While commercial banks exist around the world, scheduled banks constitute a unique feature of the Indian banking system. Within this banking structure, commercial banks take on a specific definition in relation to the other types of banks in the Indian system, which include schedule banks, nonscheduled banks and cooperative banks. Fully understanding the differences between commercial and scheduled banks requires a basic understanding of the Indian banking system as a whole.
The Structure of Indian Banking
The structure of the Indian banking system can be categorized in two ways. The first divides banks into three categories: the Reserve Bank of India, commercial banks and cooperative banks. The second divides banks into two categories: scheduled banks and non-scheduled banks. In both of these systems of categorization, the Reserve Bank of India, or RBI, sits at the center of the banking structure. RBI holds the reserve capital of all commercial and scheduled banks in the country.
Three eligibility criteria exist for scheduled banks in India, the first of which entails carrying on the business of banking in India, which all banks ostensibly meet. All scheduled banks must maintain a reserve capital of 5 lakhs rupees in the Reserve Bank of India. A lakh constitutes 100,000. In 2011, 5 lakhs rupees, or 500,000 rupees, equates approximately $11,156. Any commercial bank, cooperative bank, nationalized bank, foreign bank, rural regional bank institution, State Bank of India branch or other private sector bank meeting these criteria qualifies as a scheduled bank. Thus all commercial banks in India qualify as scheduled banks, though not all scheduled banks qualify as commercial banks.
Commericial Banks vs. Cooperative Banks
Scheduled banks in India fall into two categories: commercial banks and cooperative banks. Commercial banks constitute those banks driven by profit. These banks exist for no other reason than generating capital. Cooperative banks technically constitute cooperative institutions with an elected managing committee, provisions for the protection of members’ rights and a set of communally developed and approved bylaws and amendments. In addition to personal finance, co-op banks exist to handle the finances of rural activities like agricultural and livestock farms and urban activities like entrepreneurship and home buying.
Very few non-scheduled banks exist in India, as very few institutions can claim exemption from the broad eligibility inclusions of scheduled banks. Banks with reserve capital of less than 5 lakh rupees qualify as non-scheduled banks, though 5 lakh rupees constitutes such a small sum of money that hardly any banks fall into this designation. In 2006, only three non-scheduled banks existed in the entire country. As of 2011 only four such banks exist. Despite economic expansion in this period, only one additional non-scheduled bank appeared in India.