar-enabled payments, UPI and the RBI's Financial Inclusion Index.

Questions of the 'which of these count as steps towards X' type are almost always answered by asking whether each item plausibly widens access, not by hunting for the one odd item. Here all three items sit inside the same official narrative — the RBI's own Master Circular on the Lead Bank Scheme narrates nationalisation, the area approach and village allotment as one continuous effort — so 'all of the above' is the safe reading. The trap is the third statement, which sounds informal; recognising it as the Service Area Approach converts it from a guess into a fact. Note also that this exact question was set by UPSC in 2010 with the same three items and the same answer, which is why it is worth learning as a unit rather than as three separate facts.

• Bank nationalisation: 14 banks with deposits above Rs 50 crore taken over on 19 July 1969 (about 85% of the country's bank deposits); six more in 1980, after which the government controlled roughly 91% of India's banking business.
• Regional Rural Banks: ordinance of 26 September 1975, first five RRBs opened 2 October 1975, statutory basis in the Regional Rural Banks Act, 1976. Shareholding 50% Centre, 35% sponsor bank, 15% State government.
• The first RRB was Prathama Bank, headquartered at Moradabad in Uttar Pradesh, sponsored by Syndicate Bank with an authorised capital of Rs 5 crore — a useful UP-specific detail for UPPSC.
• Lead Bank Scheme: introduced by the RBI in December 1969 on the recommendations of the D.R. Gadgil Study Group (report October 1969) and the F.K.F. Nariman Committee (November 1969), assigning each district to a 'lead' bank.
• Service Area Approach: introduced April 1989, designating each rural and semi-urban branch to serve 15 to 25 villages; reviewed in December 2004, when the restrictive provisions were dispensed with while the positive features were retained.
• Later inclusion drives kept the same design — SLBC convenor banks were advised to provide banking services in villages with population above 2,000, and coverage was then extended to unbanked villages below that size.

• Reading bank nationalisation only as an ownership or socialism question and therefore excluding it from 'financial inclusion'. Branch expansion into unbanked rural centres was its central justification.
• Treating 'adoption of villages by bank branches' as an informal or CSR activity. It is the Service Area Approach of April 1989 under the Lead Bank Scheme.
• Confusing the Lead Bank Scheme (a bank adopts a district) with the Service Area Approach (a branch is allotted 15-25 villages). The unit of adoption is different.

UPPSC lifts this item almost verbatim from UPSC 2010 and asks 'which of the above are steps towards financial inclusion'; UPSC prefers to test one instrument at a time — the aim of the Lead Bank Scheme, what the Service Area Approach fell under, or what PMJDY was launched for.

• practice — not a real PYQ

  The Service Area Approach, under which each rural and semi-urban bank branch was allotted a group of villages, was introduced in 1989 as a refinement of which scheme?

  • (a)Integrated Rural Development Programme
  • (b)Lead Bank Scheme
  • (c)Differential Rate of Interest Scheme
  • (d)Swarnjayanti Gram Swarozgar Yojana

  Answer(b) Lead Bank Scheme — the RBI introduced the Service Area Approach in April 1989 as an operational refinement of the Lead Bank Scheme (itself introduced in December 1969), designating each rural or semi-urban branch to serve 15 to 25 villages.

• practice — not a real PYQ

  Consider the following statements about Regional Rural Banks in India : 1. The first Regional Rural Bank was established in Uttar Pradesh. 2. Regional Rural Banks were given a statutory basis by an Act of Parliament passed in 1976. Which of the statements given above is/are correct?

  • (a)Only 1
  • (b)Only 2
  • (c)Both 1 and 2
  • (d)Neither 1 nor 2

  Answer(c) Both 1 and 2 — Prathama Bank, the first RRB, was headquartered at Moradabad in Uttar Pradesh and opened on 2 October 1975 under an ordinance of 26 September 1975; the Regional Rural Banks Act was enacted in 1976.