Difference Between Scheduled and Non Scheduled Banks: Basic Features and Lists

By Aarna Tiwari|Updated : September 29th, 2022

In India, the Reserve Bank of India (RBI) is the apex banking body regulating different banks' functioning and issuing licenses. It has created a Difference Between Scheduled and Non Scheduled Banks by defining the scope of their financial powers and jurisdiction. The Scheduled Banks have to convince RBI that their operations don't compromise or endanger the interests of depositors. However, due to financial instability, Non Scheduled Banks are assumed incapable of safeguarding depositors' monetary interests.

For the UPSC Exam, one must cover the topic well for both UPSC Prelims and UPSC Mains. The topic is covered under the Economy segment of the UPSC Syllabus.

Scheduled Banks

Scheduled Banks are listed under Clause 42 in the Second Schedule of the RBI Act of 1934. For a bank to qualify as a Scheduled Bank, it must have a total minimum value of paid-up capital and a reserve of INR 5 lacs. Scheduled Bank needs to be a corporation rather than a sole proprietorship or a partnership firm.

Basic characteristics of Scheduled Banks are:

  • Access to currency chest facility
  • Right to become members of clearing house
  • Can receive refinance facility from RBI

Scheduled Banks in India 

Scheduled Banks in India are divided into five types:

  • Regional Rural Banks
  • Foreign Banks
  • Development Banks
  • Private sector Banks
  • Nationalised Banks

Payment bank, such as Airtel Payments Bank, Fino Payments Bank, India Post Payments Bank, Paytm Payments Bank have been granted Scheduled bank status, recently.

>> Scheduled Banks in India List

Many scheduled banks operate across India. The most famous bank with the highest business volume is the State Bank of India. Other banks include subsidiaries, an entire array of nationalized banks such as the Bank of India, RRBs (Regional Rural Banks), specified co-operative banks, and some international banks like Citibank, HSBC Holdings, etc. The list also features banks from the private sector like HDFC Bank, Karur Vysya Bank, etc.

Non Scheduled Banks

Non Scheduled Banks are not listed under the Schedule II of the Reserve Bank of India Act, 1934. The Non Scheduled Banks are not obligated to maintain the average daily balance of Cash Reserve Ratio (CRR) with the central bank at specified rates. They can maintain the CRR by themselves. 

The characteristics of Non Scheduled Banks are:

  • Have to exhibit compliance to specific guidelines stipulated by RBI
  • Reserve capital can be lesser than INR 5 Lakhs
  • Interbank financial transactions, and cheque clearing facility is not available

Non Scheduled Banks in India

There are 11 Non Scheduled State Cooperative Banks and 1500 Non-Scheduled Urban Co-operative Banks as described by RBI. 

Non-scheduled banks are few, including Baroda City Co-operative Bank, Bangalore City Co-operative Bank, Phagwara's Capital Local Area Bank Ltd, Kolhapur's Subhadra Local Area Bank Ltd, Mahbubnagar's Krishna Bhima Samruddhi Local Area Bank, etc.

>> Non Scheduled Banks in India List

Difference Between Scheduled and Non Scheduled Banks

The basic Difference Between Scheduled and Non Scheduled Banks lies in their definition. Apart from this, the major differences are discussed below:

Parameters

Scheduled Banks

Non-Scheduled Banks

Loan from RBI

Entitled to loans at lower interest rates along with clearing house membership

Only in emergencies or under abnormal conditions

Cash Reserve Ratio (CRR)

Must maintain an average balance of daily CRR with RBI at stipulated rates

Only within itself

Bank Types

Nationalized, Regional, Rural, Cooperative and other commercial banks

11 Non-Scheduled State Cooperative Banks; 1500 Non-Scheduled Urban Co-operative Banks; 4 local area banks

Refinancing facility

Can raise debt from RBI

Denied

Currency storage facility

Access Granted

Denied

Both bank types need to thrive to propel India's economic growth.

Scheduled and Non Scheduled Banks

The topic of the Difference Between Scheduled and Non Scheduled Banks is vital from GS Paper 3 Syllabus perspective in UPSC Mains. For UPSC Prelims, one needs to keep in mind the essential characteristics. To prepare for the topic of Scheduled and Non Scheduled Banks, one must read the NCERT Books for UPSC to have conceptual clarity and then proceed with the Economy Notes for UPSC.

>> Difference Between Scheduled and Non Scheduled Banks [PDF]

Difference Between Scheduled and Non Scheduled Banks Questions

Question: What type of bank is a Local Area Bank? 

  1. Scheduled Bank
  2. Non Scheduled Bank
  3. Un-Scheduled Bank
  4. None of the above

Answer: Option B

Question: Which of the following is the correct statement about Local Area Banks (LABs)?

  1. They are scheduled Banks working primarily in urban areas
  2. They are non-scheduled Banks predominantly operating in semi-urban and rural areas
  3. They were banks that operated in the past but dont exist now in India
  4. They are not regulated by RBI

Answer: Option B

Comments

write a comment

Difference Between Scheduled and Non Scheduled Banks FAQs

  • The Main Difference Between Scheduled and Non Scheduled Banks is that Their paid-up capital must be a minimum of INR 5 Lakhs, and they must have adequate safeguards in place to protect the interest of depositors. In contrast, non-scheduled banks can operate with lower paid-up capital.

  • The Difference Between Scheduled and Non-Scheduled Banks regarding stipulation for Cash Reserve Ratio is that Scheduled banks have to maintain the Cash Reserve Ratio with the Reserve Bank of India daily, and the apex bank sets the average ratio. In contrast, Non-scheduled banks have to maintain the ratio within themselves.

  • Scheduled Banks can borrow money from RBI and not Non-Scheduled Banks.

  • Scheduled and Non-Scheduled Banks are different in terms of cheque clearance and inter-bank transfer as Scheduled Banks can support it because they are members of cheque clearing houses, and Non-Scheduled banks are not members of the clearing houses.

  • Scheduled Banks are listed under Clause 42 in the Second Schedule of RBI Act of 1934. They must have a minimum value of paid-up capital and a reserve of INR 5 lacs.

  • Scheduled and Non-Scheduled Bank are types of banks that need to thrive to propel India's economic growth. To download the Difference Between Scheduled and Non-Scheduled Banks, click here.

Featured Articles

Follow us for latest updates