The Difference Between Commercial Banks & Schedule Banks

by Andra Picincu - Updated September 27, 2018

Every business must comply with the laws of the country where it operates. If you're planning to start a company or provide services in India, it's important to understand the legal system and its requirements. Banks represent a large part of this system. As a business owner, you may have to deal with scheduled banks at some point. Make sure you know how they operate and what their role is.

What Are Commercial Banks?

Whether you're an individual or a company, you probably used commercial banks to take a loan or make a deposit. These financial institutions exist worldwide and provide a wide range of services, from personal and mortgage loans to investment programs. Customers can open checking accounts, deposit money, apply for credit cards and more.

Non-commercial banks, by comparison, provide limited services to high-net-worth individuals or companies. These institutions don't offer retail banking services, such as credit and debit cards, home equity loans or mortgages.

In 2016, U.S. commercial banks had assets worth $15.63 trillion. The market leaders are J.P. Morgan Chase, Bank of America Corp., Wells Fargo and Citigroup. Globally, the Industrial and Commercial Bank of China (ICBC) has the highest value worth.

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India is home to a large number of commercial banks, too, but its banking system has unique characteristics. Several types of banks exist here, including:

  • scheduled and non-scheduled banks,
  • central banks,
  • development banks,
  • co-operative banks,
  • regional rural banks (RRBs),
  • exim (export-import) banks,
  • exchange banks and
  • land mortgage banks.

These can be further divided into organized and un-organized banking systems. The latter category doesn't fall under the control of the Reserve Bank of India (RBI), which is the central bank. In this part of the world, both scheduled and non-scheduled banks are an integral part of the commercial banking system.

Characteristics of a Scheduled Bank

A scheduled bank is one that has been included in the legislative act under which the RBI was formed, namely the Second Schedule of Reserve Bank of India Act, 1934. Some examples include the TMD bank (Tamilnad Mercantile Bank Ltd.), the Axis Bank, the HDFC Bank, the Bank of India and the Oriental Bank of Commerce. Many foreign banks that have branches in India, such as the Deutsche Bank A.G, the HSBC and the Bank of America, fall under this category, too.

These financial institutions manage deposits and withdrawals. They also offer basic investment products and loans to both individuals and businesses. All of them must comply with the regulations imposed by the Reserve Bank of India.

It's important to note that a scheduled bank must maintain capital reserves of at least 5 lakhs rupees or 500,000 rupees in the RBI. These institutions are entitled to take loans from the Reserve Bank of India. Several categories exist, including scheduled local area banks, scheduled private banks, public sector banks and co-operative banks.

What About Non-Scheduled Banks?

Currently, there are just a few non-scheduled banks in India. These include the Delhi State Cooperative Bank Ltd., the Assam Co-operative Apex Bank Ltd., the Arunachal State Co-operative Apex Bank Ltd. and others. Those that fall under this category are not listed in the Second Schedule of Reserve Bank of India Act, 1934.

Non-scheduled banks can only borrow money from the RBI under certain circumstances, such as in case of an emergency. Additionally, they are not required to have a minimum capital reserve in the RBI. However, they must keep cash reserves with themselves.

Considering these aspects, it makes sense to choose a scheduled bank for your business operations. Assess your options and make a decision accordingly. Consider your financial needs and the types of banking services you may require in the future.

About the Author

Andra Picincu is a digital marketing consultant with over 10 years of experience. She works closely with small businesses and large organizations alike to help them grow and increase brand awareness. She holds a BA in Marketing and International Business and a BA in Psychology. Over the past decade, she has turned her passion for marketing and writing into a successful business with an international audience. Current and former clients include The HOTH, Bisnode Sverige, Nutracelle, CLICK - The Coffee Lover's Protein Drink, InstaCuppa, Marketgoo, GoHarvey, Internet Brands, and more. In her daily life, Ms. Picincu provides digital marketing consulting and copywriting services. Her goal is to help businesses understand and reach their target audience in new, creative ways.

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