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Q96 (IAS/2018) Economy › Economy Current Affairs › Banking sector reforms Official Key

With reference to the governance of public sector banking in India, consider the following statements : 1. Capital infusion into public sector banks by the Government of India has steadily increased in the last decade. 2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected. Which of the statements given above is/are correct ?

Result
Your answer: —  ·  Correct: B
Explanation

The correct answer is option B (Statement 2 only).

**Statement 1 is incorrect** because capital infusion into public sector banks did not steadily increase over the last decade. Under the Indradhanush Plan, the budgetary allocation and actual disbursement varied: FY2016 had Rs 250 billion allocated with Rs 200 billion disbursed, FY2017 had Rs 250 billion allocated with Rs 162 billion disbursed, and FY2018 had Rs 100 billion allocated and[1] announced. This shows fluctuation rather than a steady increase.

**Statement 2 is correct** because in April 2017, SBI merged with five of its associate banks (State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore) and Bharatiya Mahila Bank (BMB)[2]. This merger was part of Indian banking reform[3], aimed at consolidating and strengthening public sector banks. This merger directly relates to putting public sector banks in order through consolidation.

Sources
  1. [1] https://www.adb.org/sites/default/files/publication/379076/securitization-india-infrastructure.pdf
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. With reference to the governance of public sector banking in India, consider the following statements : 1. Capital infusion into public s…
At a glance
Origin: Mostly Current Affairs Fairness: Low / Borderline fairness Books / CA: 0/10 · 6.7/10
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This question is the perfect archetype of the 'Trend vs. Event' pattern in Economy. Statement 1 uses the 'steadily' trap (economic data rarely moves in a straight line for 10 years), while Statement 2 is a headline current affair from the preceding year (SBI Merger, 2017). It rewards skepticism over rote memorization.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
For public sector banks in India, did the Government of India’s year-wise capital infusion from 2008 to 2018 show a steady increase (provide year-wise amounts to verify)?
Origin: Weak / unclear Fairness: Borderline / guessy
Indirect textbook clues
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2018 > p. 249
Strength: 5/5
“Money and Banking • 1. Capital infusion into Public Sector Banks by the Government of India has steadily increased in the last decade. • 2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected. Which of the statement given above is/are correct? • (a) 1 only • (b) 2 only • (c) Both 1 and 2 • (d) Neither 1 nor 2”
Why relevant

Explicit textbook claim that 'Capital infusion into Public Sector Banks by the Government of India has steadily increased in the last decade.'

How to extend

A student could treat this as a general hypothesis and then check Government budgets/press releases or RBI reports for yearly capital infusion figures (2008–2018) to confirm or refute the 'steady increase' pattern.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.5 Government Securities > p. 47
Strength: 4/5
“increased by the inflation index and the interest is offered on the increased principle. • Special Securities: Under the market borrowing program, the Government of India also issues, from time to time, special securities to entities like Oil Marketing Companies, Fertilizer Companies, the Food Corporation of India, etc. (popularly called oil bonds, fertiliser bonds and food bonds respectively) as compensation to these companies in lieu of cash subsidies.• Bank recapitalization bonds: Government of India has also issued Bank Recapitalisation Bonds to specific Public Sector Banks in 2018. (Discussed in detail in bank recapitalization)• Sovereign gold bonds (SGB): SGBs are unique instruments, prices of which are linked to commodity price viz Gold.”
Why relevant

Mentions a concrete instrument — 'Bank recapitalisation bonds' issued to specific PSBs in 2018, indicating a notable infusion event in that year.

How to extend

Compare the 2018 infusion (including bonds) with prior years' fiscal documents to see if 2018 fits a rising series or is an outlier.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > vert 2010 \vert > p. 129
Strength: 3/5
“Which one of the following was not stipulated in the Fiscal Responsibility and Budget Management Act, 2003? • (a) Elimination of revenue deficit by the end of the fiscal year 2008-09. • (b) Non-borrowing by the Central Government from the Reserve Bank of India except under certain circumstances. • (c) Elimination of primary deficit by the end of the fiscal year 2008-09. (d) Fixing Government guarantees in any financial year as a percentage of GDP. | 1. (d) | 2. (a) | 3. (c) | 4. (a) | 5. (b) | 6. (d) | 7. (c) • Col1: 8. (d); Col2: 9. (b); Col3: 10. (a); ANSWERKEY: 11. (d); Col5: 12. (c); Col6: 13. (c); Col7: 14. (d) • Col1: 15. (c); Col2: 16. (a); Col3: 17. (c); ANSWERKEY: ; Col5: ; Col6: ; Col7:”
Why relevant

Discusses fiscal rules and targets around 2008–09 (FRBM Act references), pointing to a policy context that could affect year-to-year government spending and recapitalisation decisions.

How to extend

Use FRBM timelines to guide examination of budgetary capacity and constraints in 2008–09 and subsequent years when evaluating year-wise capital infusions.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 4. Co-operative Banks: > p. 82
Strength: 3/5
“Public Sector Banks: Banks owned by the Central or State governments having more than 51% ownership with the government. For example, SBI and its associates, Punjab National Bank, Bank of India etc. Nationalized Banks (private banks taken over by government) which were nationalized in 1969 and 1980's are also public sector banks as government owns more than 51% in these banks.• 6. Private Sector Banks: Banks owned by private individuals for example ICICI bank, Axis Bank etc.• 7. Foreign Banks: Banks established in India but owned by foreign entity/ies for example Citi Bank. These are basically private banks only owned by foreign entities.• 8.”
Why relevant

Defines what constitutes Public Sector Banks (government ownership >51%) so one knows which banks receive ‘capital infusion’ from the Government.

How to extend

Use this definition to limit data collection to eligible PSBs when compiling year-wise infusion amounts from official sources for 2008–2018.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > 3. Private Sector Indian Banks > p. 178
Strength: 2/5
“• The bank whose major share of capital is held by a private stockholder is known as a Private Sector Bank. Private Sector banks are of two types in India, namely: • Old Private Sector Banks: These are banks that were not nationalised in 1969 and \ddot {a}in 1980 due to their small size and regional focus. • New Private Sector Banks: These are banks that came into existence after 1991 b</sub> with the introduction of economic reforms and financial sector reforms. Examples of Indian Private Banks include HDFC Bank, Axis Bank, ICICI Bank, Bandhan Bank, Yes Bank, etc.”
Why relevant

Contrasts private vs public sector banks, implicitly suggesting different recapitalisation responsibilities (government infuses capital into PSBs, not private banks).

How to extend

Exclude private banks when assembling year-wise government infusion figures and focus on PSBs' recapitalisation records in budgets/RBI statements.

Statement analysis

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Statement analysis

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