Difference Between Scheduled Banks and Non-Scheduled Banks (With Table)

Scheduled Banks vs Non-Scheduled Banks

The key difference between Scheduled Banks and Non-Scheduled Banks lies in the fact that for the regular purpose, 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 the bank itself keeps the cash reserve in a non-scheduled bank. Talking about clearing house, scheduled banks can be the member while non-scheduled banks cannot be the member.

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.

 

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.

banking structure 1
Typical banking structure

 

Comparison Table Between the Scheduled and Non-Scheduled Banks (in Tabular Form)

Parameter of ComparisonScheduled BanksNon-Scheduled Banks
Reserve RequirementsThese 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 SecurityThey are generally more financially sound and unlikely to harm the interests and welfare of the depositors.These banks are riskier to do business with.
MeaningScheduled banks are those that are listed and governed by the rules that are prescribed in the Reserve bank of India Act of 1934The non-scheduled banks are those that are exempt from the rules that govern the stronger financial institutions in India.
Cash Reserve RatioMaintained with Reserve Bank of India.Each bank takes it upon itself to maintain the cash reserve ratio.
BorrowingThey 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.
ReturnsAre 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 clearinghouseThese 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 is a Scheduled Bank

Scheduled banks are those which are listed and governed by the rules set forth by the Reserve Bank of India Act of 1934.

To earn this designation, a financial institution has to meet the following pre-conditions:

Scheduled Banks as the name suggests are the banks, which are accounted for in the Second Schedule of the Reserve Bank of India (RBI) Act, 1934.

To qualify as a scheduled bank, the bank should conform to the following three pre-conditions:

  • Possess no less than 5 lakh rupees of cash reserves
  • Show cause to the reserve bank that it does not carry out its affairs in a manner that is more likely to imperil the interests of the depositors
  • Has to be a corporation rather than a partnership or sole proprietorship
 

What is a Non-Scheduled Bank

A non-scheduled bank is that which is not listed and hence not governed by the second schedule of the Reserve Bank of India Act of 1934.

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These banks are those whose reserve capitals are below the mandatory 5 lakh rupees threshold.

They are mostly owned by private individuals and partnerships. Given that they are not strictly supervised by the central bank, they are unsafe and more likely to imperil the trust of the depositors.

scheduled and non scheduled 1
scheduled and non-scheduled banks in a nutshell

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

  1. 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

  2. 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

  3. 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.


 

Infographic

Scheduled Banks vs Non-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.


 

Word Cloud for Difference Between Scheduled Banks and Non-Scheduled Banks

The following is a collection of the most used terms in this article on Scheduled Banks and Non-Scheduled Banks. This should help in recalling related terms as used in this article at a later stage for you.

scheduled banks and non scheduled banks
Word Cloud for Scheduled Banks and Non-Scheduled Banks

 

References

  1. https://www.researchgate.net/figure/Classification-of-Scheduled-Banks-in-India_fig1_321489158
  2. https://pdfs.semanticscholar.org/4e0c/48c933d31bca154d80458d1996f0735e8090.pdf

5 thoughts on “Difference Between Scheduled Banks and Non-Scheduled Banks (With Table)”

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