Difference Between Commercial Bank and Cooperative Bank

The difference between Commercial Bank and Cooperative Bank is the basis of the standard operating procedures. Commercial Bank offers services to individuals and businesses, while cooperative banks offer to finance to farmers and rural industries.

According to certain rules and regulations, banks are called financial institutions that can offer money whenever a buyer or seller needs it. It acts as a bridge between borrowers, depositors and clients.

Banks have different standard operating procedures, and each bank has a set of rules and regulations. Based on that, the categories are divided into 4.

Category 1 belongs to Commercial Banks, Category 2 belongs to Cooperative Banks, Category 3 belongs to Regional Rural Banks, and the last category belongs to Settlements Bank (Recently approved by the Reserve Bank of India.

Banks work by paying their customers to give them money. One person deposits money in the respective bank account, and the same amount will be delivered to the other customers.

The client who has deposited the money in the bank will get a small amount of money in savings (interest), and the lender pays a large part of the money in return as a loan. The difference in money will be with the bank.

Comparison table between commercial bank and cooperative bank

Potential customers The general public and business owners are the target customers. It mainly supports farmers and also helps rural industries with financial help.
governing law Banking Regulation Act of 1949 Cooperative Societies Act of 1965
Area and reason for operation Operate on a large scale with profit as a base It operates on a small scale with service as its base.
Borrowers Account holders are the borrowers The member shareholders are the borrowers
The interest rate on deposits It is less compared to cooperative banks. It is higher compared to commercial banks.
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What is the Commercial Bank?

The commercial bank typically refers to a banking company established to serve individuals, organizations, and small and large-scale businesses.

These banks accept money from customers, save the same money for a given period, earn good profits, and lend other customers the same money as the credit or loan.

These banks usually have three schemes to attract customers and let them know the harvests of three schemes that suit them and the customer’s usage policy.

Scheme 1 assigns a client to a short term plan, scheme 2 assigns a client to a medium-term plan, and the last scheme goes to the long term plan, and the names are assigned as RD, SD and others.

Most banks prefer to assign clients a short-term plan as deposits are easy and lower returns.

These banks even provide customers with credit and debit card services to ensure that the process is smooth and various loans will be sanctioned. A trade financing facility is also given to customers.

What is the Cooperative Bank?

It is a financial institution that belongs to its members or clients.

These banks are often made up of people from the same local or professional community or share a common interest.

They also provide a wide range of banking and financial services to their members.

These banks are formed by people who come together to jointly serve their common interest, often of a cooperative society under government law; when the society is engaged in the banking business, it is called a bank.

This bank must obtain a license from the Reserve Bank of India before starting a business.

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There are three different types of cooperative banks,

  1.  Primary Credit Society:These are formed at the village or town level, and the borrowing and non-borrowing members stay in one place or locality.
  2.  Central cooperative banks:These banks operate at the district level, have the main people in a locality, and even provide loans to their members and act as a link between them.
  3.  State Cooperative Banks:These banks link the central and primary credit societies.

Most of its operations are restricted to a particular place or district and local area depending on the society.

All members must follow certain cooperative bank principles, customers can volunteer, and membership is open to all volunteers. Each member must participate in all economic activities. They must participate in all education, training and information activities without expecting anything.

Main Difference Between Commercial Bank and Cooperative Bank

  • The main difference between Commercial Bank and Cooperative Bank is the mode of operation and service process; the commercial bank serves people and businesses by offering financial support, while the cooperative banks also offer financial help, but both to rural industries like the farmers.
  • Commercial banks serve individuals only, but cooperative banks serve customers from A to Z.
  • Commercial banks operate on a larger scale for a good profit, but cooperative banks do the same work as service and work on a smaller scale.
  • Commercial banks do not follow a location restriction policy, but cooperative banks have restrictions regarding location and type of business.
  • Account-holders are the only borrowers at commercial banks, but cooperative banks focus on shareholders.
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Conclusion

Some banks take deposits from customers and make loans to the public, and those are called commercial banks. Cooperative banks are created for a completely different purpose; they are established primarily to provide financial assistance to business owners and farmers at a lower interest rate.

They both work on the policy of serving their customers who might be confined to a particular place or divided according to locations. Still, the only business point is to make money from the business or serve the people.

Commercial bank customers do not have the voting power that decides credit rules, but cooperative banks do.

Word cloud to differentiate between the commercial bank and cooperative bank

The following is a compilation of the most used terms in this article about Commercial Bank and Cooperative Bank. This should help you remember related terms as used in this article at a later stage.

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