Difference Between Scheduled Banks and Non-Scheduled Banks

Apart from public and private banks, there is another categorization of banks: scheduled and non-scheduled.

Key Takeaways

1. Scheduled banks are included in the central bank’s (like the Reserve Bank of India) list, while non-scheduled banks are not part of this list.
2. Scheduled banks must maintain a percentage of their demand and time liabilities as cash reserves with the central bank, a requirement not applicable to non-scheduled banks.
3. Scheduled banks enjoy borrowing privileges from the central bank and have access to its services, while non-scheduled banks lack these benefits.

Scheduled Banks vs Non-Scheduled Banks

Scheduled banks are included in the Second Schedule of the Reserve Bank of India Act 1934. They must maintain cash reserves with the Reserve Bank of India (RBI). Non-scheduled banks, on the other hand, are the banks are not included in the Second Schedule of the Reserve Bank of India Act, 1934. They are not required to maintain cash reserves with the RBI.

Scheduled banks can be clearing house members, while non-scheduled banks cannot.

Comparison Table

Parameter of Comparison	Scheduled Banks	Non-Scheduled Banks
Reserve Requirements	These banking institutions 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 exempt from the rules that govern the more vital 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 can borrow money from the Reserve Bank of India for 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	They must 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 the 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 the clearance of checks.	Are ineligible for membership in the clearing house. Because of this, the non-scheduled banks cannot facilitate interbank financial transfers and the clearance of checks.

What are Scheduled Banks?

Under Indian law, scheduled banks are financial institutions listed in the second schedule of the Reserve Bank of India Act 1934.

Primarily, these banks are foreign-owned, private, and nationalized financial institutions with 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 not listed in the stated schedule above. These banks contain reserve capital of less than 5 lakh rupees.

Generally speaking, they are smaller 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 must 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 non-scheduled banks are not covered or governed by this.

Scrutiny

Apart from being covered by the actions mentioned above, the Reserve Bank of India also severely scrutinizes the scheduled banks. 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 must 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 the scheduled banks enjoy is that they can apply and qualify to join the clearinghouse. The non-scheduled banks do not enjoy this privilege.

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.