Question map
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 ?
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] https://www.adb.org/sites/default/files/publication/379076/securitization-india-infrastructure.pdf
PROVENANCE & STUDY PATTERN
Full viewThis 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.
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)?
- Statement 2: Did the Government of India merge all five State Bank of India associate banks and Bharatiya Mahila Bank into State Bank of India effective April 1, 2017?
- Statement 3: Did the Government of India state that the purpose of merging SBI’s associate banks with SBI was to consolidate, strengthen, or "put public sector banks in order" in India?
Explicit textbook claim that 'Capital infusion into Public Sector Banks by the Government of India has steadily increased in the last decade.'
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.
Mentions a concrete instrument — 'Bank recapitalisation bonds' issued to specific PSBs in 2018, indicating a notable infusion event in that year.
Compare the 2018 infusion (including bonds) with prior years' fiscal documents to see if 2018 fits a rising series or is an outlier.
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.
Use FRBM timelines to guide examination of budgetary capacity and constraints in 2008–09 and subsequent years when evaluating year-wise capital infusions.
Defines what constitutes Public Sector Banks (government ownership >51%) so one knows which banks receive ‘capital infusion’ from the Government.
Use this definition to limit data collection to eligible PSBs when compiling year-wise infusion amounts from official sources for 2008–2018.
Contrasts private vs public sector banks, implicitly suggesting different recapitalisation responsibilities (government infuses capital into PSBs, not private banks).
Exclude private banks when assembling year-wise government infusion figures and focus on PSBs' recapitalisation records in budgets/RBI statements.
- Explicitly states the merger occurred in April 2017.
- Lists the five associate banks and Bharatiya Mahila Bank as merged into SBI.
- Describes the 2017 merger of SBI with its five associate banks and Bharatiya Mahila Bank.
- Frames the event as a historic 2017 consolidation confirming the same parties were merged.
- Refers to the 2017 merger of SBI with its associate banks and Bharatiya Mahila Bank as a major event.
- Supports the timing (2017) and the parties involved in the consolidation.
States that SBI acquired control of several regional 'associate' State Banks and that 'All of them, along with Bharatiya Mahila Bank, had been gradually merged with SBI.'
A student could use this pattern to presume such a consolidation occurred and then check authoritative timelines (e.g., SBI/GOI press releases) to verify whether the final legal/operational date was 1 April 2017.
Notes a general rule/pattern that 'the merger of associate banks with the parent State Bank of India has been affected' as a corrective/organizational measure.
One could treat this as evidence of a policy trend and then consult the specific merger notifications or government Gazette dates to confirm which associates and the effective date.
Provides a precedent of the Government of India implementing large-scale bank amalgamations with specific effective dates (example: multiple PSB amalgamations effective 1 April 2020).
Use this precedent to infer the government commonly uses 1 April as an effective date for bank reorganisations and then check whether 1 April 2017 was used for the SBI associate/BMB consolidation.
Describes SBI's history of being formed by amalgamation and later nationalisation, illustrating that SBI has undergone structural mergers historically.
A student can generalize that SBI has both precedent and legal mechanisms for absorbing other banks, so they should look up the specific 2017 legal orders or notifications for details.
Gives an example (1921 amalgamation) showing that banking mergers in India are formal events with dates and names, reinforcing that verifying the claim requires checking formal merger dates.
Apply this idea to search for the formal merger instrument (e.g., Gazette notification) for the 2017 SBI associate/BMB merger to confirm which banks and the effective date.
- SBI's annual report explicitly links consolidation and strengthening to the 'Public-Sector Banks Reforms Agenda' envisaged by the Government of India.
- This shows the Government framed consolidation/strengthening as an objective under its PSB reforms agenda (though the passage refers to overseas operations).
- A Government press release describes measures to 'enhance the financial condition of Public Sector Banks (PSBs) through the Enhanced Access & Service Excellence (EASE) framework'.
- This confirms the Government publicly framed strengthening PSBs as an explicit objective of its reforms.
Explicit textbook line linking the merger of SBI associate banks with an aim 'to put the public sector banks in order.'
A student could treat this as a reported government rationale and check primary government releases or press notes from the merger period to confirm official wording.
Lists general benefits of 'mega consolidation' (scale, cost benefits, greater lending capacity) that match the ideas of strengthening and consolidating banks.
Use these listed objectives to infer that government justification for mergers would plausibly emphasize consolidation/strengthening and then seek government statements echoing these goals.
Documents the historical fact that several SBI associate banks were gradually merged with SBI, showing the action whose purpose is in question.
Combine this record of mergers with policy documents from the merger dates (e.g., government notifications) to see if stated motives match 'putting PSBs in order.'
Defines SBI and its associates as part of the public sector banks category, so merging them directly affects the PSB sector referenced in the statement.
Use this definition plus knowledge that policy statements about PSBs apply to SBI and its associates, then check government policy texts about PSB restructuring.
Explains historical government interest in controlling and guiding PSBs (nationalization aimed at ensuring policy priorities), providing context for government interventions like mergers.
Treat this as background that the government has precedent for intervening in PSBs for systemic/ policy reasons, then look for merger-era statements framed in similar terms.
- [THE VERDICT]: Manageable. Statement 1 is a classic 'Trend Trap' (False), and Statement 2 is 'Headline News' (True).
- [THE CONCEPTUAL TRIGGER]: Banking Sector Reforms (Narasimham Committee II, Indradhanush Plan, EASE Agenda).
- [THE HORIZONTAL EXPANSION]: Memorize the 'Indradhanush' 7 prongs (ABCDEFG); the specific banks involved in later mergers (e.g., Dena+Vijaya → BoB); the difference between Recapitalization Bonds vs. Budgetary Support; and the triggers for Prompt Corrective Action (PCA).
- [THE STRATEGIC METACOGNITION]: When studying economic data (GDP, Forex, Capital Infusion), never memorize exact numbers. Instead, memorize the 'Shape of the Graph'. Is it linear? Is it volatile? Did it dip in 2008 or 2013? 'Steadily' is your enemy.
One reference refers to Government issuance of bank recapitalisation bonds in 2018, directly related to how the government recapitalises PSBs.
High-yield for UPSC: understand instruments and policy tools used for recapitalising banks (bonds, budgetary capital infusion, sovereign guarantees). Connects to public finance, banking sector stability, and fiscal implications. Enables questions on methods, pros/cons, and impact on fiscal metrics.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.5 Government Securities > p. 47
Evidence lists major amalgamations of public sector banks in 2020, showing policy actions affecting PSB structure over time.
Important for GS papers: mergers alter balance sheets, recapitalisation needs, and systemic risk. Mastering this helps answer questions on reform rationale, outcomes, and linkage with recapitalisation and governance.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > RECENT DEVELOPMENTS > p. 177
References describe what constitutes a public sector bank and recall nationalisation history—essential background when discussing government role and capital support.
Core grounding for banking questions: links to public finance, priority sector lending, and evolution of state ownership. Useful for framing answers on why governments recapitalise PSBs and how policy has evolved since nationalisation.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 4. Co-operative Banks: > p. 82
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.1 History of Indian Banking and Reforms > p. 126
References state that SBI's regional associate banks and Bharatiya Mahila Bank were gradually merged into SBI and mention merger activity involving SBI associates.
High-yield for questions on banking sector reforms and institutional consolidation; helps answer questions on the structure and consolidation of public sector banks. Master by mapping which associate banks existed, timelines of their integration, and policy reasons (consolidation, efficiency). Enables both static factual and analytical consolidation questions.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > 7.20 Indian Economy > p. 176
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2018 > p. 249
Evidence outlines SBI's origin from the Imperial Bank of India and later nationalisation, providing background for understanding its network of associates.
Useful for history-and-institutions questions linking colonial legacy to modern banking structure; helps frame why associate banks existed and how SBI grew. Study by tracing timeline: presidency banks → Imperial Bank → SBI → later amalgamations.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > History of Banking > p. 160
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > 2 1. State Bank of India > p. 175
References document major PSB amalgamations (e.g., 2020 consolidations), showing a broader policy trend of merging banks for stronger entities.
Important for contemporary polity-economy questions on banking reforms and government policy responses; links to fiscal, regulatory and financial stability topics. Candidates should track key consolidation events and their policy rationale to answer analytical UPSC mains and interview questions.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > RECENT DEVELOPMENTS > p. 177
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > 7.24 Indian Economy > p. 180
Evidence lists the intended benefits of amalgamation (greater scale, cost benefits, ability to support larger lending and competitive advantage).
High-yield for UPSC because questions often ask for policy rationale behind financial-sector reforms; mastering this helps explain objectives like scale, efficiency, and global competitiveness and link them to stability and credit delivery. Useful for both static and contemporary policy answer-writing and for analyzing reform outcomes.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Benefits of such amalgamation: > p. 177
The 'G' in the Indradhanush Plan stood for Governance reforms, specifically the creation of the Bank Board Bureau (BBB), later replaced by FSIB. A future question will likely target the specific mandate of FSIB vs. the Appointments Committee of the Cabinet.
The 'Steady Trend' Heuristic: In the Indian economy, almost nothing increases 'steadily' for 10 years without a single year of decline or stagnation. If you see 'steadily' + 'last decade', treat it as FALSE with 95% confidence. Eliminating Statement 1 leaves you with Option B (2 only) or D. Since the SBI merger was major news, B is the logical choice.
Link Capital Infusion to Fiscal Policy (GS3). Recapitalization Bonds are often 'below the line' items—they increase Public Debt but do not immediately spike the Fiscal Deficit. This accounting nuance is a potential Mains question on 'Off-Budget Borrowing'.