Apart from public and private banks, there is another categorization of banks viz scheduled and non-scheduled banks.
Scheduled Banks vs Non-Scheduled Banks
The main difference between Scheduled Banks and Non-Scheduled Banks is that Scheduled banks can take money from Reserve Bank of India, while non-scheduled banks cannot take any money from RBI. The cash reserve in a scheduled bank is kept with RBI, whereas a non-scheduled bank keeps the cash reserve itself.
Scheduled banks can be the member of clearing house while non-scheduled banks cannot be the member.
Comparison Table Between the Scheduled and Non-Scheduled Banks
| Parameter of Comparison | Scheduled Banks | Non-Scheduled Banks |
| Reserve Requirements | These are banking institutions that have no less than 5 lakh rupees in their reserves. | Their reserves are less than the mandatory 5 lakh rupees. |
| Safety and Security | They are generally more financially sound and unlikely to harm the interests and welfare of the depositors. | These banks are riskier to do business with. |
| Meaning | Scheduled banks are those that are listed and governed by the rules that are prescribed in the Reserve bank of India Act of 1934 | The non-scheduled banks are those that are exempt from the rules that govern the stronger financial institutions in India. |
| Cash Reserve Ratio | Maintained with Reserve Bank of India. | Each bank takes it upon itself to maintain the cash reserve ratio. |
| Borrowing | They are allowed to borrow money from the Reserve Bank of India for the purposes of undertaking regular banking activities. | Do not qualify to borrow any loans from the Reserve Bank of India. If they have to, they do so from other like-minded banks. |
| Returns | Are mandated to file their returns with the Reserve Bank of India periodically, preferably once a year. | No such provision exists. However, they have to publish and submit their returns to the shareholders and stock exchange where they are listed. |
| Membership of the clearinghouse | These may qualify to join the clearinghouse. For this reason, they allow for interbank financial transfers and clearance of checks. | Are ineligible for membership in the clearinghouse. Because of this, the non-scheduled banks cannot facilitate the interbank financial transfers and the clearance of checks. |
What are Scheduled Banks?
Under Indian law, scheduled banks are financial institutions that are listed in the second schedules of the Reserve Bank of India Act 1934.
For a large part, these banks are foreign-owned, private, and nationalized financial institutions that have a footprint in India. They are safer and more reliable to transact with.
What are Non-Scheduled Banks?
Non-scheduled banks, on the other hand, are those which are not listed in the stated schedule above. These banks contain reserve capitals of less than 5 lakh rupees.
Generally speaking, they are smaller in size and have a somewhat limited sphere of influence. Given their limited financial strengths, they are unsafe to do business with.
Main Differences Between Scheduled and Non-Scheduled Banks
Paid-up capital
The scheduled banks have to keep no less than 5 lakh rupees of paid-up capital. Their non-scheduled counterparts may, however, maintain a value that is lower than this.
Coverage
Scheduled banks are covered by the second schedule of the Reserve Bank of India Act of 1934 while the non-scheduled banks are not covered or governed by this.
Scrutiny
Apart from being covered by the aforementioned act, the scheduled banks are also under the serious scrutiny of the Reserve Bank of India.
The non-scheduled banks are however exempted from this scrutiny.
Borrowing Power
Scheduled banks may borrow from the Reserve Banks. The non-scheduled banks lack this leeway though. They may only do so from other willing banks.
Returns
By law, the scheduled banks have to submit their returns to the public periodically, mostly annually.
Their non-scheduled counterparts are however loyal to their shareholders and proprietors only.
Membership of the Clearing House
One other privilege enjoyable by the scheduled banks is that they can apply and indeed qualify to join the clearinghouse.
The non-scheduled banks do not enjoy this privilege though.
Cash Reserve Ratios
Given that the scheduled banks are under the radar of the Reserve Bank of India, they are mandated to maintain some cash reserve ratios with the bank.
The non-scheduled banks have the leeway to deposit it with themselves only though.
Frequently Asked Questions (FAQ) About Scheduled Banks and Non-Scheduled Banks
What is a Scheduled Commercial Bank?
Scheduled commercial banks are those banks that are registered under the second schedule of RBI Act 1934.
These banks provide all the normal banking facilities like open accounts, give loans, accept deposits, etc.
These banks must fulfill a few conditions like:
- 5 lakh minimum paid-up capital
- Depositor’s interest protection
- Have to maintain instructions issued by RB
- There are four categories of scheduled commercial banks:
- Public sector banks like SBI
- Private sector banks like HDFC
- Foreign banks like National Australia Bank, &
- Regional rural banks like Manipur Rural Bank
Are Small Finance Banks Scheduled Banks?
Small finance banks are not scheduled banks.
This type of banks can be given the status of scheduled banks if:
1) Fulfill all the requirements mentioned in Section 42 (6) (a) of RBI Act 1934
2) List themselves within 3 years of commencement of operations
Are Private Banks Scheduled Banks?
Private Banks that fulfill all conditions mentioned in Section 42 (6) (a) of RBI Act, 1934 are given the status of scheduled banks.
Conclusion
As you may see from the foregoing explanations, the scheduled banks are more reliable and financially sound compared to their non-scheduled counterparts.
They are the ones to look up to if you are planning to leverage the services of a truly reliable bank.
The non-scheduled banks are mostly suitable for those ventures that are not too risky such as small scale businesses.
Having received a firm knowledge of these two kinds of banks, we are now confident that you can go ahead and make the most of either institution.
References
- https://www.researchgate.net/figure/Classification-of-Scheduled-Banks-in-India_fig1_321489158
- https://pdfs.semanticscholar.org/4e0c/48c933d31bca154d80458d1996f0735e8090.pdf