Question

Banks and cooperatives increase their lending particularly in rural areas ____________.

• A. to reduce the dependence on informal sources of credit
• B. to promote informal sources of credit in urban areas
• C. to provide high interest rate
• D. to increase the deposits of commercial ba

Answer 1

The correct option is A to reduce the dependence on informal sources of credit

• Rural population in India normally borrows money from money lenders at higher rates of interest.
• Rural people seek money lenders(Informal source of credit) due to limited expansion of credit by the formal sectors in the rural areas.
• Formal sectors in India are mostly urban biased and increasing their presence in the rural areas will reduce the dependence of rural people on the informal sector.
• Money lenders (Informal sector source) lending system is unregulated, unlike formal sector.
  
• The correct option is A.