InvestorQ : What’s the difference between cooperative banks and commercial banks?
Anushri Vasa made post

What’s the difference between cooperative banks and commercial banks?

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1 year ago

A commercial bank can be defined as a type of bank that provides services such as accepting deposits, taking /making loans, and offering basic investment products. A commercial bank is one that is operated for profits.

A cooperative bank, in contrast, is a bank established on cooperative basis, i.e. it is an association of persons coming together voluntarily to provide banking solutions. A cooperative bank is usually founded to meet a common economic, social and cultural need. Cooperative banks help serve small industries and self-employed workers.

Other major differences between cooperative and commercial banks are:

- Commercial banks are joint-stock banks, ie a bank which is a public company with shares owned by investors rather than a government. Cooperative banks, on the other hand, are cooperative organisations.

- Commercial banks are governed by the Banking Regulation Act, while cooperative banks are governed by the Co-operative Societies Act of 1904.

- Commercial banks are subject to the control of the Reserve Bank of India directly.

- Cooperative banks are subject to the rules laid down by the Registrar of Cooperative Societies.

- Cooperative banks can offer fewer banking services than commercial banks

- Commercial banks operate across the country as they have branch-banking system of operation. Cooperative banks, in contrast, function on unit-banking system. Cooperative banks do have multiple branches, but they do not cover a wide geographical area.

- There are public-sector commercial banks as well as private-sector commercial banks, but cooperative banks are only private in nature.

- While commercial banks provide loans to businessmen, entrepreneurs, and to companies for trade and commerce, cooperative banks usually cater to the needs of farmers.

- Cooperative banks offer a marginally higher rate of interest to their depositors than commercial banks.

- As cooperative banks are founded on the premise of member shareholders, borrowers are member shareholders, and hence, they have some influence on the bank’s lending policy. No such power is enjoyed by borrowers of commercial banks as they are merely account holders and don’t get any voting power.

Cooperative banks have very little flexibility on the rigid bye-laws of the cooperative societies. Commercial banks, on the other hand, are free from such rigidities.