It is an evident ubiquitous fact that a bank functions as a commercial institution. It accepts deposits from customers and provides them with interest on the same.
Many people seek government jobs in the banking sector as they feel that there are immense opportunities to earn a remarkable sum of money. However, due to limited knowledge about the commercial aspects of a bank, they fail to understand the economics of different types of banks. The lucrative offers that a banking job accounts for are due to the profits earned on loans sanctioned. But there are not only the commercial profit-making banks that function, but other non-commercial banks as well.
Commercial vs Non-Commercial Bank
The main difference between the commercial and non-commercial banks is their strategy towards earning profit. Commercial banks operate primarily for earning profits, whereas non-commercial banks operate to provide services to the clients.
A commercial bank is the type of bank that provides core banking and other financial services to a client. However, by lending loans to large businesses, these banks earn huge profits- which, of course, is their prime purpose.
A non-commercial bank is the type of bank that provides limited services to clients. The aim of these banks is not earning profit but delivering development opportunities to the people.
Comparison Table Between Commercial and Non-Commercial Bank (in Tabular Form)
| Parameter Of Comparison | Commercial Bank | Non-Commercial Bank |
|---|---|---|
| Definition | A commercial bank caters to the needs of clients and earns profit on the money deposited by lending it to other people. | A non-commercial bank is similar to a non-profit organization as it caters to clients to provide them traditional banking services only. |
| Banking Services Offered | A commercial bank offers a wide range of core banking and other services. These include accepting deposits from clients, dealing with mutual funds and insurance policies, and many others. | A non-commercial bank has less to offer in terms of services. Most of these banks only allow money deposition in accounts and small loans. |
| Principle Of Operation | The primary purpose of a commercial bank is earning profit through the investment of the client’s money in business ventures. | The primary purpose of a non-commercial bank is to provide basic banking services and incentives to emerging entrepreneurs. |
| Infrastructure | Due to the large profit generation, commercial banks usually have robust infrastructure and facilities for the bankers. | Due to limited profits earned, non-commercial banks have a simple weaker infrastructure. |
| Security | There are considerable security concerns in commercial banks as they have the freedom to grant loans to any person, irrespective of whether he would be able to return it or not. | Non-commercial banks are safe in keeping funds secure as they do not lend large amounts of money to borrowers. |
| Prevalence | Almost every bank in urban and suburban areas is commercial. People deposit their money in these banks as they see a good chance of earning higher interests. | Non-commercial banks have scarce existence in urban areas. Lower interest rates are the main reason for a decrease in the popularity of these banks. |
What is Commercial Bank?
A commercial bank functions for credit creation and thereby helps in the sustainable growth of the economy. It provides a fiscal advantage to both the creditors and the borrowers.
These banks provide all core banking services. They accept deposits in accounts such as savings and recurring accounts and fixed deposits.
They also provide internet banking facilities and allow clients to invest in mutual funds and insurance schemes. They, therefore, earn huge profits on the client’s money.
They grant loans to big businesses and act as the trustee of the client’s money. For doing this, they create an account for the borrower. This account automatically leads to deposit creation.
However, there is no security of funds in these banks as they grant loans to any person. This leads to banking fraud. A recent example is the Yes Bank scam. These banks are generally regulated by the central bank of a country so that they work with restrictions on spending the client’s money. The RBI is the regulatoryauthority for commercial banks in India.
What is Non-Commercial Bank?
Non-commercial banks usually have no credit earnings. They provide fewer banking facilities to the people by sticking to traditional banking rules. They generally do not provide internet banking and other facilities to the clients. The only services they provide are accepting deposits, lending small amounts to borrowers along with few others.
They can include co-operative banks and rural banks. Their main goal is to alleviate the financial problems of the deprived people.
Co-operative banks operate in semi-urban areas and provide services primarily to small businesses. They have low rates of interest for borrowers to support new entrepreneurs.
Rural banks have revolutionized the livelihoods of people living in villages. They have educated the rural masses in undertaking saving practices.
The non-commercial banks have played a vital role in supporting businesses of marginal farmers and artisans. They have provided them a chance to develop. These banks are operated and regulated by the stategovernment. Due to this reason, there is a lack of proper infrastructure and facilities.
Main Differences Between Commercial and Non-Commercial Bank
People generally consider banks as commercialinstitutions that earn profits on the money of people. However, there exist another type of bank that function for the prime goal of serving people.
Commercial and non-commercial banks are not the same. The key points of difference between the two are:
- Commercial banks work for earning profits, whereas non-commercial banks have little to no credit earnings.
- Commercial banking offers many services and facilities to clients, whereas non-commercial banking has limited scope in providing services.
- ·Commercial banks are widespread in urban areas. On the other hand, non–commercial banks have limited existence in rural and semi-urban areas only.
- Due to the high profits earned, commercial banks spend more on infrastructure. Non-commercial banks do not gain much to spend on infrastructure.
- Commercial banks are at high risk of losing the client’s money due to loose restrictions in operation. Non-commercial banks work under the guidelines of the state government and have no such issue.
Conclusion
Banks are critical institutions of public interest. There are many types of banks, and each performs subsequently different functions. Commercial banks render profit to both creditors and borrowers, and also to their employees. They risk the depositor’s money and return it with increased rates if successful.
Non-commercial banks are particularly useful in rural areas but lack the development of employees. The creditor is the owner here.
Commercial banks have established ease in banking for urban people. Non-commercial banks have uplifted the rural masses.
However, the type of bank is less important than the safety it provides to a person’s money. The focus should be on alleviating security issues and helping not only the urban but also the rural people to develop.
The Reserve Bank of India (RBI) is already working hard to safeguard the people’s money. It, however, needs the cooperation of the people in bringing their issues to the fore so that they can be resolved.
References
- https://www.emerald.com/insight/content/doi/10.1108/10867370910963046/full/html
- https://academic.oup.com/rfs/article-abstract/23/10/3595/1565043
- https://www.oecd-ilibrary.org/content/paper/5k4dkhztkp9r-en