Commercial Banks

A commercial bank is a type of financial organization that handles all transactions involving the depositing and withdrawal of cash for the public at large, as well as the provision of loans for investment purposes and other similar activities. These institutions are profit-making enterprises that conduct business only for the purpose of making a profit.

A Brief Note On Commercial Banks

A commercial bank is a financial institution that accepts money deposits, offers checking account management, makes different classes of loans, and provides all sorts of financial products to people and small businesses such as certificate accounts and savings accounts. Many people go to a commercial bank to perform their bookkeeping.

Commercial banks generate money through lending money and gaining interest on it, including mortgages, auto loans, borrowings, and personal loans. Customer deposits give banks the capital they need to provide the loans.

Role Of Commercial Banks In India

•   Commercial banks provide services related to banking facilities to customers and to the small-sized to medium-sized enterprises, such as bank deposits including loans.
•   Commercial banks gain money through a range of fees as well as bank interest through loans.
•   Commercial banks are generally physically based, but an increasing number are operating entirely virtual.
•   Commercial banks play a significant role in the economy since they generate capital, credit, and mobility in the open market.

Operations Of Commercial Banks

Commercial banks provide banking products and services related to banking facilities to the common public, which includes individual consumers as well as small to medium-sized corporations. These services include checking and savings account management, loans and credit card management, basic investment products such as Certificate of Deposits, and other services such as bank locker facilities.

Service fees and fees are how banks make money. Bank fees (recurring monthly & corresponding charges involved, management of minimum balance fees, charges for overdraft facilities, non-sufficient money (NSF) charges), safe deposit fees, and late fees vary depending on the product. In addition to interest costs, many loan packages include fees.

Banks also profit from the interest they generate by lending funds to other customers. Customers’ deposits are used to fund the loans. On the other hand, the interest rate charged by banks on money borrowed is lower than the rate levied on money lent. For example, a bank can give customers holding savings accounts an annual rate of return of about 0.25 percent while considering the clients related to mortgage facilities with an annual interest rate of 4.75 percent.

Customers have typically come to commercial banks to employ operator window operations and teller machines ( atm (ATMs) to complete their everyday banking. Expansion of online technology has grown massively that most institutions now permit most of the customers to perform the majority of the same activities that they might perform in person, such as remittances, and deposits, including bill payments, online.

A developing count of commercial banks functions entirely online, requiring all-cash dealing with the bank to be completed electronically. Since the banks do not have physical facilities, they may provide a broader variety of financial products and services to their consumers at a cheaper cost.

The Importance Of Commercial Banks

Commercial banks play a vital role in the economy. They not only provide a necessary service to consumers but contribute to the creation of financial stability within the market.

They demonstrate stability by lending money from their customers’ accounts to others. Commercial banks have a role in loan creation, which leads to increased output, employment, and consumer-related spending, so strengthening the economic standards.

As a result, commercial banks become heavily regulated by the central bank of their respective country or region. Financial institutions, for example, are subject to margin requirements imposed by central banks.

This means that banks are obligated to retain a certain proportion of their customer deposit money at the central bank with means of a buffer in case the general public rushes to take back the funds.

Difference Between Commercial Bank And Central Bank

Let us examine some of the distinctions between both the central bank and commercial banks.

Central Bank:

The central bank is the country’s main financial agency, in charge of developing monetary policy and regulating money in the economy.

• Ownership: The central bank has always been owned by the public.
• Number of Banks: Each country has just one central bank.
• Clients: Commercial banks and the government 
• Policy creator: Central banks are the primary source of money supply in an economy.

Central banks create currency in order to control interest rates in an economy.

Central banks are the primary source of money supply in the market.

Profit Motive: The central bank doesn’t really exist to make a profit.

Commercial bank

A commercial bank is a type of financial institution which provides banking service to the public and companies by facilitating deposits and providing lending facilities.

• Ownership: Commercial banks can be publicly or privately owned.
• Number of Banks: A country may have a large number of commercial banks.
• Profit Motive: Commercial banks are driven by the desire to make a profit.

Clients include both individuals and companies.

Commercial banks do not establish any policies that are necessary for an economy to function.

Source of Money Supply: Because commercial banks rely on deposits from individuals, they do not perform this job.

Conclusion

We have learned about Commercial Banks, A brief note on Commercial Banks, the Role of commercial banks in India, Difference between the commercial banks and central banks, the Types of commercial banks, and all other topics related to Commercial Banks.

There are three categories of commercial banks: public sector banks, private sector banks, and foreign banks. Banks that have been nationalized by a country’s government are referred to as public sector banks. The government is the most important stakeholder. In most situations, these banks are governed by the central bank of the country.