Banks can be described as the financial intermediary, amidst the borrowers and depositors and provides banking services to the customers. Commercial bank is a bank that is formed for the commercial purpose and hence its primary aim to earn profit from the banking business.
On the other hand, cooperative banks are owned and operated by the members for a common purpose i.e. to provide financial service to agriculturists and small businessmen. It relies on the on the principles of cooperation, such as open membership, democratic decision making, mutual help. The article presents you the fundamental difference between commercial and cooperative banks have a look.
Content: Commercial Bank Vs Cooperative Bank
|Basis for Comparison||Commercial Bank||Cooperative Bank|
|Meaning||A bank, that offers banking services to individuals and businesses is known as a commercial bank.||A bank set up to provide finance to agriculturists, rural industries and to trade and industry of urban areas (but up to a limited extent).|
|Governing Act||Banking Regulation Act, 1949||Cooperative Societies Act, 1965|
|Area of operation||Large||Small|
|Motive of operation||Profit||Service|
|Borrowers||Account holders||Member shareholders|
|Main function||Accepting deposits from public and granting loans to individuals and businesses.||Accepting deposits from members and the public, and granting loans to farmers and small businessmen.|
|Banking service||Offers an array of services.||Comparatively less variety of services.|
|Interest rate on deposits||Less||Slightly higher|
Definition of Commercial Bank
Commercial bank refers to the banking company, which is established to serve individuals, organisations, and businesses. It is a financial institution, which is authorised to accept deposits from the general public and grant credit to them. They are governed by the Banking Regulation Act, 1949 and supervised by the Reserve Bank of India.
Commercial Banks provide short-term, medium-term, and long-term finance to the public. However, it usually prefers to make short-term funding. There are a variety of products offered by the banks, to its customers such as:
- Deposit accounts like fixed deposit, recurring deposit, savings account, current account, etc.
- Loans such as auto loan, home loan and so on.
- ATM services
- Credit and debit card facility.
- Acts as an agent, for the collection of cheques, bills of exchange.
- Safeguards the property and wealth of persons.
- Merchant banking
- Trade financing
- Transfer of money.
Definition of Cooperative Bank
Cooperative Banks are the financial institutions that are owned and run by their customers and operates on the principle of one person one vote. The bank is governed by both banking and cooperative legislation, as they are registered under the Cooperative Society Act, 1965 and regulated by National Bank for Agriculture and Rural Development (NABARD) & Reserve Bank of India (RBI). They operate in both rural as well as urban areas and provide credit to borrowers and businesses.
Cooperative Banks offer a range of services like accepting deposits and granting loans to the members and even non-members. The members are the owners and customers of the bank at the same time. The bank offers services like deposit accounts such as savings and current account, safe keeping of valuables (locker facility), loan and mortgage facility to the customers.
Key Differences Between Commercial and Cooperative Banks
The major differences between commercial and cooperative banks are indicated below:
- A bank established to provide banking services to the individuals and businesses is called Commercial Bank. A cooperative bank is a bank that provides financing to agriculturists, rural industries and to trade and industry of urban areas (but up to a limited extent).
- A commercial bank is incorporated under Banking Regulation Act, 1949. Conversely, a cooperative bank is registered under the Cooperative Societies Act, 1965.
- The area of operation of a commercial bank is comparatively larger than a cooperative bank, as cooperative banks are confined to a limited area only while commercial banks even have their branches overseas.
- Commercial banks are joint stock companies, incorporated as a banking company that operates for the profit motive. As opposed to Cooperative banks, which are cooperative organisations, that works for service motive.
- The borrowers of commercial banks are only account holders; they do not have any voting power. Unlike Cooperative banks, the borrowers are members that influence the credit policy by voting power.
- Commercial bank’s primary function is to accept deposits from the public and grants loans to individuals and businesses. In contrast to the cooperative bank, whose primary purpose is to accept deposits from members and public, and grant loans to farmers and small businessmen.
- Commercial banks offer an array of products to its customers, whereas there are limited products provided by the commercial bank to its members and public.
- The commercial bank’s interest rate on deposits is comparatively lesser than the cooperative bank.
The bank, which operates for taking deposits from and making loans to the public is a commercial bank. On the other hand, cooperative banks are mainly established to provide financial support to small businessmen and farmers at the low rate of interest. The big difference between these two terms is that while the network of former is very large whereas the network of the latter is confined to a limited area only.