Scheduled bank

What is a Scheduled Bank?

A Scheduled Bank is included in Schedule II of the Reserve Bank of India (RBI) Act, 1934. To qualify as a scheduled bank, a bank must have a paid-up capital of at least Rs. 5 lakh and meet the RBI’s financial criteria. These banks are eligible for low-interest loans from the RBI, have access to the clearing house network, and must maintain a Cash Reserve Ratio (CRR) with the central bank.

Types of Scheduled Banks in India

Scheduled Banks in India are categorised into different types based on ownership and operations:

1. Scheduled Commercial Public Sector Banks – These include banks where the government holds a majority stake.
2. SBI and its Associates – State Bank of India and its affiliated banks.
3. Scheduled Commercial Private Sector Banks – Further divided into:
   • Old Private Sector Banks
   • New Private Sector Banks
4. Scheduled Foreign Banks – Foreign-owned banks operating in India.

Functions of Scheduled Banks

Scheduled Banks perform some of the most important functions that are required for the economy, such as:

• Accepting Deposits: Savings from individuals and businesses.
• Lending Money: Loans to the public, businesses, and industries.
• Withdrawal Facility: The facility to withdraw money on demand by the depositors.
• Funds Transfer: Transferring money from one account to another.
• Drafts Issuance: Issuing demand drafts for safe payments.
• Locker Services: Safe deposit lockers for valuables.
• Foreign Exchange: Dealing with foreign currency transactions and facilitating international trade.

Advantages of Scheduled Banks

1. Financial Stability: Scheduled Banks are more stable due to their compliance with RBI norms.
2. Access to RBI Facilities: They can obtain low-interest loans from the RBI and are part of the RBI’s clearinghouse network.
3. Trustworthiness: Inclusion in Schedule II increases public confidence in the bank’s financial health.
4. Better Customer Services: They offer various banking services, such as loan deposits, locker facilities, and fund transfers.

Disadvantages of Non-Scheduled Banks

1. Higher Risk – Non-scheduled banks are riskier as they do not meet strict financial guidelines.
2. Limited Borrowing Options – These banks cannot borrow from the RBI in case of liquidity crises.
3. Less Public Trust – Since they are not included in Schedule II, public trust in their stability is lower.