Difference Between Scheduled and Nonscheduled Banks

Banks can be defined as the financial institutions that tend to take the deposits from the people and extend services of credit to those who are in the need of it. Banks tend to be a very crucial part of the entire financial system. These institutions tend to provide their assistance in the gross economic development of the country. Apart from the classifications of public and private banks, there is another type of classification as well: scheduled and nonscheduled banks. Banks have been classified into these categories according to the regulations of the Banking Regulation Act of 1949. 

Details About Scheduled and Nonscheduled Banks

The classification of banks categorises them into two sections, and those are the non-scheduled and the scheduled banks. All the nationalised banks, regional rural banks, development banks, foreign banks, and cooperative banks are included in the category of commercial banks. On the other hand, non-scheduled banks are the ones that are not prescribed to any norms that are regulated by the RBI or the Reserve Bank of India. In this article, we are going to learn the difference between scheduled and non-scheduled banks in detail.

What is a Scheduled Bank?

If we go by the name Scheduled Bank, it would include all the banks that have a part in the Second Schedule regulated by the RBI or Reserve Bank of India Act of 1934. In order to qualify to be a scheduled bank, there are certain conditions that the institution has to fulfil. 

• The sum total of the minimum value from reserve capital and paid-up capital must amount to five lakh rupees. 

• The bank has to satisfy the concerns of the Central Bank that the affairs conducted by the bank are not harmful to the interest of people who have deposits in the bank. 

• The bank also needs to become a certain type of corporation instead of being a partnership firm or a sole-proprietorship. 

There are certain rights that are enjoyed by the scheduled bank and we are going to mention them right here. 

• Scheduled banks are allowed to receive the benefits of refinancing from their Apex Bank. 

• Scheduled banks are entitled to be provided with the facility of currency chests. 

• Scheduled banks are eligible to participate in the clearinghouse and become members. 

In order to enjoy these rights, it is essential for the scheduled bank to fulfil different obligations that include the maintenance of balance which is known as the Cash Reserve Ratio. This must be done according to the standards of the Central Bank and should meet all the requirements of rates as well. Adding to that, the scheduled banks have to submit certain returns and that too at defined intervals of time. This submission of returns goes to the central bank that is subjected to all the regulations created according to the Reserve Bank of India Act of 1934 as well as the Banking Regulation Act of 1949. 

What is a Non-Scheduled Bank? 

In order to understand the difference between scheduled and nonscheduled banks, one needs to understand the meaning of nonscheduled banks and what they stand for. In simplest terms, non-scheduled banks are the ones that don’t comply with different provisions that have been properly specified by their central bank. The provisions that come under the Reserve Bank of India Act of 1934 also don’t have any particular effect on these banks. These banks are not permitted to protect and serve the interest of the depositors. 

It is mandatory for the non-scheduled bank to maintain its cash reserve requirement. However, they are not obligated to the standards set by the RBI. These banks are mostly the banks of the local area. 

Important Differences Between Scheduled and Non-Scheduled Banks

When it comes to understanding what the scheduled and nonscheduled banks are, there are certain premises that make the distinction easier. In this section of the article, we are going to explain some of the key differences that are present between the two categories of the bank. 

1. Just going by the definition of each one of the banks, we can see a difference. Any banking institution that has a paid-up as well as reserve capital of at least Rs. 5 lacs and more can be considered as a scheduled bank. These banks are the ones that will definitely impact the interest of their depositors in a positive way and not harm it. However, the non-scheduled banks are the ones that are not really permitted to comply with different provisions that have been set by RBI. These banks are not responsible for the harm of the depositor’s interest. 

2. The scheduled banks are financial institutions that are a part of the 2nd schedule of the Reserve Bank of India. On the other hand, non-scheduled banks have no role to play in the 2nd schedule of the Reserve Bank of India. This is one of the biggest differences between scheduled and non-scheduled banks, for sure. It distinctly sets them apart and makes them completely different from each other. 

3. It is essential for the scheduled banks to maintain certain cash reserves with the Reserve Bank of India. Also, the cash reserves need to be maintained according to the rates that have been specified by the Reserve Bank of India. As opposed to that, non-scheduled banks are not obligated to meet the standards of RBI when it comes to maintaining their cash reserves. 

4. In the case of a scheduled bank, it is seen that they have the entitlement of borrowing money from their central bank in order to meet all the requirements of the depositors. This money can be used for several banking purposes. As opposed to that, nonscheduled banks don’t have the luxury of borrowing money from their central bank for the regular purposes of banking. However, if the circumstances are not favourable to the non-scheduled banks, they are able to ask or request their central bank and achieve accommodation benefits. It can be said that while scheduled banks enjoy certain perks of being associated with the central banks, the non-scheduled banks don’t that those perks. 

5. It is also important for the scheduled banks to make a submission of their periodic returns. This submission is supposed to be made to the Reserve Bank of India. However, in the case of the nonscheduled bank, there is literally no such rule that they need to submit their periodic returns to the Reserve Bank of India. This is one of the major differences between the two banks. 

6. A very striking difference between scheduled and nonscheduled banks is that scheduled banks are allowed to become members of the clearinghouse. This facility is not available for the non-scheduled banks. 

When we are talking about the differences that the scheduled and nonscheduled banks have, there are quite a few. Some of these that are mentioned above clearly makes the point that when we are talking about certain privileges, scheduled banks are the ones receiving the most. In contrast to that, nonscheduled banks are hardly able to have any perks in the first place. There are several remittances provided to the scheduled banks through different offices allocated to the central bank. These remittances are provided to the scheduled banks free of cost or at least at rates that are concessional. Not to mention that certain borrowing privileges are also provided to the scheduled banks after the process of proper document submission is completed. Such facilities are amiss when we are talking about the non-scheduled banks.