Difference Between Commercial Bank and Central Bank – Detailed

A commercial bank is a financial intermediary. It accepts the deposits from the surplus units and lends these financial resources to the deficit units. Commercial Banks play a very prominent role in the financial system of an economy. Now Check out Commercial Bank Vs Central Bank.

Functions of a Commercial Bank

Modern commercial banks perform a variety of functions and provide a number of services to their customers. They are regarded as departmental – store banks because they provide a wide variety of services to their customers.

Various functions performed by commercial banks are as follows:

acceptance of deposits, advancing of Loans, credit creation, facilitation of payments through cheques, transfer of funds, agency functions and other Miscellaneous Services.

Central Bank

Central Bank is the apex of the banking system in a country. It controls, regulates and supervises the activities of the banks and the country’s banking system. In our country the Central Bank was established in 1935 under private management. It was nationalized by the Government in 1949 and named as RBI.

Objectives of the Central Bank:

The Central Bank functions with the objectives given below:

  • To maintain the internal value of currency.
  • To preserve the external value of currency.
  • To ensure price stability.
  • To promote financial institutions.
  • To promote economic development

Difference Between Commercial Bank and Central Bank

check out Distinction between the Central Bank and the Commercial Bank –

Basis of distinction Central banks Commercial banks
Monetary Authority Enjoys supreme monetary authority with wide powers No authority, hence no such power is enjoyed.
Profit motive It does not exist to make profits of its for owners It exists and is organized for profits their owners
Money supply to the economy It is the ultimate source of money supply to the economy. No such function is performed by it.
Services rendered It acts as a banker to the government It acts as a banker to private industrial and institutions
Chance of failure It is the lender of last resort and hence never fails It often undertakes risky business activities and sometimes may fail.
Service to the public It neither does accept deposits from public, nor lends money to the public. Accepting deposits and lending money to the public are the most important functions of commercial banks.
Ownership and managing Authority It is generally subordinate to the state, i.e. state owned and state managed. It is mostly privately owned and privately managed.
Nature of operation It issues paper notes in fact it enjoys the monopoly power in this matter Its nature operation is credit creation and cannot issue paper notes
Basis of operation The basis of cash money issued is gold and foreign reserve. The basis of credit money generated is cash deposit.