What is the difference between scheduled banks and non-scheduled banks? The former is recognized and regulated by RBI, while the latter are not recognized or regulated by the RBI under the RBI Act.
The banking industry holds a pivotal role within the Indian economy, encompassing various facets of its development and the process of nationalization following independence. The post-independence era witnessed a significant transformation in the banking sector, particularly marked by liberalization and privatization.
These changes have propelled substantial growth within the industry, making it a vital contributor to the nation’s burgeoning service sector. The Reserve Bank of India (RBI) classifies banks as Scheduled and Non-Scheduled Banks.
Difference between Scheduled Banks and Non-Scheduled Banks with Table
| Basic Terms | Scheduled Banks | Non-Scheduled Banks |
| Regulatory Status | Scheduled Banks are regulated and recognized by the Reserve Bank of India (RBI) under the RBI Act, 1934. | Non-Scheduled Banks are not recognized or regulated by the RBI under the RBI Act. |
| Eligibility | To become a Scheduled Bank, financial institutions must meet specific criteria and requirements set by the RBI. | Non-Scheduled Banks do not have to meet these criteria. |
| Prudential Norms | Scheduled Banks must adhere to prudential norms and guidelines issued by the RBI for capital adequacy, risk management, and more. | Non-Scheduled Banks may not be subject to the same level of regulatory oversight. |
| Clearing House Membership | Scheduled Banks have access to clearinghouses, allowing them to clear and settle interbank transactions efficiently. | Non-Scheduled Banks may have limited or no access to clearinghouses. |
| Public Trust | Scheduled Banks generally enjoy a higher level of public trust due to their regulated status. | Non-Scheduled Banks may face challenges in gaining public trust. |
| Interbank Transactions | Scheduled Banks can engage in various interbank transactions and lending activities. | Non-Scheduled Banks may have limited opportunities for interbank transactions. |
| Borrowing from RBI | Scheduled Banks can borrow from the RBI’s various lending facilities in times of liquidity needs. | Non-Scheduled Banks may have limited or no access to RBI borrowing facilities. |
| Deposit Insurance | Deposits in Scheduled Banks are often insured up to a certain limit under deposit insurance schemes. | Non-Scheduled Banks may not offer the same level of deposit insurance. |
| Systemic Importance | Scheduled Banks are typically larger and more systemically important within the banking sector. | Non-Scheduled Banks may be smaller and less systemically significant. |
| Market Perception | Scheduled Banks are generally perceived as more stable and secure by the public and investors. | Non-Scheduled Banks may face skepticism due to their lesser-known status. |
What Is Scheduled Banks?
Scheduled Banks, in the context of the Indian banking system, refer to those financial institutions that are recognized and regulated by the Reserve Bank of India (RBI) under the provisions of the RBI Act, 1934. These banks are included in the Second Schedule of the RBI Act, hence the term “Scheduled Banks.”
To attain Scheduled Bank status, financial institutions must meet specific criteria and requirements set by the RBI. These criteria typically include having a minimum paid-up capital, operating in the public interest, maintaining prudential norms, and complying with regulatory guidelines.
Scheduled Banks are subject to regular audits, supervision, and oversight by the RBI to ensure compliance with banking regulations and to maintain the stability and integrity of the Indian banking system.
Scheduled Banks play a significant role in the country’s financial infrastructure and have access to various facilities and privileges, including participation in clearinghouses, access to RBI lending facilities, and the trust and confidence of the public due to their regulated status.
What Is Non-Scheduled Banks?
Non-Scheduled Banks refer to financial institutions within the Indian banking system that are not recognized or regulated by the Reserve Bank of India (RBI) under the provisions of the RBI Act, 1934. These banks do not appear in the Second Schedule of the RBI Act and are thus termed “Non-Scheduled Banks.”
Non-Scheduled Banks do not meet the specific criteria and requirements set by the RBI to attain Scheduled Bank status. Consequently, they may not be subject to the same level of regulatory oversight, prudential norms, and regulatory guidelines as Scheduled Banks.
While they still operate as financial institutions, they do not enjoy the same privileges and facilities extended to Scheduled Banks, such as easy access to clearinghouses, RBI lending facilities, and a high level of public trust.
Non-Scheduled Banks may vary in size and scope, and their operations may be more limited compared to Scheduled Banks. These banks cater to niche markets and often serve specific regional or local customer bases.
Main Difference between Scheduled and Non-Scheduled Banks
- A banking institution with a paid-up capital of Rs. 5 lakhs or more, which does not jeopardize depositors’ interests, is referred to as a Scheduled bank. In contrast, non-scheduled banks are those unable to meet the RBI’s provisions for scheduled banks.
- Scheduled banks are listed in the second schedule of the Reserve Bank, while non-scheduled banks are not included in this schedule.
- Scheduled Banks are required to maintain cash reserves with the RBI as per its prescribed rates, whereas Non-Scheduled Banks must maintain cash reserves with themselves.
- Scheduled banks are eligible to borrow funds from the central bank for regular banking activities, whereas non-scheduled banks do not have this entitlement, except under exceptional circumstances when they can request accommodation from the central bank.
- Scheduled banks are obligated to submit periodic reports to the Reserve Bank of India, while non-scheduled banks are not subject to such reporting requirements.
- Scheduled banks have the privilege of becoming members of clearinghouses, while non-scheduled banks do not have access to this facility.
Similarities between Scheduled and Non-Scheduled Banks
- They provide various banking services such as loans, withdrawals, and payment services to their customers.
- Both Scheduled and Non-Scheduled Banks are financial institutions engaged in banking activities.
- Both types of banks play a role in the financial sector, contributing to economic activities and financial intermediation.
- Both types of banks are subject to banking regulations, albeit to varying degrees.
- Both types of banks can accept deposits from customers.
Conclusion
The primary difference between Scheduled and Non-Scheduled Banks lies in their regulatory recognition and privileges within the banking system. Scheduled Banks are those officially recognized and regulated by the Reserve Bank of India (RBI) under specific criteria and requirements.
On the other hand, Non-Scheduled Banks are not included in the RBI’s Second Schedule and do not meet the criteria for Scheduled Bank status. While they still operate as banking institutions, they may not have the same level of regulatory oversight, privileges, and market trust as Scheduled Banks
Ultimately, the distinction between the two types of banks highlights the varying degrees of regulatory scrutiny and access to financial facilities within the Indian banking system.
People Who Read This Also Read:
- Difference between Donald Trump and Joe Biden Government
- Difference between Extensive and Intensive Reading
- Difference between Merchant Bank and Investment Bank
- Difference between Mobile Banking and Internet Banking
- Difference between Sociology and Anthropology