By Madhuri Thakur. Depending upon the type of work performed by a bank they are generally divided into two major classes: Commercial banks and Investment banks. Whenever someone hears the word bank, what comes to mind of most of the common people is the commercial banks.
Commercial banks are for the common public for normal transactions like lending and deposits to the clients. For the normal public, it is depositing salary in accounts and withdrawal when a necessity.
Investment banking is for investors. 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. 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. Comments very informative , thank you. Leave a Reply Cancel reply Your email address will not be published. A bank, that offers banking services to individuals and businesses is known as a commercial bank. User assumes all risk of use, damage, or injury. You agree that we have no liability for any damages. Banks are classified according to; Basis of ownership On this basis, banks are either classified into private and public banks.
Basis of function Since banks carry out different functions, they are classified based on their roles. What is a Commercial banks? Commercial banks are classified into: Public sector banks- These are banks where the majority of shares are owned by the government. Private sector banks- These are banks where the majority of shares are held by individuals and other private entities. Foreign banks- These are banks that are registered outside the host country but still operate in the host country.
What is a Development banks? Similarities between commercial banks and development banks Both offer financial help to the respective customers Both are financial institutions which contribute to economic growth Both are regulated by the government Differences between Commercial banks and Development banks Purpose of Commercial and Development banks The main purpose of commercial banks is making a profit through interest earned by lending at a high-interest rate.
Process of formation While commercial banks are set up as companies under the companies act, development banks are set up under the special Act passed by the government. Target clients Commercial banks lend to individuals and business entities while development banks lend to the government.
Nature Commercial banks are financial institutions while development banks are multi-purpose institutions. Raising funds Commercial banks raise funds through public deposits, which are payable on demand. Sector targets Commercial banks target the masses as they have many products to offer.
Provision of loans While commercial banks provide short term and medium term-loans, development banks provide medium and long term loans. Cheque amenities Commercial banks provide cheque amenities whereby deposits can be made and withdrawn with cheques. Commercial vs. The primary function of a bank is to support the economic system by acting as a mediator between depositors and loan seekers.
Banking services are essential for the development of a country, functioning as the back-bone to economies. These can be differentiated on the basis of the purpose they serve in an economic system.
The difference between a Commercial Bank and a Development Bank is that a Commercial Bank functions to provide financial services to industries and individuals, whereas a Development Bank is set up to provide funds for infrastructural and economic development. A commercial bank is an institution where most people seek financial services. As a financial institution, it offers accounting services, deposits, loans and other banking products like certificates for deposits.
The functioning of a commercial bank is primarily profit-driven. The main source of profit for commercial banks is loan interest. These banks offer safe deposits to companies and individuals at a lower interest rate, offering loans to borrowing parties at higher interest rates.
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