Commerce Accountancy Business Studies Microeconomics Macroeconomics Statistics for Economics Indian Eco

Di#erence between Commercial and

Cooperative Banks
S selmasa67k2

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Commercial Banks and Cooperative banks are two types of financial institutions that
offer a range of financial services to their customers.

What are Commercial Banks?

Commercial Banks are financial institutions that provide a range of banking services
to individuals, businesses, and organisations. They are profit-oriented entities that
operate on a commercial scale. Commercial banks play a crucial role in the economy
by facilitating financial transactions, promoting economic growth, and channelling
funds between savers and borrowers.

The primary functions of commercial banks include:

Deposits
Lending
Payment Services
Foreign Exchange Services
Investment and Advisory Services
Trade Finance

Commercial Banks are subject to regulatory oversight by central banks, financial

regulatory authorities, and banking regulators. They are required to maintain
adequate capital reserves; adhere to regulations regarding liquidity, risk
management, and consumer protection; and follow anti-money laundering and
counter-terrorism financing guidelines.

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Commercial Banks serve as an intermediary between savers and borrowers, promote

economic activity, facilitate financial transactions, and provide essential banking
services to individuals and businesses.

What are Cooperative Banks?

Cooperative Banks, also known as Co-operative Credit Institutions or simply Co-
ops, are financial institutions that are owned and operated by their customers, who
are also referred to as members. These banks are established based on the
principles of cooperation, mutual assistance, and democratic decision-making. The
primary objective of cooperative banks is to meet the banking and financial needs of
their members while promoting their economic and social well-being.

Some of the key characteristics and features of cooperative banks include:

Ownership and Governance

Focus on Members
Member Deposits
Member Loans and Credit
Social Objectives
Profit Distribution
Local Focus
Regulatory Framework

Cooperative Banks are an essential part of the cooperative movement and contribute
to inclusive economic development, empowering individuals and communities
through access to financial services and cooperative principles.

Difference between Commercial Banks and Cooperative Banks

Basis Commercial Banks Cooperative Banks

The financial institutions

The financial institutions that are
that provide a range of
owned and operated by their
banking services to
Meaning customers (also referred to as
individuals, businesses, and
members) are known as
organisations are known as
Cooperative Banks.
Commercial Banks.

Commercial Banks are Cooperative Banks are governed by

Governing
governed by the Banking the Cooperative Societies Act,
Act
Regulation Act, 1949. 1965.

Cooperative banks are established

Commercial banks focus on
to meet the banking needs of a
providing a wide range of
specific group or community and
financial services like
Purpose aim to promote the economic and
depositing, lending,
social well-being of their members
investment services, foreign
by providing them with affordable
exchange, trade finance, etc.
banking services.

Area of The area of operation of The area of operation of

Operation commercial banks is large. cooperative banks is small.

The borrowers of
The borrowers of cooperative banks
Borrowers commercial banks are its
are its member shareholders.
account holders.

Commercial banks are

Cooperative banks are owned and
Ownership typically owned by
controlled by their customers, who
Structure shareholders or private
are also known as members.
investors.

Commercial banks serve a

Cooperative banks primarily serve
diverse customer base,
their members who have a common
including individuals, small
bond, such as residents of a
and medium-sized
particular locality, employees of a
Customer enterprises (SMEs), large
specific organization, or members
Base corporations, and
of a cooperative society. They have
institutional clients. They
a more localised focus and tailor
cater to a broader market
their services to the needs of their
and operate on a
members.
commercial scale.

Commercial banks are Cooperative banks also operate

subject to regulations and within the regulatory framework
oversight by central banks, set by relevant authorities.
Regulatory financial regulatory However, their regulatory
Framework authorities, and banking environment may vary depending
regulators specific to the on the country and the specific
jurisdictions in which they legal framework governing
operate. cooperative institutions.

Commercial banks are

governed by a board of
Cooperative banks have a
directors appointed by the
democratic governance structure.
shareholders or investors.
Each member typically has voting
Governance The board makes strategic
rights, and decisions are made
decisions and appoints
collectively through a general body
senior management to
or elected representatives.
oversee day-to-day
operations.

The interest rate provided to The interest rate provided to the

Interest
the account holders for member shareholders for
Rate on
depositing money with depositing money with the
Deposits
commercial banks is less. cooperative banks is slightly high.

Instead of distributing profits to

external shareholders, these banks
Profits are distributed to
may allocate a portion of their
Profit shareholders in the form of
surplus to dividends, reserve funds,
Distribution dividends and retained
community development projects,
earnings for reinvestment.
or provide lower interest rates on
loans to members.

Commercial banks typically

retain a significant portion of
Cooperative banks often allocate a
Profit their profits for reinvestment
portion of their surplus to reserves,
Retention and expansion purposes.
which serve as a safeguard against
and They also maintain reserves
future risks and ensure the stability
Reserves to meet regulatory
of the institution.
requirements and absorb
potential losses.

Last Updated : 02 Aug, 2023

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