Scheduled Bank
A Scheduled Bank in India is a bank that is included in the Second Schedule of the Reserve Bank of India Act, 1934, obligating it to maintain a minimum paid-up capital and reserves and entitling it to borrow from the RBI at the bank rate. All public sector banks, private sector banks, foreign banks, and most cooperative banks are scheduled banks.
The classification of a bank as 'scheduled' carries significant regulatory and operational implications in India. A scheduled bank must satisfy three conditions under Section 42 of the RBI Act: maintain a minimum paid-up capital and reserves of Rs 5 lakh (a legacy threshold from 1934, now largely symbolic), carry out banking activities in India, and not conduct its operations in a manner detrimental to depositors' interests. In practice, virtually all significant commercial banks in India are scheduled, while very small cooperative banks and regional rural banks may not qualify.
The primary benefit of scheduled status is access to RBI's credit facilities — including the repo window, the LAF corridor, and the Marginal Standing Facility. Non-scheduled banks cannot borrow directly from the RBI's liquidity windows, limiting their ability to manage short-term funding stress. Scheduled banks are also required to maintain the Cash Reserve Ratio (CRR) with the RBI, which means the central bank has direct visibility into a bank's reserve health. In return, scheduled banks gain reputational credibility and the implicit stamp of central bank oversight.
Scheduled banks are further classified into public sector banks (like SBI, Bank of Baroda, and Canara Bank), private sector banks (like HDFC Bank, ICICI Bank, and Axis Bank), foreign banks operating in India (like Citibank and Standard Chartered), small finance banks, and payment banks. Regional Rural Banks (RRBs) — co-sponsored by central government, state governments, and a public sector bank — are also scheduled banks, formed to channel credit to rural areas.
For investors analysing the Indian banking sector, the distinction between scheduled and non-scheduled institutions matters particularly when examining liquidity risk. During periods of systemic stress — such as after IL&FS's default in 2018 or during the COVID-19 lockdown — the RBI's emergency liquidity measures were available only to scheduled entities. NBFCs, which are not scheduled banks, had to rely on alternative mechanisms like targeted long-term repo operations (TLTROs) specifically created by the RBI to inject liquidity into the NBFC segment indirectly through banks.