FMI

Types of Banks
Scheduled Bank
Scheduled Banks as the name suggest are the banks, which are accounted in the
Second Schedule of the Reserve Bank of India (RBI) Act, 1934. To qualify as a
scheduled bank, the bank should conform to the following conditions:

• The total minimum value of paid up capital and reserve must be of Rs. 25 lacs.
• Any activity of the bank will not adversely affect the interests of the depositors.
 Scheduled banks enjoy certain rights such as:

 Right to receive refinance facility from the apex bank

 Entitled for currency chest facility.
 Right to become members of clearing house

(Currency chest is the place where the RBI kept all the excess money of banks under
custody. Whenever, RBI prints new currency notes, first it delivers to currency chests and
then currency chests deliver these new currency notes to banks.)
Non-Scheduled Bank
Non-Scheduled Bank refers to the banks which are not listed in the Second Schedule of
Reserve Bank of India.

In finer terms, the banks which do not comply with the provisions specified by the
central bank, within the meaning of the Reserve Bank of India Act, 1934, or as per
specific functions, etc. or as per the judgement of the RBI, are not able to serve and
protect the depositor’s interest, are known as non-scheduled banks.

Non-Scheduled Banks are also required to maintain the cash reserve requirement, not
with the RBI, but with themselves. These are local area banks.
Difference:
BASIS FOR COMPARISON SCHEDULED BANKS
Meaning Scheduled banks is a banking
corporation whose minimum paid up
capital is Rs. 25 lakhs and does not
harm the interest of the depositors.
Second Schedule Listed in the second schedule.
Cash Reserve Ratio Maintained with RBI.
Borrowing Scheduled banks are allowed to borrow Non-Scheduled banks are not allowed
money from RBI for regular banking
purposes.
Returns To be submitted periodically.
Members of clearing house It can become a member of clearing
house.
NON-SCHEDULED BANKS
Non-scheduled banks are the banks
which do not comply with the rules
specified by the Reserve Bank of India,
or say the banks which do not come
under the category of scheduled banks.
Not-listed in the second schedule.
Maintained with themselves.
to borrow money from RBI for regular
banking purposes.
No such provision of submitting
periodic returns.
It cannot become member of clearing
house.
Scheduled Banks
1. Public Sector Banks
• State Bank of India and its associates (1 SBI + 5 associates of SBI)
• Other Nationalised banks (19 banks)
2. Private Sector Indian Banks (40 banks)
• Old private-sector banks
• New private-sector banks
3. Private-sector Foreign banks (45 banks)
4. Regional Rural Bank (RRBs) (56 banks)
5. Scheduled Co-operative banks (74 banks)
• Scheduled State Co-operative Banks (20 banks)
• Scheduled Urban Co-operative Banks (54 banks)
 Public Sector Banks
 Public sector banks are banks in which the government has a major holding. These
can be classified into two groups: (i) the State Bank of India and its associates and
(ii) nationalized bank.

 Nationalised Bank:
 Nationalization is a process whereby a national government or State takes over the
private industry, organisation or assets into public ownership by an Act or ordinance
or some other kind of orders.
 In 1955, the Imperial Bank of India was nationalized and was given the name “State
Bank of India”
The Banks which were earlier in private sector were transferred to the public Sector by
the act of nationalization. The first nationalized bank was Imperial Bank of India
(under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July
1955.

In 1969 , 14 banks were nationalized and in 1980, the second phase of nationalization
of Indian banks took place, in which 7 more banks were nationalised.

Currently total 26 public sector banks in India all were Nationalized over a period of
time.
• The major objectives of nationalization were to widen the branch network of banks
particularly in the rural and semi-urban areas which, in turn, would help in greater
mobilisation of savings and flow of credit to neglect such as agriculture, and small-
scale industries.
• Public sector banks have an edge over private sector banks in terms of size,
geographical reach and access to low-cost deposits. Huge size enables them to cater
to the large credit needs of corporate. Geographical reach through a large number of
branches increases their access to low-cost deposits and lowers the portfolio risk
through diversification.
Foreign Banks
 Currently (2019) there are 40 foreign banks operating in India with 311 branches. In
addition, 44 foreign banks were operating in India through representative offices. The
Standard Chartered Bank leads the pack with 92 branches in India.
 Foreign banks have been operating in India since decades. A few foreign banks have
been operating in India for over a century. ANZ Grindlays had been in India for
more than hundred years, while Standard Chartered Bank has been around since
1858.
 Many foreign banks from different countries set up their branches in India during the
1990 – the liberalization period.

 total of44 foreign banks opened branches in India following the reforms of 1991,
in addition to the 18 which were already operating in India.
 Benefits of Foreign Banks
 The presence of foreign banks in India has benefitted the financial system by
enhancing competition.
 Transfer of technology and specialized skills resulting in higher efficiency.
 They have also enabled large Indian companies to access foreign currency resources
from their overseas branches in times of foreign currency constraint.
 They are active players in the money market and foreign exchange market which has
contributed to enhancing the liquidity and deepening of these markets in terms of both
volumes and products.
Reasons for Foreign Banks
 Growth of Indian GDP
 Market size in India
 Liberalisation policy since 1991
Reasons for Nationalization
Social Welfare:
It was the need of the hour to direct the funds for the needy and required sectors of the
Indian economy. Sector such as agriculture, small and village industries, small artisans,
poor people were in need of funds for their expansion and further economic
development.

Controlling Private Monopolies:

Prior to nationalisation many banks were controlled by private business houses and
corporate families. It was necessary to check these monopolies in order to ensure a
smooth supply of credit to socially desirable sections.
Expansion of Banking:
In a large country like India the numbers of banks existing those days were certainly
inadequate. It was necessary to spread banking across the country. It could be done
through expanding banking network (by opening new bank branches) in the un-banked
areas.

Reducing Regional Imbalance:

In a country like India where we have a urban-rural divide; it was necessary for banks
to go in the rural areas where the banking facilities were not available. In order to
reduce this regional imbalance nationalisation was justified.
Priority Sector Lending:
In India, the agriculture sector and its allied activities were the largest contributor to the
national income. Thus these were labelled as the priority sectors. But unfortunately
they were deprived of their due share in the credit. Nationalisation was urgently needed
for catering funds to them.

Developing Banking Habits:

In India more than 70% population used to stay in rural areas. It was necessary to
develop the banking habit among such a large population.
Other Reasons for Nationalization of Banks:
Preventing concentration of economic power: Initially, a few leading industrial and
"business houses had close association with commercial banks. The directors of these
banks happened to be the same industrialists bank finance. They exploited the bank
resources in such a way that the new business units cannot enter in any line of business
in competition with these business houses. Nationalisation of banks, thus, prevents the
spread of the monopoly enterprise.rialists who established monopoly control on the
Greater control by the Reserve Bank:
In a developing country like India there is need for exercising strict control over credit
created by banks. If banks are under the control of the Govt., it becomes easy for the
Central Bank to bring about co-ordinated credit control. This necessitated the
nationalisation of banks.

March Forward towards Socialism:

India aims at socialism. This requires the financial institutions to run under the
government's control and only through nationalisation, this objective can be effectively
achieved.

Better service conditions to staff:

Nationalisation ensures the staff of banks to enjoy greater job security and higher
emoluments. It can provide other benefits as well. In this way the banks can motivate
their staff and thereby the operational efficiency of banks will be increased.
New schemes: Through nationalised banks, new schemes like village adoption scheme,
Lead Bank Scheme can be formulated and implemented. Besides, different types of
financial facilities can be extended to persons like Doctors, Engineers, Self-employed
persons like artisans etc.