Commercial and Private Banks are financial institutions that lend funds to individuals and help saving deposits. Through investment markets, banks perform these activities either directly or indirectly. Private Banks are the entities that come under Commercial banks.
On one hand, where the commercial bank accepts deposits, offer fundamental investment products that are regulated as a business for profit and make business loans whereas the private bank provides investment and financial services to individuals with high levels of income.
The making of money by Commercial banks is usually by first providing loans to people and then earning interest income from those loans. The types of loans a commercial bank usually give are personal loans, business loans, mortgages, and auto loans.
Providing services like banking, investment, and other financial services are done by private banks. The word ‘private’ here refers to client service that is delivered. These are done on a much more personal foundation than in mass-market trade banking.
Commercial Bank vs Private Bank
The main difference between Commercial Bank and Private bank is the interest of the central bank that is put into these sectors. In a commercial bank, the central bank has its stakes whereas in the private bank it does not have any stakes.
Comparison Table Between Commercial Bank and Private Bank (in Tabular Form)
| Parameters of Comparison | Commercial Bank | Private Bank |
|---|---|---|
| Definition | Commercial banks usually make their money as it first provides loans to people and then earns interest income from those loans. The types of loans a commercial bank usually provides are personal loans, business loans, mortgages, and auto loans. | Private banks provide financial service to high net worth individuals who have enormous amounts of assets. In this sense, the term private refers to the private customer service offered to such individuals |
| Organization | Corporate holding companies operate the majority of commercial banks, and these companies may own one or more than a few banks. | Giving protection and maintaining the assets of clients is a major concern. |
| Job security | As it includes both private and public banks so the security depends upon the performance or there can be no security at all. | Security of your job depends on performance |
| Customer base | Commercial banks have a wider customer | The private bank serves selective clients. |
| Pension | It depends on which sectors you are working in. | No such facility is provided. |
What is Commercial Bank?
Commercial banks usually make their money as it first provides loans to people and then earns interest income from those loans. The types of loans a commercial bank includes personal loans, business loans, mortgages, and auto loans.
Customers, effectively lend money to the bank and are paid with interest, the ones who deposit money into these accounts. On the other hand, the rate charged on the money they lend is higher than the money they borrow
Key features:
- There is not any difference between the sort of cash advent that outcomes from the economic cash multiplier or a central bank, which includes the Federal Reserve.
- Commercial banks make cash with the aid of supplying loans and earning hobby income from one’s loans.
- A variety of business developing banks function completely online, and all the transactions with the commercial financial institution should be made electronically.
The hobby it will pay on securities and the hobby it earns on loans, will tell the amount of money earned through a commercial financial organization and this is known as internet interest profits.
A variety of business developing banks function completely online, and all the transactions should be made electronically with the commercial financial institution.
What is Private Bank?
Private Banks are banking agencies formed beneath the Companies Act and licensed by RBI. Public shareholders own a financial institution. Private Banks are owned by utilizing both the character and a general partner(s) with a restricted partner(s). Private Banks are not incorporated. In this kind of case, the creditors can look to each the “entirety of the bank’s assets” as nicely as the whole thing of the sole-proprietors/fashionable-partners’ assets.
Private bankers offer clients traditional banking offerings along with checking and financial savings accounts, similarly to custom-designed investment, tax, and estate making plans solutions. A private financial institution has faster processing, good patron care however excessive interest costs and charges.
Private Banks may offer credit score to individuals who would not be capable of getting a mortgage from PSU banks and these folks are also charged a higher hobby rate
Yes, it’s far safe to preserve cash in personal banks. In India, if any bank fails and has to head in for liquidation then a depositor can stand up to Rs 1 lakh beneath the Deposit Insurance Scheme of RBI. But there are a few banks which RBI classifies as Too Big to fail financial institution or Domestic systemically vital financial institution or D-SIB. Private Banks have persisted to perform higher than Public banks showing powerful control in containing first-class and prudent lending policies.
Main Differences Between Commercial Bank and Private Bank
- The difference comes with the involvement of the central bank. In a personal financial institution, the central bank does no longer has any stakes like it does in industrial banks.
- Private Banks are owned by private individuals and entities whereas commercial banks are the entities that include both private and public banks.
- Commercial banks have a wider customer base whereas a private bank serves selective clients.
- Commercial banks can provide credit, letters of credit, and credit cards and beyond this they also offer investment, trust, and insurance products whereas private banks focus on wealth management and other services for high- worth individuals.
- The share of industrial banks is publicly traded and they are required to be chartered by using kingdom or federal government whereas it’s miles opposite in private banks.
Conclusion
With the development of the world, financial sectors are also in demand of the time. People are reliable on banks for their future concerns. Banks are giving safety and security to money that people deposit in their bank branches.
This financial institution is not only providing security but also provides job opportunities that are financially supporting people to a great extent. They provide promotions and there are job securities to some extent. Banks are also contributing to the economic factors of the country. Banks are the integral system of the society that regulates the easy flow of money between two entities.
References
- https://www.jstor.org/stable/248234
- https://openknowledge.worldbank.org/bitstream/handle/10986/14792/multi0page.pdf?sequence=1