Scheduled banks in India, categorized under Schedule II of the Reserve Bank of India Act, 1934, exhibit diversity in their structure and ownership. These banks are further classified into distinct types, each playing a unique role in the Indian financial landscape.

Scheduled Commercial Public Sector Banks

This category encompasses public sector banks that are listed in Schedule II. These banks are owned and operated by the government of India.

The flagship institution in this group is the State Bank of India (SBI), along with its associate banks. These banks play a pivotal role in fostering financial inclusion and implementing government policies.

SBI and its Associates

The State Bank of India (SBI) and its associate banks form a crucial part of the scheduled commercial public sector banks. These banks, while being government-owned, operate independently and contribute significantly to the country's banking and financial sector.

Scheduled Commercial Private Sector Banks

Private sector banks listed under Schedule II are further divided into two subcategories, namely Old Private Banks and New Private Sector Banks.

Old Private Banks

These banks have a rich historical legacy and were established before the liberalization of the Indian economy in 1991. Examples include banks like Federal Bank, Karur Vysya Bank, and City Union Bank.

New Private Sector Banks

Post-1991 economic reforms, several new private banks emerged, bringing innovation and modern banking practices. Some of the examples include HDFC Bank, ICICI Bank, and Axis Bank. These banks are known for their technological advancements, customer-centric approach, and diverse financial products.

Scheduled Foreign Banks in India

This category includes banks that originated outside India but operate within the country under the regulatory framework set by the Reserve Bank of India. These banks contribute to the globalization of India's financial sector and provide international banking services.

Each type of scheduled bank plays a distinctive role in the banking ecosystem, contributing to the overall economic development of the country. Public sector banks, with their government ownership, aim to address socio-economic goals, while private sector banks, both old and new, bring innovation and competition to the market. Foreign banks contribute to the diversification of financial services, promoting a globally integrated banking environment within India.

Scheduled banks and non-scheduled banks differ significantly in terms of their regulatory status, capital requirements, privileges, and risk levels. Here's an expanded explanation of the distinctions between the two:

Scheduled Banks

• Inclusion in the Second Schedule

Scheduled banks are specifically listed in the second schedule of the Reserve Bank of India Act, of 1934. This formal inclusion signifies their compliance with regulatory standards and their integral role in the national banking framework.

• Paid-Up Capital and RBI Compliance

These banks must have a paid-up capital of Rs. 5 lakhs or more, and they are required to adhere to all the regulatory guidelines and conditions set forth by the Reserve Bank of India (RBI).

• Cash Reserve Ratio (CRR) with RBI

Scheduled banks are obliged to maintain a certain percentage of their deposits as a Cash Reserve Ratio (CRR) with the RBI. This ensures liquidity and contributes to the effective implementation of monetary policies.

• Borrowing from RBI

They have the privilege of borrowing funds from the Reserve Bank of India, which provides them with a crucial source of financial support in times of need. This access to funds enhances their financial stability and liquidity.

• Financial Stability

Scheduled banks are generally considered more financially stable due to their adherence to regulatory standards, higher capital requirements, and access to various facilities provided by the RBI.

Non-Scheduled Banks

• Exclusion from the Second Schedule

Non-scheduled banks are not included in the second schedule of the RBI Act. This indicates that they do not meet the specific criteria or have chosen not to comply with the regulatory requirements for scheduled banks.

• No Specific Capital Requirement

There are no predetermined capital requirements for non-scheduled banks. They are not obligated to maintain a certain level of paid-up capital as a condition for their existence.

• CRR Maintenance

Unlike scheduled banks, non-scheduled banks are not required to maintain the Cash Reserve Ratio (CRR) with the RBI. Instead, they retain the CRR amount by themselves, giving them more autonomy over their liquidity management.

• Restricted Borrowing Privileges

Non-scheduled banks do not have the same borrowing privileges from the RBI as scheduled banks. This limitation may affect their ability to access additional funds during challenging economic conditions.

• Higher Perceived Risk

Non-scheduled banks are generally perceived as riskier due to the absence of specific regulatory requirements. Their risk profile may be influenced by factors such as capital adequacy, governance practices, and risk management strategies.

The key differences between scheduled and non-scheduled banks lie in their regulatory status, capital requirements, access to RBI facilities, and perceived financial stability. While scheduled banks benefit from a structured regulatory framework and enhanced financial stability, non-scheduled banks operate with more flexibility but may be subject to higher perceived risks.