UPSC Prelims 2018 Q96: Indian Economy – Banking & Financial Sector

UPSC Prelims 2018, General Studies Paper I · Indian Economy

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?

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

Answer: (b) 2 only

Explanation

Public Sector Banking - Capital Infusion and Consolidation

Statement	Claim	Verdict	Detail
1	Government capital infusion into PSBs steadily increased in last decade	FALSE	Capital infusion has been volatile, not steadily increasing. Large tranches: FY2015-16 Indradhanush, FY2017-18 recapitalisation Rs 2.11 lakh crore, FY2019-20 Rs 70,000 cr. Some years saw minimal infusion. Not a monotonic increase.
2	To put PSBs in order, State Bank associate banks were merged with SBI	TRUE	April 2017 merger - State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and Bharatiya Mahila Bank were merged into SBI, making it a global-scale bank (~24,000 branches, top-50 global by assets).

Answer: (b) 2 only.

Why each option is right or wrong

(a) Incorrect. Statement 1 is wrong - capital infusion was volatile, not steadily increasing.
(b) CORRECT. Only Statement 2 is right - the SBI associate banks merger in April 2017 was a major PSB consolidation.
(c) Incorrect. Statement 1 misrepresents capital infusion trends.
(d) Incorrect. Statement 2 is factually correct about SBI merger.

Key point

PSB reforms: Indradhanush plan (2015), Rs 2.11 lakh cr recap (2017-18), SBI-associates merger (April 2017), later mergers: BoB+Vijaya+Dena (2019), 10 PSBs into 4 (April 2020). Bank Boards Bureau, PCA framework, IBC 2016 for resolution.

Remember

In April 2017, State Bank of India merged its five associate banks (SBBJ, SBH, SBM, SBP, SBT) and the Bharatiya Mahila Bank into itself, becoming one of the world's top-50 banks by assets. Government capital infusion into public sector banks has not been steadily increasing - it has been volatile, responding to NPA cycles, with large tranches in 2015 (Indradhanush) and 2017-18 (Rs 2.11 lakh crore recap).

Common mistakes

Assuming capital infusion has increased steadily - actual pattern is lumpy tranches responding to NPA crises.
Confusing SBI-associates merger (2017) with BoB-Vijaya-Dena merger (April 2019) or the mega-merger of 10 PSBs into 4 (April 2020).
Missing that consolidation reduced number of PSBs from 27 (pre-2017) to 12 (post-2020).

Exam tip

PSB consolidation waves: 2017 (SBI + 5 associates + BMB), 2019 (BoB + Vijaya + Dena), 2020 (mega-merger reducing to 12 PSBs). Combined with Rs 3.5+ lakh cr recap between 2015-2020.

Sources

RBI - Report on Trend and Progress of Banking in India
Ministry of Finance - Indradhanush and Bank Recapitalisation Plans

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