Commercial Bank vs Cooperative Bank: Difference and Comparison

Financial institutions that can offer money whenever a buyer or a seller needs it, based on specific rules and regulations, are called Banks. It acts as a bridge between borrowers, depositors and the customer.

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 payments banks (the Reserve Bank of India recently approved this.

Banks work by paying their customers to give them money. A person deposits money into the respective bank account, and the exact amount will be given to the other customers.

Key Takeaways

1. Commercial banks are profit-oriented financial institutions offering various financial services to individuals and businesses. In contrast, cooperative banks are member-owned, not-for-profit institutions that serve their members’ financial needs.
2. Commercial banks are owned by shareholders and prioritize profit maximization, while cooperative banks are owned and governed by their members, emphasizing their members’ well-being and community development.
3. Cooperative banks tend to offer more personalized services, lower fees, and better interest rates than commercial banks, as their primary goal is to serve and benefit their members.

Commercial Bank vs Cooperative Bank

Commercial banks are profit-oriented institutions that offer a wide range of financial services to businesses and individuals, while cooperative banks operate on a cooperative basis, prioritizing the needs of their members. Cooperative banks generally charge lower interest rates on loans and provide higher returns on deposits than commercial banks.

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Comparison Table

Parameter of Comparison	Commercial Bank	Co-operative Bank
Target Customers	General Public and Business owners are the target customers.	It mainly supports the agriculturists and also helps rural industries with financial help.
Governing Act	Banking Regulation Act, 1949	Cooperative Societies Act, 1965
Area and motive of operation	Operates on a large scale with profit as the base	Works on a small scale with service as the base.
Borrowers	Account-holders are the borrowers	Member shareholders are the borrowers
The interest rate on deposits	It is less compared to the cooperative banks	It is higher compared to commercial banks.

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What is Commercial Bank?

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

These banks accept money from customers, save the same for a certain period, make good money out of it, and lend the other customers the same amount as the credit or loan.

These banks have three different schemes to attract customers and let them know the reaps out of three projects that will suit them and the usage policy of the customer.

Scheme 1 assigns a customer to a short-term plan, Scheme 2 assigns a customer to a medium termed project, and the last scheme goes to a long-term strategy, and the names are given as RD’s, SDs and others.

Most banks prefer assigning customers a short-term plan since the deposits are easy and returns are also on a lesser note.

These banks even provide the customers with credit card and debit card facilities to ensure the process is smooth and multiple loans will be sanctioned. The trade finance facility is also given to the customers.

 

What is Cooperative Bank?

It is a financial entity that belongs to its members or customers. These banks are formed by persons belonging to the same local or professional community or sharing a common interest.

They also provide their members with various banking and financial services. These banks are formed by the people who come together to jointly serve their common interest, often from a cooperative society under the act of the government; when the community engages itself in the banking business, it is called a bank.

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

There are three different types of cooperative banks,

1. Primary credit societies: These are formed at the village or town level with the borrower and non-borrower members staying at a place or locality
2. Central Co-operative banks: These banks operate at the district level, having the primary people at a locality, and they even provide loans to their members and act as a link between them.
3. State Co-operative Banks: These banks serve as a link between the central and the primary credit society.

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

There are certain principles of the Cooperative bank that all the members should follow, the customers are allowed to be volunteers in joining, and the membership is open for all volunteers. Every member should participate in all economic activities.

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Main Differences Between Commercial Bank and Cooperative Bank

1. The main difference between Commercial Bank and Co-operative Bank is the mode of operation and the service process; the commercial bank serves individuals and businesses by offering financial support, while cooperative banks also provide financial help to rural industries and farmers.
2. Commercial banks limit themselves to serving individuals, but Cooperative banks do from A to Z customers.
3. Commercial banks operate on a larger scale to make good profits, but Cooperative banks do the same job as service and work on a smaller scale.
4. Commercial banks follow no restriction policy for location, but Cooperative banks have restrictions towards location and type of business.
5. Account-holders are the only borrowers in Commercial banks, but Cooperative banks focus on Shareholders.

References

1. https://www.ceeol.com/search/article-detail?id=79198
2. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1536-7150.1975.tb01190.x