Scheduled Banks vs Non-Scheduled Banks – Difference and Comparison

What are Scheduled Banks?

People are confused about the operations of scheduled banks in India. Scheduled banks in India refer to banks that are regulated by the Second Schedule of the RBI Act of 1934. This means that a scheduled bank’s distinctiveness is determined by how it is regulated. Scheduled banks are required by the Reserve Bank of India (RBI) to maintain a specific limit of cash reserves. This cash is to be cashed in case of demand and loss.

Scheduled banks must comply with the rules and regulations imposed on them by the Reserve Bank of India. The retention of 90% of a specific limit of cash deposits is the first prerequisite – this specific limit is called cash reserve ratio (CRR). In this way, scheduled banks are strictly controlled by the RBI for their concerning policies and operations. This rule is imposed to ensure the safety and security of these banks. Scheduled banks also have the facility of taking money from RBI to make adjustments.

In terms of returns, scheduled banks pay more to their depositors. This increment in returns comes from the full-fledged financial security of these banks, ensured by CRR, under the supervision of RBI. The benefit of this rule saves scheduled banks from going down and keeps them regulated to deliver the maximum benefits to their customers. Scheduled banks are also eligible to be members of the clearinghouse – a body that authorizes and approves financial clearances.

What are Non-Scheduled Banks?

To make sense of non-scheduled, one must think of them as non-governmental banks providing customers with banking facilities. Non-scheduled banks in India are those that are not protected by the Federal Deposit Insurance Corporation (FDIC), implying that your deposits are ensured by any governmental policy in case this bank meets a setback.

Although non-scheduled banks are required to maintain a cash deposit ratio (CRR), this is not a rigid limit that must be achieved at any cost. In this way, a bit of flexibility rests with non-scheduled banks. Non-scheduled banks are relatively less secure because they are not regulated under the rules and regulations of the Second Schedule of the RBI Act 1934. This does not question their legality but just indicates a sign of lesser security on their part.

Despite the fact that non-scheduled banks are flexible and, to an extent, independent in their policy and operations, they are not allowed to take any financial assistance from RBI for making necessary adjustments. This makes them more responsible in maintaining their reserves according to the liquidity and market demands. They pay relatively lesser to their depositors because of the not strictly regulated CRR. No non-scheduled bank is eligible for membership in the clearinghouse.

Difference Between Scheduled Banks and Non-Scheduled Banks

  1. Scheduled banks are regulated by the Second Schedule of the RBI Act 1934, whereas non-scheduled banks are not regulated by it.
  2. Scheduled banks are government-insured institutions, whereas non-scheduled banks are private banks.
  3. Scheduled banks must maintain 90% of CRR, whereas non-scheduled banks are not bound to comply.
  4. Scheduled banks are dependent on the RBI in policy and operations, whereas non-scheduled banks are more independent.
  5. Scheduled banks pay more benefits to depositors, whereas non-scheduled banks offer lower returns to depositors.

Comparison Between Scheduled Banks and Non-Scheduled Banks

Parameters of ComparisonScheduled BanksNon-Scheduled Banks
DefinitionRegulated by the Second Schedule of the RBI Act 1934Not Regulated by the Second Schedule of the RBI Act 1934
NatureGovernment-insuredPrivate Banks
Cash Deposit Ratio (CRR)90%No Fixed Ratio
Policy & OperationsControlledRelatively More Independent
Return ValueHigher ReturnsLower Returns