A scheduled bank is a bank listed by the Reserve Bank of India in the Second Schedule of the RBI Act, 1934. That listing carries legal weight on both sides: the bank must maintain reserve balances with the RBI and file regular returns, and in return it gets to borrow from the central bank, clear payments through the interbank system, and offer its depositors coverage under the Deposit Insurance and Credit Guarantee Corporation. Roughly 121 scheduled commercial banks operate in India as of 2025–26, with a smaller group of non-scheduled institutions sitting outside that framework.
What Puts a Bank on the Second Schedule
Section 42(6)(a) of the RBI Act sets three conditions a bank must satisfy before the RBI will notify its inclusion in the Second Schedule through the Gazette of India.1Reserve Bank of India. Reserve Bank of India Act, 1934
- Paid-up capital and reserves of at least ₹5 lakh (₹500,000). The statutory floor has not changed since the Act was written, though the RBI expects much higher capitalization from new entrants in practice.
- Affairs that, in the RBI’s view, are not being conducted in a way detrimental to depositors. This is an ongoing test, not a one-time check, and it covers risk management, lending, and board-level decisions.
- A qualifying legal structure: a company under the Companies Act, a state cooperative bank, an institution notified by the Central Government, or a corporation incorporated under any law, including foreign law. Sole proprietorships and informal partnerships are out.
This third condition is what let newer bank models join the Schedule when the RBI licensed them. Small Finance Banks and Payments Banks, introduced in 2015–16, had to meet the same three tests, and both categories now appear in the Second Schedule alongside older commercial banks.2Department of Financial Services. Banking FAQ
Non-scheduled banks are not unregulated. They remain subject to the Banking Regulation Act, 1949, and to separate cash and liquidity rules under Sections 18 and 24 of that statute.3India Code. The Banking Regulation Act, 1949 What they lack is direct access to RBI lending and to the interbank clearing system. That access gap is the practical dividing line.
What Scheduled Status Gives a Bank
Three concrete advantages come with being on the Second Schedule.
A scheduled bank can borrow directly from the RBI. This includes short-term borrowing at the bank rate for liquidity management, and rediscounting eligible bills of exchange, which converts trade credit into immediate cash. When withdrawal demand spikes or a funding gap opens, that access matters.2Department of Financial Services. Banking FAQ
A scheduled bank also becomes a clearing house member automatically, participating directly in interbank settlement and payment systems. A bank without that membership has to route transactions through another institution, which is slower and more expensive.2Department of Financial Services. Banking FAQ
And scheduled banks are covered by the DICGC. The corporation insures each depositor up to ₹5 lakh per bank, covering principal and interest across savings, fixed, current, and recurring deposits. Deposits held across different branches of the same bank are aggregated for the coverage calculation, so multiple branches of one bank do not multiply the insured amount.4Deposit Insurance and Credit Guarantee Corporation. DICGC Information Leaflet Scheduled Cooperative Banks fall under the same DICGC framework as commercial banks.5Reserve Bank of India. Reserve Bank of India FAQs – Deposit Insurance
What Scheduled Status Requires
The privileges come with running costs that directly reduce the money available for lending.
Cash Reserve Ratio
Section 42(1) of the RBI Act requires every scheduled bank to keep an average daily cash balance with the RBI equal to a set percentage of its net demand and time liabilities. The statute allows the RBI to set this Cash Reserve Ratio anywhere between 3% and 20%, and the actual figure moves with monetary policy.1Reserve Bank of India. Reserve Bank of India Act, 1934 CRR balances earn no interest. Raising the rate drains liquidity from the banking system; lowering it puts liquidity back in.
Statutory Liquidity Ratio
On top of CRR, Section 24 of the Banking Regulation Act requires every banking company, scheduled or not, to hold a minimum percentage of its net demand and time liabilities in liquid assets like cash, gold, and government securities. This Statutory Liquidity Ratio is capped at 40%. SLR assets stay on the bank’s own books and can earn returns, but they cannot be lent out.3India Code. The Banking Regulation Act, 1949
Priority Sector Lending
Domestic scheduled commercial banks must direct at least 40% of Adjusted Net Bank Credit, or the credit equivalent of off-balance-sheet exposure whichever is higher, to priority sectors: agriculture, small enterprises, education, and housing among them. Foreign banks with 20 or more branches face the same 40% target.
Penalties and Removal from the Schedule
The RBI enforces the reserve requirements with penal interest. If a scheduled bank’s SLR holdings fall below the required level on a reporting date, the bank owes penal interest at 3% above the prevailing bank rate on the shortfall. If the default carries into the next reporting date and beyond, the rate rises to 5% above the bank rate. CRR shortfalls follow a similar structure, with penal interest at 5% above the bank rate under Section 42(3) of the RBI Act.
Scheduled banks also file periodic returns on assets, liabilities, and operations. Chronic reporting failure or governance problems can trigger the most serious consequence available: removal from the Second Schedule under Section 42(6)(b). Losing scheduled status strips a bank of RBI borrowing, clearing house membership, and DICGC coverage in one move.1Reserve Bank of India. Reserve Bank of India Act, 1934
The Kinds of Banks That Carry Scheduled Status
The broadest split is between Scheduled Commercial Banks and Scheduled Cooperative Banks. Within the commercial category, several ownership models operate under the same regulatory rules.2Department of Financial Services. Banking FAQ
- Public Sector Banks, where the government holds a majority stake. These are the largest by assets and branch network.
- Private Sector Banks, majority-owned by private individuals or entities, ranging from legacy institutions to banks licensed in the 1990s and 2000s.
- Foreign Banks incorporated outside India that operate branches in the country and meet the Section 42(6) tests.
- Regional Rural Banks, jointly owned by the Central Government, a state government, and a sponsoring commercial bank, and subject to the same CRR and SLR rules as other scheduled banks.6Department of Financial Services. Consolidated Review of Regional Rural Banks
- Small Finance Banks, licensed to provide savings accounts and lending mainly to small farmers, micro-enterprises, and unorganized-sector workers.
- Payments Banks, which can accept capped deposits and handle payments but cannot issue loans or credit cards.
Scheduled Cooperative Banks form the other main branch and include State Cooperative Banks, Central Cooperative Banks, and Urban Cooperative Banks. They run on a cooperative ownership model in which members are also depositors and borrowers.