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Difference Between Commercial Banks vs Cooperative Banks

  • Post last modified:March 2, 2023
  • Reading time:7 mins read
  • Post category:Business

Definition of Commercial Banks

Commercial banks are financial institutions that provide various services such as accepting deposits, making business loans, and offering basic investment products. They use the funds deposited by customers to make loans to individuals and businesses. They also provide other financial services, including foreign exchange, trust services, and safe deposit boxes. They are also known as retail banks, in contrast to investment banks, which focus on underwriting and trading securities.

Definition of Cooperative Banks

Cooperative banks are financial institutions that are owned and controlled by their members. They operate on the principle of cooperation and are also known as mutual organizations. Cooperative banks are usually organized and operated by a group of individuals who have a common bond, such as living in the same community or belonging to the same occupation. They provide services such as accepting deposits, making loans, and offering basic investment products to their members. The profits earned by the bank are distributed among the members in proportion to their share in the bank’s capital. Cooperative banks are governed by a board of directors that is elected by the members. They are also regulated by the government, just like commercial banks.

Commercial Banks vs Cooperative Banks – Differences

Commercial banks and cooperative banks are similar in that they both provide financial services such as accepting deposits and making loans, but there are some key differences between the two types of institutions.

  1. Ownership: Commercial banks are owned by shareholders, while cooperative banks are owned by their members. This means that the profits of commercial banks go to the shareholders, while the profits of cooperative banks are distributed among the members.
  2. Governance: Commercial banks are governed by a board of directors appointed by the shareholders, while cooperative banks are governed by a board of directors elected by the members.
  3. Membership: Commercial banks do not have membership, while cooperative banks are only open to members who share a common bond, such as living in the same community or belonging to the same occupation.
  4. Purpose: The main purpose of commercial banks is to make a profit, while the main purpose of cooperative banks is to serve the financial needs of their members.
  5. Regulation: Both commercial banks and cooperative banks are regulated by the government, but cooperative banks are also regulated by their members through democratic processes.
  6. Interest Rates: Cooperative banks often offer lower interest rates on deposits and higher interest rates on loans than commercial banks, as they have a social objective to help their members.
  7. Risk: Cooperative banks are considered to be less risky than commercial banks as they have a smaller capital base, and their members are also more likely to be more financially stabl

Comparison Chart

Commercial Banks Cooperative Banks
Ownership Shareholders Members
Governance Board of Directors appointed by shareholders Board of Directors elected by members
Membership Not required Required
Purpose Profit-oriented Member-oriented
Regulation Government Government and Members
Interest Rates Higher on deposits and lower on loans Lower on deposits and higher on loans
Risk Higher Lower

Note: This chart provides a general comparison between commercial banks and cooperative banks and may not be applicable to all cases.

Similarities Between Commercial Banks vs Cooperative Banks

Commercial banks and cooperative banks have some similarities, despite their differences. These similarities include:

  1. Services offered: Both commercial banks and cooperative banks offer a range of financial services such as accepting deposits, making loans, and offering basic investment products.
  2. Regulation: Both commercial banks and cooperative banks are regulated by the government to ensure the safety and stability of the financial system.
  3. Functioning: Both commercial banks and cooperative banks use the funds deposited by customers to make loans to individuals and businesses and generate income from the interest earned on loans.
  4. Infrastructure: Both types of banks have similar infrastructure such as branches, ATMs, and online banking systems.
  5. Role in the economy: Both commercial banks and cooperative banks play an important role in the economy by providing access to credit and financial services, facilitating trade and commerce, and promoting economic growth.
  6. Risks: Both types of banks are exposed to various types of risks such as credit risk, liquidity risk, interest rate risk, and operational risk.
  7. Supervision: Both types of banks are supervised by regulatory bodies to ensure compliance with laws and regulations, and to protect the interests of depositors and other stakeholders.

Frequently Asked Questions

  1. What is the difference between a commercial bank and a cooperative bank?
    Commercial banks are owned by shareholders, while cooperative banks are owned by their members. The profits of commercial banks go to the shareholders, while the profits of cooperative banks are distributed among the members. Cooperative banks are also governed by a board of directors elected by the members, and are open only to members who share a common bond.
  2. What services do commercial banks and cooperative banks offer?
    Both commercial banks and cooperative banks offer a range of financial services such as accepting deposits, making loans, and offering basic investment products. They also provide other services such as foreign exchange, trust services, and safe deposit boxes.
  3. Are commercial banks and cooperative banks regulated by the government?
    Yes, both commercial banks and cooperative banks are regulated by the government to ensure the safety and stability of the financial system.
  4. How do commercial banks and cooperative banks generate income?
    Both commercial banks and cooperative banks generate income by using the funds deposited by customers to make loans to individuals and businesses and earning interest on the loans.
  5. What risks do commercial banks and cooperative banks face?
    Both commercial banks and cooperative banks are exposed to various types of risks such as credit risk, liquidity risk, interest rate risk, and operational risk.
  6. Are commercial banks and cooperative banks supervised by regulatory bodies?
    Yes, both commercial banks and cooperative banks are supervised by regulatory bodies to ensure compliance with laws and regulations, and to protect the interests of depositors and other stakeholders.

Reference Books

  1. “Commercial Bank Management” by Peter S. Rose and Sylvia C. Hudgins
  2. “Banking and Financial Systems” by Peter S. Rose
  3. “Cooperative Banks: Their Role and Significance” by G. Padmanabhan
  4. “Cooperative Banks in India: Performance and Challenges” by R. Srinivasan and P. V. Ramesh
  5. “The Economics of Cooperative Banks” by Matthias Klaes and Jan P. Krahnen
  6. “Cooperative Banking: International Perspectives” edited by David L. Prychitko
  7. “Cooperative Banks: New Challenges and Strategies for the Future” edited by Fabio Padovano and Andreas Löffler
  8. “Cooperative Banking: Theories and Practices” by Rajendra K. Srivastava
  9. “Cooperative Banks and Financial Stability” by J.C. Fernández-i-Marín and J.L. García-López
  10. “Cooperative Banks: A New Model of Banking” by Ivo Atanasov.

These are some of the books which provide in-depth information on commercial and cooperative banks, their functioning, regulation, management, and the economic and financial implications of their operations. They can be helpful for students, researchers, and professionals in the banking and finance industry.

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