Commercial and

Cooperative Banks

P R E S E N T E D B Y:
 What is Commercial Bank?

1. A commercial bank is a kind of financial institution that

carries all the operations related to deposit and withdrawal of
money for the general public, providing loans for investment,
and other such activities.
2. These banks are profit-making institutions and do business
only to make a profit.
3. The two primary characteristics of a commercial bank are
lending and borrowing.
Click icon to add picture

Functions of Commercial Bank

The functions of commercial banks are classified into two main divisions.
• Primary Functions 
• Secondary Functions
Functions of Commercial Bank
Primary Functions
1. Accepting deposit
• The bank takes deposits in the form of saving, current, and fixed
deposits.
• The surplus balances collected from the firm and individuals are lent to
the temporary requirements of the commercial transactions.
2. Loans & Advances
• Critical function of this bank is to offer loans and advances to the 
entrepreneurs and business people and collect interest.
• For every bank, it is the primary source of making profits. In this
process, a bank retains a small number of deposits as a reserve and
offers (lends) the remaining amount to the borrowers in demand loans,
overdraft, cash credit, short-run loans, and more such banks.
Secondary Functions
1. Agency Services
• Commercial banks provide services to their customers in return of some
commission, these are called as agency functions.
2. General Utility Services
• They provide a place for the safe-keeping of money and securities.
• They afford a business man an opportunity to borrow money to carry on his
enterprises while his capital is locked up in merchandise or in the hands of
his debtors. The credit of many mercantile houses is worth as much to them
as the capital they possess.
3. Fund Transfer
• They save the transmission of money from one place to another, thus
avoiding great risks and keeping money in more active circulation.
4. Credit Creation
• Commercial banks can expand the deposits they receive through loans,
resulting in an expansion of the monetary base of a country. This is credit
creation.
 Importance Of Commercial Banks
Commercial Banks Develop the economy in the following ways:

• Mobilizing Saving for Capital Formation:

The commercial banks help in mobilising savings through network of branch banking.
• Financing Industry:
They provide short-term, medium-term and long-term loans to industry. 
• Financing Trade:
The banks provide loans to retailers and wholesalers to stock goods in which they deal. 
• Financing Agriculture:
They also provide financial assistance for animal husbandry, dairy farming, sheep breeding, poultry farming, pisciculture and horticulture.
• Financing Consumer Activities:
The commercial banks advance loans to consumers for the purchase of items such as houses, scooters, fans, refrigerators, etc.
 TYPES OF COMMERCIAL BANKS

COMMERCIAL BANKS

PUBLIC PRIVATE FOREIGN

BANKS BANKS BANKS

• PUBLIC BANKS: When the Government holds more than 51% of the share capital of a publicly listed banking company, then that bank is
called as Public sector bank. Ex- SBI, Bank Of Baroda.

• PRIVATE BANKS: When the private individuals own more than 51% of the share capital, then that banking company is a private one. Ex-
HDFC, ICICI.

• FOREIGN BANKS: These banks are established in foreign countries and have branches in other countries. Ex- Standard Chartered Bank,
Citibank.
Cooperative Banks
 What is co-operative bank?
• A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers
of their bank.

• It is often established by people belonging to the same local or professional community having a common interest.

What is
• It is formed to promote the upliftment of financially weaker sections of the society and to protect them from the clutches of
money lenders who provide loans at an unreasonably high-interest rate to the needy.

co-
• The co-operative structure is designed on the principles of cooperation, mutual help, democratic decision making and open
membership.

operative
• It follows the principle of ‘one shareholder, one vote’ and ‘no profit, no loss’.

bank?
• Cooperatives Banks are registered under the Cooperative Societies Act, 1912.

• These are regulated by the Reserve Bank of India and National Bank for Agriculture and Rural Development (NABARD) under
the Banking Regulation Act, 1949 and Banking Laws (Application to Cooperative Societies) Act, 1965.
 Characteristics of Cooperative Bank

•Customer-owned entities

•Democratic member control

•Profit allocation
Characteristics
of Cooperative
•Inclusion of rural masses

Bank
Customer-owned entities

• The members of cooperative banks are both the owners and the customers of the bank.
Thus, the aim of the cooperative bank is not to maximize profits but to provide the
best possible services to its members. Some of the cooperative banks also admit non-
members so as to provide them with banking services.

Democratic member control

• Cooperative banks are owned and controlled by members, who democratically elect
the board of directors. The basic principle of co-operatives “one man one vote” is
followed, irrespective of the number of shares held by a member, which ensures that
no member enjoys any arbitrary power over other members.
Profit allocation

• A specified portion of the profits are transferred to Statutory Reserve and other
reserves, and then a fair rate of interest is paid on the capital subscribed by the
members. A part of this profit can also be distributed to the co-operative
members, with legal and statutory limitations in most cases.

Inclusion of rural masses

• It plays a significant role in the financial inclusion of unbanked rural masses.

 The structure of cooperative network in India can be divided into 2 broad
STRUCTURE OF CO-OPERATIVE segments-
BANKS  Urban Cooperative Banks

 Rural Cooperatives
Urban Co-operative Banks
(UCBs)
 It is a financial intermediaries catering to the financial needs in
urban and semi-urban area particularly small borrowers.
 Urban Cooperatives can be further divided into scheduled and
non-scheduled. Both the categories are further divided into multi-
state and single-state.
Rural Co-operative Banks
(RCBs)
 It is a financial intermediaries catering to the financial needs in the rural /village area for both
agricultural and non-agricultural segments.
 RCBs are further divided into short term and long-term co-operative banks.
 Types of Rural Cooperative Banks
SHORT-TERM CO-OPERATIVE: LONG-TERM CO-OPERATIVE:
In rural India, there exists a 3-tier short-term rural cooperative structure. Tier-I The long-term rural co-operative credit system in India comprises
includes state cooperative banks (SCBs) at the state level; Tier-II includes of-
central cooperative banks (CCBs) at the district level; and Tier- III includes
primary agricultural credit societies (PACSs).  State Cooperative Agriculture and Rural Development
Banks (SCARDS) :-These operate at state-level.
State co-operative banks (StCBs) - These are the apex institutions in the
 Primary Cooperative Agriculture and Rural Development
three-tier cooperative credit structure, operating at the state level. Every state
Banks (PCARDBS):-They operate at district/block level.
has a state cooperative bank.
 The rural banking cooperatives have a complex monitoring
Central co-operative banks (CCBs)- These are at the intermediate level structure as they have a dual control which has led to many
offering banking services in the district level. The main function of the central problems. A forum called State Level Task Force on Cooperative
cooperative banks is to provide loans to the primary cooperative societies Urban Banks (TAFCUB) has been set-up to look into issues
related to duality in control.
Primary agricultural co-operative Societies (PACS) - Primary agricultural
credit society forms the base in the three-tier cooperative credit structure. It is
a village-level institution which directly deals with the rural people. It
encourages savings among the agriculturists, accepts deposits from them,
gives loans to the needy borrowers and collects repayments.
 Importance of Cooperative Banks
 It has an extensive branch network all over the country, making credit easily available even to rural
areas. It accounts for 67 per cent of total rural credit.

 It is an integral source for credit to agriculturalists.

 It confirms to the requirements of democratic planning and economic progress.

 It provides support to small and marginal farmers for buying inputs, storage and marketing
assistance.
 Commercial Bank Vs Cooperative Bank
BASIS FOR
COMMERCIAL BANK COOPERATIVE BANK
COMPARISON
 Meaning  A bank, that offers banking services to  A bank set up to provide finance to
individuals and businesses is known as a agriculturists, rural industries and to trade
commercial bank. and industry of urban areas (but up to a
limited extent).

 Governing Act  Banking Regulation Act, 1949  Cooperative Societies Act, 1965

 Area of operation  Large  Small

 Motive of operation  Profit  Service

 Borrowers  Account holders  Member shareholders

 Main function  Accepting deposits from public and granting  Accepting deposits from members and the
loans to individuals and businesses. public and granting loans to farmers and
small businessmen.

 Banking service  Offers an array of services.  Comparatively less variety of services.

 Interest rate on  Less  Slightly higher

deposits
This Photo by Unknown Author is licensed under CC BY-SA