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.
