The correct option is 2 and 3 only
Explanation
The credit market in India is broadly classified into the formal sector and the informal sector. The formal sector comprises commercial banks, cooperative banks, and regional rural banks, which function under the regulatory supervision of the Reserve Bank of India (RBI). The informal sector operates outside this regulatory framework.
Statement-wise Analysis:
- Statement 1 is Incorrect. The formal sector of loans consists of banks and cooperatives. Moneylenders, traders, employers, relatives, and friends constitute the informal sector of loans. The informal sector is characterized by the absence of a central regulatory authority and typically involves higher interest rates compared to the formal sector.
- Statement 2 is Correct. The Reserve Bank of India (RBI) supervises the functioning of formal sources of loans. For instance, the RBI monitors the banks to ensure they maintain a minimum cash balance (Cash Reserve Ratio) out of the deposits they receive. The RBI also ensures that banks provide loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries, and small borrowers (Priority Sector Lending).
- Statement 3 is Correct. Despite the expansion of banking services, the formal sector does not yet meet the entire credit requirements of rural households. A significant portion of rural credit needs is still met by informal sources such as moneylenders. This reliance is often due to the lack of collateral, documentation requirements, and the physical distance of bank branches in certain remote areas.
Key Takeaway:
The formal credit sector (banks, cooperatives) is regulated by the RBI to ensure financial stability and social banking objectives, whereas the informal sector (moneylenders, traders) remains unregulated and often exploitative, yet continues to serve a large portion of rural credit needs.