Universal Banking vs Commercial Banking: Difference and Comparison

Banking is the system that handles all financial transactions. Several types of banking provide different types of facilities; Universal and Commercial Banking are also two types of banking with functions and roles.

Universal Banking is much broader, with more functions than Commercial Banking.

Key Takeaways

  1. Universal Banking is a banking system where a single bank offers various financial services. At the same time, Commercial Banking focuses on traditional banking services such as deposit-taking and lending.
  2. Universal Banking offers more financial services, such as insurance and investment banking, while Commercial Banking focuses on serving businesses and individuals with their basic banking needs.
  3. Universal Banking is more complex and requires more resources, while Commercial Banking is simpler and more focused, with a lower risk profile.

Universal Banking vs Commercial Banking 

Universal banking is a type of banking that performs the services of multiple banking types. The primary motivation is not to make money in universal banking. While commercial banking is a profit-making organisation that carries out specific tasks. Earning money is the primary goal of commercial banking.

Universal Banking vs Commercial Banking
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Banking Quiz

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What is the name of the type of loan where the borrower can use the loan proceeds for any purpose, without specifying the end use of the funds?

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Replacement of an existing loan with another loan is known as

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Universal Banking is a kind of banking system which provides facilities for more than one type of banking. For example, it provides all the facilities of commercial banking and the facilities of investment banking along with some additional services such as insurance.

Therefore it is a type of banking under which different kinds of banking facilities are provided.

Commercial Banking is a system that works with the motive of profit earning, and for this purpose, it performs the functions of accepting the deposits of the public and lending them the loan.

It also serves other functions such as discounting the Bills of Exchange, Transfer of Money, and other sundry parts.

Comparison Table

Parameters of ComparisonUniversal BankingCommercial Banking
DefinitionType of banking which provides functions of more than one kind of Banking.It is a profit-earning institution that performs certain functions.
RoleIt performs functions of depositing money, lending loans, investing and insurance, etc.It mainly performs the functions of accepting deposits and lending loans to the public.
MotiveProfit earning is not the main motive.The main motive is profit earning.
Investment BankingIt performs functions of investment banking.It does not provide any such facilities.
DisadvantagesRisk of failure, Bureaucratic, inflexibility, etc.Expensive, Difficult T&C, profit earning.

What is Universal Banking? 

Universal Banking is a type of banking that performs the functions of different kinds of banks. It serves the parts of Commercial Banking and Investment Banking, and not only this, but it also provides various other services, which include insurance.

Also, its main motive is not profit earning. It keeps on working even if it is not making a profit.

Functions of Universal Banking:

  1. Investing Banking: Universal banks offer the parts of investing public money too.
  2. Commercial Banking: Universal Banks provide the functions of the commercial bank, such as depositing public money and lending loans to them and many other parts.
  3. Insurance: Universal Banks also offers services like insurance.

Advantages: the main advantage of universal banking is that individuals can have more than one kind of bank facility under one roof. It helps customers who are investing and proposes the best deal for investments. It makes sure that the resources are utilized perfectly.

Disadvantages: although it has many advantages, universal banking has some disadvantages, including inflexibility, work delays, and many more.

Therefore, universal banking combines both and provides different services under one bank.

universal banking

What is Commercial Banking?

Commercial banking is a type of financial institution that mainly performs functions with a motive of profit earning. It does business with only one motive and is called a profit-making institution.

Functions of Commercial Banking: it accepts deposits from the public, lends loans, discounts bills of exchange, transfers money, works as an agent, and various other sundry functions are the functions and facilities given by the commercial bank.

The function of increasing or maintaining the money supply in the economy, which the RBI issues, is also performed by the Commercial Banks; therefore, they play a significant role in the economy.

Along with these, commercial banks are also providing some advanced functions such as electronic transfers.

All of its operations are also advantages to the public, including some other benefits. Still, disadvantages include inflexibility, high cost, complicated terms and conditions, and many more.

There are mainly two types of commercial banking: Scheduled Commercial Banks and Non-Scheduled Commercial Banks. Scheduled Commercial Banks also have three Types: Public Sector, Private Sector, and Foreign Banks.

commercial banking

Main Differences Between Universal Banking and Commercial Banking

  1. Universal Banking is the type of banking that provides facilities of more than one king of banking, whereas Commercial banking is the type that offers bounded facilities.
  2. Universal Banking performs commercial and investment banking functions along with some additional parts. In contrast, Commercial Banking performs functions which mainly include accepting deposits and lending loans with some other functions.
  3. The main motive of Universal Banking is not profit, they work even if they are not earning a profit, but the main reason for Commercial Banking is indeed making a profit.
  4. Universal Banking performs the functions of Investment Banking, whereas Commercial Banking performs no such operations.
  5. Universal Banking has disadvantages such as Inflexibility, Risk of Failure, Bureaucratic, etc. In contrast, the Disadvantages of Commercial Banking are that it is Expensive, has complicated Terms and Conditions, it is a profit-earning institution.
Difference Between X and Y 2023 04 24T162625.459
References
  1. https://www.emerald.com/insight/content/doi/10.1108/eb018653/full/html
  2. https://www.nber.org/system/files/chapters/c7237/c7237.pdf
  3. https://www.aeaweb.org/articles?id=10.1257/jep.8.3.121

Last Updated : 11 June, 2023

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