What is a scheduled Commercial bank?

Scheduled Commercial Banks in India are those banks which are included in the second schedule to Reserve Bank of India Acts 1934.

Scheduled Commercial Banks in India are categorised in five different groups according to their ownership and/or nature of operation. These bank groups are: (i) State Bank of India  (ii) Nationalised Banks, (iii) Regional Rural Banks, (iv)  Foreign Banks and (v) Other Indian Scheduled Commercial Banks (in the private sector and a few of the co-operative sector banks).

It is mandatory on the part of scheduled commercial banks to maintain Cash Reserve Ratio and Statutory Liquidity Ratio and submission of various prescribed returns to RBI from time to time. The scheduled banks are also come under the regulatory restrictions on bank lending, fair practices codes, and compulsory minimum proportion of their lending as credit to priority sector and sub-sector thereof. The scheduled Commercial Bank are eligible for certain facilities from Reserve Bank such as obtaining accommodation in the form of loan in case of Liquidity problem faced by them, grant of authorized dealer’s license to handle foreign exchange dealings, etc.

In terms of section 42(6) (a) of RBI acts 1934, the following conditions are to be fulfilled by a bank to be included in second schedule.

• It must have a paid up capital and reserves of an aggregate value of not less than Rs.5 lakh;
• It must satisfy the RBI that its affairs are not being conducted in a manner detrimental to the interest of the depositors; and
• It must be a State Co-operative bank or a company as defined in the companies act, or an institution notified by the Central Government in this behalf or a corporation or a company incorporated by or under any law in force in any place outside India.

As per press release of RBI dated Jan 03, 2001, the initial minimum paid-up capital for a new bank shall be Rs.200 crore. The initial capital will be raised to Rs.300 crore within three years of commencement of business. The overall capital structure of the proposed bank including the authorised capital shall be approved by the RBI. While augmenting capital to Rs.300 crore within three years of commencement of business, the promoters will have to bring in additional capital, which would be at least 40 per cent of the fresh capital raised. The remaining portion could be raised through public issue or private placement. The promoters’ total contribution of a minimum of 40% of  capital will also be locked in for a minimum period of 5 years from the date of receipt of capital by the bank. The new bank should not be promoted by a large industrial house. However, individual companies, directly or indirectly connected with large industrial houses may be permitted to participate in the equity of a new private sector bank up to a maximum of 10 per cent but will not have controlling interest in the bank.

For promoting universal banks,  initial minimum paid-up voting equity capital for a bank shall be 500 crore rupees. Thereafter, the bank shall have a minimum net worth of 500 crore rupees at all times. Large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10 per cent.