UPSC Prelims 2010 Q142: Indian Economy – Banking & Financial Sector
Consider the following statements :
The functions of commercial banks in India include
1. Purchase and sale of shares and securities on behalf of customers.
2. Acting as executors and trustees of wills.
Which of the statements given above is/are correct ?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (c) Both 1 and 2
Explanation
Checking two functions of commercial banks in India
Commercial banks in India offer several services beyond basic deposit-taking and lending.
| Statement | Verdict | Reason |
|---|---|---|
| 1. Purchase and sale of shares/securities on behalf of customers | Correct | Banks commonly provide agency/merchant banking services, including buying and selling securities for customers |
| 2. Acting as executors and trustees of wills | Correct | Many commercial banks also offer trustee and executor services, managing estates and wills on behalf of clients |
Commercial banks' broader functions:
| Point | Detail |
|---|---|
| Agency services | Securities purchase/sale on behalf of customers |
| Trustee services | Acting as executors/trustees of wills |
Answer: (c) Both 1 and 2.
Why each option is right or wrong
- (a) Incorrect. Function 2 (executor/trustee services) is also genuine, so '1 only' is incomplete.
- (b) Incorrect. Function 1 (securities purchase/sale) is also genuine, so '2 only' is incomplete.
- (c) CORRECT. Both securities agency services and executor/trustee services are genuine functions offered by commercial banks in India.
- (d) Incorrect. Since both functions are genuine, 'neither' is wrong.
Key point
Commercial banks in India genuinely offer BOTH securities purchase/sale agency services AND executor/trustee services for wills — functions beyond basic deposit-taking and lending.
Remember
Commercial banks' functions include both securities agency services (buying/selling for customers) and acting as executors/trustees of wills.
Common mistakes
- Assuming commercial banks are limited to only deposit-taking and lending, missing their broader agency/trustee services.
- Not knowing banks' role as executors/trustees of wills, a less commonly highlighted function.
- Treating one of the two listed functions as implausible without separate verification.
Exam tip
Commercial banks offer more than deposits/loans: they also provide securities agency services AND executor/trustee services for wills.
Sources
- Banking Regulation Act, 1949, Section 6 (forms of business in which banking companies may engage)
- Encyclopaedia Britannica — commercial bank