Commercial banks are part of an organized money market in India. Commercial banks mobilize savings in urban and rural area and make them available to large and small industrial and trading units mainly for working capital requirements.
Commercial banks are classified into the scheduled and non-scheduled bank. The scheduled banks are sub-grouped into:
- Nationalized scheduled commercial banks
- Foreign banks
- Other non-nationalized scheduled banks
A scheduled bank in so called because it has been included in the second schedule of the Reserve Bank of India Act, 1934 to be eligible for this inclusion, a bank must satisfy the following three condition:
- It must have a paid up capital and reserves for an aggregate value of at least Rs. 5,00,000.
- It must satisfy the RBI, that its affairs are not conducted in a manner detrimental to the interest of its depositors; and
- It must be a corporation and not a partnership or a single owner firm.
Scheduled banks enjoy certain privileges such as free/concessional remittance facilities through the offices of the RBI and its agents and borrowing facilities from the RBI. In return, the scheduled are under obligation to:
- maintain an average daily balance of cash reserves with the RBI at rates stipulated by it; and
- submit periodical returns to the RBI under various provisions of Reserve Bank of India Act, 1934 and the Banking Regulation Act 1949 (as amended from time to time).
Non-scheduled banks are also subject to the statutory cash reserve requirement. But they are not required to keep them with the RBI; they may keep these balances with themselves. They are not entitled to borrow from the RBI for normal banking purposes, though they may approach the RBI for accommodation under abnormal circumstances.