The difference between a commercial bank and a cooperative bank: Banking is a financial institution that borrows money at fixed interest rates from depositors, which is one of the factors that contribute to the functioning of an economy. As well as providing a variety of services to their customers, they charge a small fee for these services. The Reserve Bank of India’s official website indicates that there are currently 370 cooperative central banks, 31 state banks, and 81 commercial banks in the country. It is mandatory for all banks located in these jurisdictions to comply with the Banking Regulation Act, 1949.
The commercial bank and cooperative bank may seem similar to one another, but each has its own distinct purpose and entity. In a commercial bank, financial activities are conducted for commercial purposes, and the primary objective is to earn a profit from these activities. Alternatively, cooperative banks provide financial assistance to farmers and small to medium-sized businesses, in order to assist them in obtaining the funds they require. It can be difficult to discern the difference between a commercial bank and a cooperative bank; therefore, we will examine the main differences in detail.
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How do commercial banks operate?
Banks classified as commercial banks are those that are regulated and governed by the Banking Regulation Act, 1949 and advise by the Reserve Bank of India. The financial services provided by commercial banks can be freely offered to individuals, businesses, and organizations for commercial purposes. Banks are permitted to accept deposits from the general public as well as to grant various types of short-term and long-term loans. The general public is also eligible to receive a fixed interest loan or finance from these institutions on a short-, medium-, or long-term basis. As a result, most banks prefer to provide short-term loan facilities to their customers. This is due to the fact that short-term loans are less risky and more convenient.
1. To keep their money in the bank and obtain some benefits, its customers can open recurring, fixed, savings, or current accounts.
2. There are several types of loans available from these banks, including personal, home, auto, and many others.
3. The availability of ATMs, cheques, debit cards, and credit cards is also very important.
4. Offer safeguards to the assets of their customer
5. and security to their customer’s wealth.
6. Nowadays, commercial banks also provide online money transfer facilities, merchant banking, and trading financing facilities.Â
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The difference between a commercial bank and a cooperative bank
What are Cooperative Banks?
The difference between a commercial bank and a cooperative bank
Cooperative banks are also critical financial institutions. The cooperative banks are owned and operated by their customers and are regulated by both banking and cooperative legislation. They are registered under the Cooperative Society Act of 1965, and they are governed by both banking and cooperative legislation. Cooperative banks are also regulated by NABARD and RBI. They are located in rural and urban locations and offer financial assistance to their members. The cooperative banks provide low-interest loans to members as well as non-members. Members and borrowers of the cooperative banks are both owners of these banks at the same time. The bank accepts deposits of savings, as well as current accounts, which provide security for loans, mortgages, and locker facilities.
The types of cooperative banks in India
As shown in the following table, there are primarily three types of cooperative banks in India.
State Cooperative Banks
Unlike primary credit societies, these cooperative banks are regulated at the state level. They fill the gap between primary credit societies and central cooperative societies.
Primary Credit Society
Generally, primary credit societies are located in villages and small towns to serve members and non-members of the community. They are very large and very important in providing service to the customers. In addition to providing a variety of privileges to farmers, small businesses, and many other village residents, these banks are significant.
Central Cooperative Banks
These cooperatives are operated in districts, and they are staffed with people from that community. They also provide loans to their members and serve as an intermediary between members and non-members.
Key Things To Know About Cooperative Banks
The difference between a commercial bank and a cooperative bank
Cooperative banks have a number of key terms that you should be familiar with.
Members of its customer base are permitted to join as volunteers.
It is the responsibility of each member to participate in the economic activities of the bank.
Various activities are available to members for the purpose of educating, providing training, and informing other people about the banks’ services without expecting any remuneration.
Let us now examine some of the key differences between commercial and cooperative banks.
The difference between a commercial bank and a cooperative bank
The difference between a commercial bank and a cooperative bank
A major difference between cooperative banks and commercial banks is that commercial banks generally provide financial services through financial support to individuals and businesses. Additionally, cooperative banks provide financial assistance to farmers and small and medium-sized businesses in rural areas to help them become financially independent.
Commercial banks do not provide such services to non-members as cooperative banks do, but only to their members.
Compared to cooperative banks that are confined to particular geographic regions, commercial banks are larger and have a broader range of financial activities.
It is possible for the shareholders of cooperative banks to also be borrowers, while only the account holders of commercial banks have the opportunity to be borrowers.
| Comparison Parameter | Commercial Banks | Cooperative Banks |
| Registered Under | The Banking Regulation Act, 1949, commercial banks are governed under the Banking Regulation Act, 1949, and cooperative | banks are governed under the Cooperative Society Act, 1965 |
| The Scale Of The Bank | Compared to smaller banks, these banks have a larger revenue and profit base. | It is important to note, however, that cooperative banks are small both in terms of size and revenues. |
| Rate Of Interest | Commercial banks offer lower interest rates to their customers than cooperative banks | Compared to commercial banks, cooperative banks offer higher interest rates to their customers |
| Goal Of Bank | Provide financial services in order to earn a profit. | Serve essential services to its customers located in rural and urban places. Their primary focus is to provide essential services to farmers and rural businesses. |
| Functional Area | Responsible for receiving deposits from depositors and providing loans to individuals and businesses. | Aside from accepting deposits from its members, the bank primarily provides loans to farmers and small businesses. |
Conclusion
In contrast to commercial banks, cooperative banks are those banks regulated under the Cooperative Society Act, 1965. Generally, commercial banks are regulated under the Banking Regulation Act, 1949. Banks that provide commercial services to individuals and businesses are also regulated by the Banking Regulation Act, 1949. However, cooperative banks provide financial services at low interest rates to farmers and low-level businesses. So, I hope now that you are more familiar with the difference between commercial and cooperative banks. Stay tuned with The Finance Point for more articles on banking, investing, the stock market, and many other similar topics.