UPSC Prelims 2020 Q59: Indian Economy – Banking & Financial Sector
Consider the following statements:
1. In terms of short - term credit delivery to the agriculture sector, District Central Cooperative
Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional
Rural Banks.
2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural
Credit Societies.
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
District Central Cooperative Banks (DCCBs)
| Statement | Verdict | Fact |
|---|---|---|
| 1. In terms of short-term credit delivery to the agriculture sector, DCCBs deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks | Incorrect | Scheduled Commercial Banks give the largest share of farm credit, around three-fourths; cooperatives and Regional Rural Banks give much less |
| 2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies | Correct | DCCBs are the middle tier; they finance the village-level societies |
The three-tier short-term cooperative credit structure:
| Tier | Institution | Level |
|---|---|---|
| Top | State Cooperative Bank | State |
| Middle | District Central Cooperative Bank | District |
| Base | Primary Agricultural Credit Society | Village; lends directly to farmers |
NABARD refinances this structure.
Only Statement 2 is right.
Answer: (b) 2 only.
Why each option is right or wrong
- (a) Incorrect. Statement 1 is false; Scheduled Commercial Banks deliver far more farm credit than DCCBs.
- (b) CORRECT. Funding the Primary Agricultural Credit Societies is a main function of DCCBs.
- (c) Incorrect. Statement 1 is false; cooperatives are no longer the largest source of short-term credit.
- (d) Incorrect. Statement 2 is true; DCCBs do fund the Primary Agricultural Credit Societies.
Key point
Cooperative credit: State Cooperative Bank, then DCCB, then Primary Agricultural Credit Society. Largest farm lender: Scheduled Commercial Banks. Refinance: NABARD.
Remember
DCCB = middle tier that funds the village credit societies.
Common mistakes
- Assuming cooperatives still lead farm credit as they did decades ago.
- Confusing DCCBs with Regional Rural Banks, which are a separate set of banks.
- Thinking DCCBs lend mainly to farmers directly; they lend mostly through the societies.
Exam tip
In any 'who lends most' question today, commercial banks win. Cooperatives are important but smaller.
Sources
- NABARD — Annual Report (ground-level credit flow to agriculture by agency)
- Reserve Bank of India — Report on Trend and Progress of Banking in India (Rural Cooperatives)