Non-Scheduled and Scheduled Bank

There is a lot of confusion surrounding the difference between Non-Scheduled and Scheduled banks. In this blog post, we will break it down for you and explain what you need to know. Non-scheduled banks are private institutions that provide loans and other banking services to businesses and individuals. Scheduled banks are government-owned institutions that provide similar services. Let’s take a closer look at the differences between these two types of banks!

What is a Scheduled Bank?

A scheduled bank is a bank that has been included in the Second Schedule of the Reserve Bank of India (RBI) Act, 1934. As of 31 March 2020, there are 27 scheduled commercial banks in India. They comprise 21 public sector banks (PSBs), three private sector banks, and three foreign banks.

The RBI has granted scheduled bank status to a bank only if it fulfils certain conditions laid down in the RBI Act, 1934, and the Banking Regulation Act, 1949. These conditions include a minimum paid-up capital of Rs. Five Lakhs.

The RBI has also prescribed certain norms relating to the management of a scheduled bank, which are laid down in the RBI Directions, 2015. These norms include the appointment of a CEO and other senior management personnel, maintenance of capital adequacy, asset quality, and profitability.

What is a Non-scheduled Bank?

A non-scheduled bank is a term used to describe a financial institution that is not subject to the regulations of the Federal Deposit Insurance Corporation (FDIC). This means that if the bank fails, your deposits may not be insured. These banks are required to comply with the CRR conditions.

Differences between Scheduled Banks and Non-scheduled Banks

The scheduled banks and non-scheduled banks can be differentiated on the basis of the following factors including meaning, reserve requirement, safety and security, cash reserve ratio, borrowing, returns, membership of clearinghouse.

Meaning: The difference between Non-Scheduled and Scheduled banks refers to the manner in which these banks are regulated by the Reserve Bank of India. The scheduled banks are the banks that have been included under the Second Schedule of the Reserve Bank of India (RBI) Act, 1934. On the other hand, the non-scheduled banks are the banks that are not included in this schedule.

Reserve Requirement: Reserve requirement is one of the important factors that determine the difference between Non-Scheduled and Scheduled banks. The Reserve Bank of India (RBI) requires all the commercial banks in the country to maintain a certain percentage of their net demand and time liabilities (NDTL) as a cash reserve. This requirement is known as CRR or cash reserve ratio. The scheduled banks are required to maintain a CRR of at least 90%. On the other hand, non-scheduled banks are not subject to any reserve requirements.

Safety and Security: Another difference between Non-Scheduled and Scheduled banks is that the former is subject to more stringent regulations with regard to safety and security. This is because the scheduled banks are required to maintain a higher CRR, which makes them more secure.

Cash Reserve Ratio: The cash reserve ratio (CRR) is another important difference between Non-Scheduled and Scheduled banks. As mentioned earlier, the scheduled banks are required to maintain a CRR of at least 90%. On the other hand, non-scheduled banks are not subject to any reserve requirements.

Borrowing: Another difference between Non-Scheduled and Scheduled banks is that the former can borrow from the RBI, while the latter cannot. The scheduled banks are allowed to borrow up to a certain limit from the RBI called the repo rate. This helps them to meet their liquidity needs. On the other hand, non-scheduled banks are not allowed to borrow from the RBI and are dependent on the money market for their liquidity needs.

Returns: Scheduled banks offer higher returns to their depositors as compared to non-scheduled banks. This is because the scheduled banks are required to maintain a higher CRR, which makes them more secure.

Membership of Clearinghouse: Another difference between Non-Scheduled and Scheduled banks is that only the former can become a member of the clearinghouse. The clearinghouse is an institution that helps in the clearance of cheques and other instruments. Only scheduled banks are allowed to become members of this clearinghouse.

Conclusion

Scheduled banks are a great option for students because they offer low-cost services and often have no minimum balance requirement. Non-scheduled banks may be a better choice for customers who want to maintain more control over their money or need access to certain features that aren’t available at scheduled banks. Ultimately, the best bank for you depends on your individual needs and goals. Have you decided which type of bank is right for you? If not, read our article on the differences between Non-Scheduled and Scheduled banks to learn more about each option. Then, decide which bank is best suited to help you achieve your financial goals.

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