There are now a plethora of banks providing various services and catering to the needs of residents. There are different types of banks in India, which are regulated by the Reserve Bank of India, also known as the Central Bank of India. There are two types of banks: scheduled and non-scheduled banks, in addition to public and private banks.
Scheduled banks are banks that are listed in the 2nd schedule of the Reserve Bank of India Act, 1934. The bank's paid-up capital and raised funds must be at least Rs5 lakh to qualify as a scheduled bank. Scheduled banks are liable for low-interest loans from the Reserve Bank of India and membership in clearinghouses.
They must, however, meet certain requirements, such as maintaining an average daily CRR (Cash Reserve Ratio) balance with the central bank at the rates set by it. The RBI allows Scheduled Banks to raise debts and loans at bank rates.
All commercial banks, including nationalized, international, cooperative, and regional rural banks, fall under scheduled banks.
Scheduled Commercial Banks can be divided into:
- Scheduled Commercial Public Sector Banks
- SBI and its associates
- Scheduled Commercial Private Sector Banks
- Old Private Banks
- New Private Sector Banks
- Scheduled Foreign Banks in India
The benefits enjoyed by scheduled banks are often denied to non-scheduled banks.
These banks have certain privileges and benefits, such as:
1) The ability to obtain a refinancing facility from the central bank.
2) Access to currency storage facilities.
3) Membership in the clearinghouse is automatic
To be considered a scheduled bank, a bank must meet the following requirements:
A total of Rs. 5 lakh in paid-up capital and reserves are needed.
The bank must demonstrate to the central bank that its operations do not jeopardize depositors' interests. The bank must be a company, not a single owner or partnership company.
Non-scheduled banks, by definition, are those that do not adhere to the RBI's regulations. They are not mentioned in the Second Schedule of the RBI Act, 1934, and are therefore deemed incapable of serving and protecting depositors' interests. Non-scheduled banks must also meet the cash reserve requirement, but not with reserve banks, but with themselves. They are generally smaller in size and have a range of influence that is somewhat narrow. They are risky to do business with due to their financial limitations. The reserve capital of these banks is less than 5 lakh rupees. There are 11 Non-Scheduled State Cooperative Banks as described by RBI. Furthermore, 1500 Non-Scheduled Urban Co-operative Banks as described by RBI
These four local area banks fall under Non- Schedule Banks:
Coastal Local Area Bank Ltd - Vijayawada (Andhra Pradesh)
1. Capital Local Area Bank Ltd - Phagwara (Punjab)
2. Krishna Bhima Samruddhi Local Area Bank Ltd, Mahbubnagar (Andhra Pradesh)
3. Subhadra Local Area Bank Ltd., Kolhapur (Maharashtra)
Except in emergencies, non-scheduled banks are not eligible for Reserve Bank financial assistance. Non-schedule banks are often denied the benefits enjoyed by scheduled banks. They are also not eligible to be a member of a clearinghouse. As a result, unscheduled banks cannot facilitate interbank financial transactions and the clearance of cheques
Comparing Scheduled Banks and Non-Scheduled Banks
|Scheduled Banks||Non-Scheduled Banks|
|Second Schedule||They are listed in the second schedule.||Banks are not mentioned in the second schedule.|
|Meaning||A Scheduled bank is a banking company with a paid-up capital of Rs. 5 lakhs or more.||Non-scheduled banks, on the other hand, are those that are unable to comply with the RBI's requirements.|
|Cash Reserve Ratio||Reserve Bank of India.||They maintain with themselves.|
|Borrowing||They are authorized to borrow funds from the Reserve Bank of India.||They are not authorized to borrow money from the Reserve Bank of India.|
|Examples||Commercial Banks, Private, and Public sector Banks||Local banks, State Cooperative Banks|
|Risk||They are financially stable and are unlikely to hurt the rights of the depositors.||These banks are riskier to do business.|
|Returns||They are required to file their returns on a periodic basis.||There is no such clause.|
|Membership||They can apply to join the clearinghouse||Are not eligible for membership in the clearinghouse.|
Major Difference between Scheduled Banks and Non-Scheduled Banks
- A Scheduled bank is a banking company with a paid-up capital of Rs. 5 lakhs or more. Non-scheduled banks, on the other hand, are those that are unable to comply with the RBI's requirements.
- Scheduled banks are those regulated by the Reserve Bank's second schedule, while non-scheduled banks are those not bound by the Reserve Bank's second schedule.
- The Reserve Bank requires scheduled banks to present or send periodic returns. Non-scheduled banks, on the other hand, are not required to submit periodic returns to the central bank.
- The Reserve Banks will lend to scheduled banks. Non-scheduled banks, on the other hand, do not have this flexibility. They'll only be able to do that with the help of other eager banks or only in case of emergency, RBI will help.
- Non-scheduled banks are not qualified to enroll in the clearinghouse like scheduled banks.