Scheduled Commercial Banks (SCBs) form the core of the Indian banking system. They play a crucial role in mobilising savings, providing credit, supporting economic growth, and implementing monetary policy.
Meaning of Scheduled Commercial Banks
Scheduled Commercial Banks are those banks which are included in the Second Schedule of the Reserve Bank of India Act, 1934. To be included in this schedule, a bank must satisfy certain conditions laid down by the RBI, such as having a minimum paid-up capital and reserves and conducting its affairs in a manner that does not harm the interests of depositors.
Being a scheduled bank gives certain advantages. Scheduled Commercial Banks are eligible for refinancing and borrowing facilities from the RBI and are subject to RBI’s regulatory and supervisory framework. These banks are the main channel through which RBI’s monetary policy decisions are transmitted to the economy.
Characteristics of Scheduled Commercial Banks
Scheduled Commercial Banks accept deposits from the public and provide loans and advances for commercial and economic activities. They operate on a profit-oriented basis and provide a wide range of banking and financial services to individuals, businesses, and the government.
It is important to note that all scheduled banks are regulated by RBI, but not all banks in India are scheduled banks.
Types of Scheduled Commercial Banks in India
Scheduled Commercial Banks in India are broadly classified based on ownership and control. Each category has a distinct role in the banking system.
Public Sector Banks
Public Sector Banks are banks in which the Government of India holds a majority stake. These banks were established to extend banking services to all sections of society, especially in rural and semi-urban areas.
They include:
- Nationalised banks
- State Bank of India and its associates (now merged)
Public Sector Banks play a major role in priority sector lending, financial inclusion, government-sponsored schemes, and social banking. Remember that PSBs dominate in terms of branch network and outreach.
Private Sector Banks
Private Sector Banks are owned and managed by private individuals or corporate entities, though they are fully regulated by RBI. These banks operate with greater operational flexibility and are known for efficiency, innovation, and customer service.
They are divided into:
- Old private sector banks
- New private sector banks
Private Sector Banks have contributed significantly to technological advancement in Indian banking, including digital banking, internet banking, and mobile banking.
Foreign Banks
Foreign Banks are banks incorporated outside India but operating in India through branches or wholly-owned subsidiaries. They bring global banking practices, advanced technology, and international expertise to the Indian banking system.
Their operations are mainly concentrated in metropolitan cities and focused on trade finance, corporate banking, and wealth management.
Regional Rural Banks (RRBs)
Regional Rural Banks are jointly owned by the Government of India, State Governments, and Sponsor Banks. They were established to serve the banking and credit needs of rural and agricultural sectors.
Although RRBs have a limited area of operation, they are included under Scheduled Commercial Banks. They play a vital role in promoting rural development, financial inclusion, and agricultural credit.
Small Finance Banks and Payments Banks
Small Finance Banks are set up to provide banking services to small businesses, farmers, micro and small industries, and unorganised sector workers. They accept deposits and extend credit in small amounts.
Payments Banks, on the other hand, can accept deposits but are not allowed to lend. Their main objective is to promote digital payments and financial inclusion.
For exams, it is important to note that both are scheduled commercial banks if they meet RBI criteria and are included in the Second Schedule.
Functions of Scheduled Commercial Banks
Scheduled Commercial Banks perform a wide range of functions that support the economy. These functions can be broadly classified into primary, secondary, and developmental functions.
Primary Functions
The primary function of Scheduled Commercial Banks is to accept deposits from the public. These deposits provide safety, liquidity, and return to depositors. Banks also provide loans and advances to individuals, businesses, agriculture, and industries, thereby supporting economic activities.
Through lending, banks create credit, which plays a vital role in economic growth.
Secondary Functions
In addition to core banking functions, Scheduled Commercial Banks provide various agency and utility services. These include collection and payment of cheques, bills, dividends, and pensions. Banks also facilitate remittances, issue demand drafts, and provide locker facilities.
They act as trustees, executors, and financial advisors, enhancing customer convenience and trust.
Developmental Functions
Scheduled Commercial Banks play an important developmental role, especially in a developing economy like India. They support priority sector lending to agriculture, MSMEs, education, and weaker sections. Banks also promote financial inclusion through schemes like Jan Dhan Yojana, direct benefit transfer, and digital banking initiatives.
By financing infrastructure, industries, and startups, banks contribute directly to national economic development.
Role of Scheduled Commercial Banks in Monetary Policy
Scheduled Commercial Banks act as a link between the RBI and the economy. RBI uses tools such as repo rate, CRR, SLR, and open market operations to regulate liquidity and credit in the system. These policies are implemented through Scheduled Commercial Banks.
Therefore, the effectiveness of monetary policy largely depends on the functioning of Scheduled Commercial Banks.
Conclusion
Scheduled Commercial Banks are the backbone of the Indian financial system. They mobilise savings, provide credit, promote financial inclusion, and support economic growth. Their diverse types and wide-ranging functions make them essential for the smooth functioning of the Indian economy.