Answer By law4u team
A scheduled bank is a bank that is included in the Second Schedule of the Reserve Bank of India (RBI) Act, 1934. Being “scheduled” gives the bank certain privileges and obligations under Indian banking law, and it essentially signifies that the bank meets certain criteria of financial soundness and regulatory compliance. Let me explain in detail. 1. Legal Definition Under Section 42 of the Reserve Bank of India Act, 1934, banks that satisfy the RBI and are included in the Second Schedule of the RBI Act are called scheduled banks. To qualify as a scheduled bank, the bank must meet the following conditions: 1. The bank’s paid-up capital and reserves must be at least ₹5 lakh (historically specified, often higher in modern context due to inflation). 2. The bank must conduct its business in a manner satisfactory to the RBI, showing financial stability and adherence to banking regulations. Once a bank is scheduled, it enjoys certain privileges and obligations as per RBI regulations. 2. Categories of Scheduled Banks Scheduled banks in India are generally classified into two main types: 1. Scheduled Commercial Banks: These are banks engaged in normal banking business such as accepting deposits, lending, and providing financial services. Examples include nationalized banks, private sector banks, and foreign banks operating in India. 2. Scheduled Cooperative Banks: These banks operate on a cooperative basis and provide banking services to rural or cooperative sectors. They must also meet the RBI criteria and are included in the Second Schedule. 3. Advantages of Being a Scheduled Bank Being a scheduled bank comes with several advantages: 1. Eligibility for RBI Assistance: Scheduled banks can borrow money from the Reserve Bank of India in times of need, particularly for liquidity support. 2. Membership in Clearing Houses: Scheduled banks are allowed to participate in cheque clearing and other interbank transactions, which is crucial for smooth operations. 3. Credibility and Public Confidence: Being scheduled signals that the bank is financially sound and regulated, which increases public trust. 4. Statutory Compliance: Scheduled banks are required to maintain cash reserves with the RBI, ensuring stability in the banking system. 4. Obligations of Scheduled Banks While scheduled banks enjoy privileges, they also have certain obligations under the RBI Act: 1. They must maintain a specified cash reserve ratio (CRR) and other statutory deposits with the RBI. 2. They are subject to strict regulatory oversight, including inspections, reporting, and compliance with banking norms. 3. They must follow RBI directives on lending, investments, and other banking activities. 5. Key Takeaways A scheduled bank is one included in the Second Schedule of the RBI Act, 1934. It must satisfy minimum financial requirements and conduct business satisfactorily. Scheduled banks have access to RBI facilities, participate in clearinghouses, and enjoy public confidence. They are subject to regulatory oversight, ensuring stability and compliance. In essence, being a scheduled bank signifies financial soundness, regulatory compliance, and operational credibility, which is important for both customers and the banking system in India.