Before banks came into the picture, people used to save their money in lockers, underground, or with grains. At times, their money used to get stolen or eaten by rats. However, modern banking helped in resolving this issue.
Banks lend money and also help in the expansion of the economy. Loans help in lending capital to agriculture, education, small businesses, and service providers, and as a result, jobs and spending power are generated. There are various types of banks, like, Cooperative Banks, Saving Banks, Utility Banks, Public Sector Banks, etc. These banks have their separate functions.
Cooperative Banks vs Public Sector Banks
The main difference between Cooperative Banks and Public Sector Banks is that while Public Sector Banks lend loans to businessmen, companies, Cooperative Banks generally help farmers with loans. Examples of Cooperative Banks are Andhra Pradesh State Co-operative Bank Ltd, The Bihar State Co-operative Bank Ltd, etc., whereas Public Sector Banks include Bank of Baroda, Bank of India, Bank of Maharashtra, etc.
Cooperative banks are institutions that are owned by their members. This ensures that the customers of the bank are also its shareholders. These institutions offer various standard banking and financial services. These banks are divided into two categories – rural and urban. Small businesses depend on cooperative banks and account for 46% of net funding for rural businesses.
Public sector banks are owned 50% by the Government, for example, SBI. These banks are divided into two categories: Nationalised banks and non-Nationalised banks (State banks). Public sector banks usually charge less for the services that they provide to their customers than compared to banks in private sectors. Public sectors are generally opened for government employees, providing them services regarding their salaries, fixed deposits. They even provide the employees with lockers.
Comparison Table Between Cooperative Banks and Public Sector Banks
| Parameters of comparison | Cooperative Banks | Public Sectors Banks |
| Owned by | These banks are owned by their customers. | These banks are partially owned by the Government |
| Charges | The services are provided by helping each other, so it is non-profit. | These banks charge less for their services compared to banks in the private sector. |
| Services | These banks provide fast and better services. | These banks provide slow services compared to other banks. |
| Loans | These banks help business people, companies, etc., by giving them loans. | These banks help the agricultural sector more. |
| Types | Rural and Urban. | Nationalised and State banks. |
What are Cooperative Banks?
Cooperative banks were built on the idea of no profit, no loss, as its name implies, and, therefore, do not pursue profitable projects or customers. Their aim is mutual help and assistance. The Banking Regulations Act 1949 and the Cooperative Societies Act 1955 regulate these banks.
These banks have helped the rural population a lot by aiding them with loans and credits at low interest rates compared to those who charged them locally (money lenders). These banks have customers in every corner of the world and yet have managed to keep a personal relationship with them because of the nature of not looking for big profits and just helping each other out.
These banks have the interest rate on deposits high, whereas the interest rate on loans is low, and to reduce the risk of loss, they also encourage borrowing. Farmers in rural areas have heavily and largely benefitted from these bank programs for Agricultural sectors, which enabled them to purchase the items they needed for farming, like seeds and fertilisers.
There are a lot of advantages of cooperative banks. However, there are a few drawbacks too. These banks need investors to lend money to them, which can be difficult to find at times, and the number of past-due accounts has also been rising steadily over time. In rural areas, rich landowners have reaped the advantages of cooperative banks rather than small industrialists who need financial help.
What are Public Sector Banks?
A public sector bank is one in which the Indian Government owns the majority of the shares. It’s the same as having the Government-run the bank. Since the public elects the Government’sGovernment’s representatives, banks that are wholly or partially owned by the
The Government is referred to as public sector banks.
Interest rates on loans are slightly lower in these banks, like for example, SBI launched a home loan offering for its female customers with an interest rate of 8.35 per cent for a ticket size of up to Rs. 30 lakhs. Fees and costs, such as balance management, are lower in public sector banks.
Many public-sector banks are also expanding their service offerings.
Government workers typically open public sector accounts for their pensions, fixed deposits, lockers, and other purposes. Their customer base is also relatively high as compared to their private-sector counterparts since they have been in the industry for a long time and have earned customer confidence.
However, Public sector banks also have a few drawbacks. It lags in terms of financial results. When most factors, such as nonperforming assets (NPA) and net interest margins, are compared, private sector banks appear to perform much better. Some public sector banks have recorded losses too in the past few years.
Main Differences Between Cooperative Banks and Public Sector Banks
- Cooperative banks are owned by their customers, whereas Public Sector Banks are owned mostly by the Government.
- While cooperative banks are helpful to the general public in rural areas, public sector banks are helpful to the people, in general, all over the country.
- Cooperative banks help farmers more while Public Sector Banks help the government employees more.
- Cooperative banks help with the motive of uplifting poor sectors, whereas public sector banks are more profit-based banks.
- Cooperative banks have slightly less transparency than public sector banks which are held accountable by the Government.
Conclusion
Even though Cooperative Banks were made to help each other, they lack transparency and services. RBI needs to ensure Cooperative Banks are run with transparency and honesty and help in uplifting the poor. Usually, the rich landowners take all the benefits offered by Cooperative Banks, which is unfair.
Public Sector Banks are owned by Government, so they usually infuse fresh capital in them, which helps these banks grow. People from all over the country use these banks for loans or keeping their money in the lockers. Public Sector Banks also offers various programs to help their customers, and their chargers are usually very less compared to Private Sector Banks like ICICI or HDFC banks. However, their performance and services lack speed and quality.
References
- https://www.researchgate.net/profile/Martin_Cihak3/publication/5125219_Cooperative_Banks_and_Financial_Stability/links/59dbbf4c0f7e9b1460fc262f/Cooperative-Banks-and-Financial-Stability.pdf
- https://www.sciencedirect.com/science/article/pii/S037722170200471X
- https://www.emerald.com/insight/content/doi/10.1108/17410401011006112/full/html
- https://onlinelibrary.wiley.com/doi/abs/10.1002/jid.947