Schedule Commercial Banks , Non Scheduled Commercial Banks

 

Classification of Banks: 

Broadly banks can be classified as:

• Schedule Commercial Banks and 
• Non Scheduled Commercial Banks. 

Schedule Commercial Banks: 

• A Schedule Commercial Banks is so called because it has been included in the second schedule of the Reserve Bank of India Act,1934. 
• These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks.

To be eligible for Schedule Commercial Bank, a bank must satisfy the following three condition:      

• It must have a Paid Up Capital and reserves for an aggregate value of at least Rs. 5 Lacs
• It must satisfy the RBI, that its affairs are not conducted in a manner detrimental to the interest of its depositors; 
• It must be a corporation and not a partnership or a single owner firm.

In 2001, RBI came up with new guidelines for giving license to the private bank.

Following are the preconditions to qualify as a Schedule Commercial Banks:

• The initial minimum paid-up capital for a new bank shall be Rs.200 crore. The initial capital will be raised to Rs.300 crore within three years of commencement of business.
• The promoters’ contribution shall be a minimum of 40 per cent of the paid-up capital of the bank at any point of time.
•  NRI participation in the primary equity of a new bank shall be to the maximum extent of 40 per cent. 
• The new bank should not be promoted by a large industrial house
•  The proposed bank shall maintain an Arm's Length relationship with business entities in the promoter group

At present Scheduled banks can be categorized as:

1. State Bank of India and its Associates

2. Nationalised Banks

3. Foreign Banks

4. Regional Rural Banks

5. Payment bank

6.Small Finance bank

7.Other scheduled commercial banks /Private Sector Banks.

Banks in the groups (1) & (2) above are known as Public Sector Banks whereas, other Scheduled commercial banks mentioned at group (7) above are known as private sector banks.

Non-scheduled Commercial banks: 

•  Banks which are not the part of the 2nd schedule of the RBI Act. 
•  Unlike Schedule Commercial Banks, these are not entitled to borrow from the RBI for normal banking purposes, though they may  approach the RBI  under abnormal circumstances. 
•  These banks are also subject to the statutory Cash Reserve Requirement But they may keep these balances with themselves rather than keeping with RBI.
• Non-Scheduled banks are also called Local Area Banks (LAB). 
• There are only four Local Area Banks in India, which exist eg. Subhadra LAB.