What Is A Scheduled Bank: Definition, Categories & Role in Indian Banking

Scheduled banks are banks included in the Second Schedule of the Reserve Bank of India Act, 1934, after meeting the applicable statutory requirements. Scheduled banks play a vital role in the banking system of India and have been classified as follows:

• Public Sector Banks
• Private Sector Banks
• Foreign Banks
• Regional Rural Banks
• Small Finance Banks

Differentiating the scheduled banks from non-scheduled banks will help to understand the classification of banks in India. It will help to understand the function of banks in saving mobilisation and credit allocation.

Key Takeaways

• Scheduled banks come under the Second Schedule of the RBI Act of 1934.
• RBI supervises and monitors the scheduled banks and their compliance with statutory provisions.
• Scheduled commercial banks include public sector, private sector, foreign, regional rural, small finance and payments banks, while scheduled banks more broadly also include scheduled cooperative banks. 
• Scheduled banks play an important role in savings mobilisation and credit delivery.
• They help in rural development and economic growth.

What Is a Scheduled Bank?

A scheduled bank of India refers to those banks which have been listed in the Second Schedule of the Reserve Bank of India Act, 1934. According to the Reserve Bank of India (RBI), the Second Schedule lists a bank based on some criteria provided for in Section 42(6)(a) of the RBI Act.

For a bank to be identified as a scheduled bank, it should:

• Satisfy some prescribed criteria: The bank should satisfy the conditions that have been set out in the RBI Act.
• Be listed in the Second Schedule: The listing will make the bank qualify as a scheduled bank.
• Comply with RBI guidelines: Scheduled banks should conform to the required regulatory requirements.
• Constitute the banking system: Scheduled banks form an important part of India's formal banking system. 

Therefore, a bank should meet the required criteria in order to qualify as a scheduled bank in India.

How is a Scheduled Bank Defined Under the RBI Act? 

As per the Reserve Bank of India Act, 1934, the term scheduled banks means banks which are listed in the Second Schedule of the Reserve Bank of India Act. This classification of the banks has been done by the RBI as per the provisions of Section 42(6)(a) of the RBI Act.

Scheduled banks are included in the formal banking system and are subject to RBI regulation and applicable statutory requirements. Commercial banks may be classified as scheduled commercial banks and non-scheduled commercial banks based on their inclusion in the Second Schedule. Scheduled commercial banks include public sector banks such as State Bank of India and other public sector banks, private sector banks, foreign banks, RRBs, and other categories recognised by RBI.

Inclusion in the Second Schedule, therefore, makes an important difference as it means that the bank meets the statutory requirement of being a scheduled bank.

What Are the Different Categories of Scheduled Banks in India? 

SCBs include different categories of banks, including public sector, private sector, foreign, Regional Rural, Small Finance and Payments Banks.  RRBs, SFBs, and Payments Banks constitute different categories of scheduled banks.

Scheduled Commercial Banks (SCBs)

Scheduled Commercial Banks follow RBI rules and conduct commercial banking business. They may be categorised as follows:

• Public Sector Banks: Banks wherein the majority ownership belongs to the government, for example, State Bank of India and nationalised banks.