Scheduled bank

Also called: Scheduled commercial bank, SCB · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT

Meaning

A scheduled bank is a bank whose name is listed in the Second Schedule of the RBI Act, 1934. Because it is on this list, it must keep CRR (Cash Reserve Ratio) with the RBI, and it can borrow from the RBI through its refinance and liquidity windows when it runs short of cash.

This matters because the list decides which banks sit inside the RBI's direct safety net. These banks carry a duty (CRR) and get a benefit (the RBI as a lender when cash runs short). Most of India's deposits and loans pass through them.

Explanation

How it works: a two-way deal

• The duty: keep CRR with the RBI.
• CRR is the share of deposits a bank must keep as cash with the RBI.
• This cash earns no interest.

• So CRR is a real cost for the bank. It is also a tool the RBI uses to control how much money banks can lend.

• The benefit: access to RBI money.

• A bank borrows short-term and lends long-term. This is called maturity transformation. Deposits can be taken out on demand, but loans are repaid over years.
• If many depositors want their cash on the same day, even a healthy bank can run short.

• A scheduled bank can then use the RBI's refinance and liquidity windows, which means it can borrow from the RBI.

• Why the two go together.

• The RBI keeps a close watch on banks that hold reserves with it.
• In return, it will lend to them in a crisis as the lender of last resort (the lender that helps when no one else will).

Worked example: what CRR costs a scheduled bank

• Peak levels around 1990-91: CRR 15% and SLR 38.5%. SLR is the share of deposits a bank must keep in safe liquid assets, mainly government bonds.
• A scheduled bank gets deposits of Rs 100:
• Rs 15 goes to the RBI as CRR and earns nothing.
• Rs 38.50 goes into government bonds under SLR.

• Only Rs 46.50 (100 − 15 − 38.5) is left for commercial loans.

• The lesson: a higher CRR means less money to lend, lower profits and a smaller supply of credit in the economy.

Types: who is on the list

• Scheduled vs non-scheduled.
• Scheduled bank: listed in the Second Schedule. It keeps CRR with the RBI and can use RBI liquidity windows.

• Non-scheduled bank: not on the list. It cannot use these RBI facilities in the same way.

• Scheduled commercial banks (SCBs) are the biggest group of scheduled banks:

• Public sector banks (PSBs): government stake above 50%
• Private banks: old private banks (never nationalised) and new private banks (licensed from 1993-94)
• Foreign banks: working in branch mode or as a wholly owned subsidiary (WOS)
• Regional Rural Banks (RRBs)

• Small finance banks and payments banks: differentiated banks, licensed only for a limited set of activities

• Scheduled cooperative banks: some cooperative banks are also on the list. So "scheduled bank" is the wider term, and "scheduled commercial bank" is one part of it.

In India

• The law behind it:
• The RBI Act, 1934 holds the Second Schedule, the list itself.

• The Banking Regulation Act, 1949 gives the RBI power to license banks (no one can run a bank without RBI permission) and to supervise them (inspect them, give directions and remove managers).

• Who manages it: the RBI. It was set up in 1935 and nationalised in 1949. It keeps the list, collects CRR and runs the liquidity windows.

• How the scheduled commercial bank system took shape:
• The Imperial Bank of India became SBI in 1955.
• 1969: 14 banks with deposits of at least Rs 50 crore were nationalised [5].
• 1980: 6 more banks with deposits of at least Rs 200 crore were nationalised.

• After 1991, the Narasimham Committee asked for lower CRR and SLR. New private banks got licences in 1993-94, 2001 and 2014, and on-tap licensing (apply at any time) started in 2016.

• Latest structure:

• PSBs were merged from 27 to 12: SBI associates (2017), Bank of Baroda-Vijaya-Dena (2019) and the April 2020 mega-merger.
• Under "One State One RRB", 43 RRBs became 28 [2]. The fourth phase took effect on 1 May 2025 [3].
• The 28 RRBs have more than 22,000 branches in more than 700 districts [4].

• In FY 2025-26, RRBs made a record net profit of ₹10,176 crore, and their total business crossed ₹13.5 lakh crore [6].

• Recent law change: the Banking Laws (Amendment) Act 2025 amended the RBI Act 1934 and the Banking Regulation Act 1949 [1]. It changed the reporting fortnight for banks' regulatory returns from Saturday–Friday to 1st–15th and 16th–last day of each month [1].

Don't confuse with

• Non-scheduled bank: it is not in the Second Schedule, so it cannot use RBI refinance and liquidity windows in the same way. The test is the list, not the bank's size or owner.
• Licensed bank: a licence comes from the Banking Regulation Act, 1949 and lets a bank do banking at all. Scheduled status comes from the RBI Act, 1934. A bank can hold a licence and still not be scheduled.
• Scheduled commercial bank (SCB): SCBs are one part of scheduled banks. Scheduled cooperative banks are also scheduled banks, but they are not SCBs.
• CRR vs SLR: CRR is cash kept with the RBI and earns nothing. SLR is kept in liquid assets such as government bonds, which the bank holds itself and which earn interest.

Prelims Hooks

• Scheduled bank = listed in the Second Schedule of the RBI Act, 1934. It is not the Banking Regulation Act, 1949, which is a common trap.
• A scheduled bank must keep CRR with the RBI and can use RBI refinance and liquidity windows.
• RRBs, small finance banks, payments banks and foreign banks can all be scheduled commercial banks. Being scheduled does not depend on who owns the bank.
• Peak CRR 15% and SLR 38.5% around 1990-91 left only 46.5% of deposits for commercial lending.
• RRBs: 43 merged into 28 under "One State One RRB", with the fourth phase effective 1 May 2025 [2][3].
• RBI: set up in 1935 and nationalised in 1949. The Banking Regulation Act is also from 1949.

Mains Points

• Safety net vs cost of being scheduled (GS-III):
• Scheduled status gives a bank access to RBI liquidity, which lowers the risk of a bank run (many depositors taking out their cash at once).
• But CRR is a cost, because this cash earns nothing. At 15% in 1990-91, it was part of financial repression, which cut profits and lending.

• The trade-off: set CRR high enough to keep control over money and safety, but low enough to leave banks funds for productive lending.

• Consolidating the scheduled bank system:

• PSB mergers (27 → 12) and RRB mergers (43 → 28) [2] aim at bigger scale, lower costs and more capital. RRBs' record ₹10,176 crore profit in FY 2025-26 [6] supports this.

• Risks: weak banks can hide inside strong ones, local lending can fall, and banks can become too big to fail (so large that the government feels it must rescue them).

• Cooperative banks and the limits of RBI oversight (GS-II/III):

• Even scheduled cooperative banks face dual control. The RBI regulates banking, while state Registrars handle management and elections. The PMC Bank failure (2019) is the usual example.
• The 2020 amendment, the four-tier framework (2022), NUCFDC (2024) and the 2025 Act have tightened oversight. The main unresolved issue is cooperative federalism, since cooperatives are a state subject.

Related concepts

• Public sector bank
• Urban cooperative bank
• Universal banking
• Narrow banking
• Financial repression
• Islamic banking

Read more

• From nationalisation to reform: evolution and structure of Indian banking