Read the following case and choose the correct option :
Swapna owns a small farm in her village. She wants to take loan to meet the expense of cultivation.
From which of the following sources should Swapna take the loan ?
Read the following case and choose the correct option :
Swapna owns a small farm in her village. She wants to take loan to meet the expense of cultivation.
From which of the following sources should Swapna take the loan ?
Options
B: Nearest nationalised bank — it is a formal, RBI-supervised source offering safe credit at reasonable interest.
Marking Scheme
- 11 mark: for correctly choosing option B (Nearest nationalised bank).
Hint
Think about which source is formal, RBI-regulated, and charges low interest — not the central bank itself, and not informal lenders.
Quick Oral Answer
Swapna should approach the nearest nationalised bank because it is a formal source of credit, supervised by the RBI, offering low and fair interest rates, unlike informal sources like moneylenders who charge exploitative rates.
Analysis & Explanation
Tests whether a farmer should borrow from formal or informal credit sources.
Concept
- Formal sources (banks, RBI-regulated institutions) vs informal sources (moneylenders, traders) — formal credit is cheaper and safer.
Key points
- Nationalised banks are supervised by the RBI, charge reasonable, regulated interest, and require proper documentation — ideal for Swapna's cultivation loan.
- RBI itself (Option A) is the apex/regulatory bank — it does not lend directly to farmers.
- Moneylenders (Option C) and agricultural traders (Option D) are informal sources with unregulated, often exploitative interest rates.
Common mistakes
- Confusing "a bank" with "the Reserve Bank of India" — RBI regulates banks, it isn't a retail lender.
- Assuming any easily available loan (trader/moneylender) is a safe choice just because it's convenient.
Common Mistakes
- 1Selecting Reserve Bank of India, confusing the central regulatory bank with a retail lending bank.
- 2Choosing moneylender or agricultural trader, not recognising these are informal, exploitative credit sources.
- 3Not linking the case to the formal vs informal sector distinction taught in the chapter.
Interesting Facts
Major Indian banks were nationalised in two waves — 14 banks in 1969 and 6 more in 1980 — specifically to expand rural and agricultural lending.
NABARD (set up in 1982) channels refinance to banks and cooperatives so that farmers like Swapna can access affordable formal credit.
The RBI monitors that commercial banks maintain a minimum cash balance and lend to small borrowers, not only to large profitable businesses.
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Frequently Asked Questions
Why is a nationalised bank better than a moneylender for a loan?
Nationalised banks are regulated by the RBI, charge reasonable and transparent interest rates, and follow proper documentation, protecting borrowers from exploitation, unlike moneylenders who often charge very high interest and can trap borrowers in debt.
Is the Reserve Bank of India a source of loans for farmers?
No. The RBI is India's central bank; it regulates and supervises the banking system and formulates monetary policy but does not directly lend money to individual farmers or households.