Difference Between Commercial Bank and RBI

What is Commercial Bank?

A commercial bank is a financial institution that provides banking services to businesses, companies, and individuals. Commercial banks are financial intermediaries, meaning they accept deposits from customers and lend out those deposits in the form of loans and investment products.

Commercial banks are for-profit organizations that generate revenue from the interest and fees they charge for their services. Commercial banks allow businesses and individuals to manage their finances, save for the future, and transfer money by offering these services. Commercial banks provide a wide range of services, including

  1. Checking and savings accounts
  2. Loans, including car loans, home loans, business loans, and lines of credit
  3. Foreign exchange services
  4. Merchant services, such as credit card processing
  5. Cash management services
  6. Trust services
  7. Online banking
  8. Mobile banking

Commercial banks are regulated by the government or central bank of the country in which they operate. Commercial banks play an essential role in the economy by providing businesses with the capital they need to grow and expand and allowing individuals to save and invest for their future.

What is RBI?

 The (RBI) Reserve Bank of India is India’s central banking establishment. It serves as the nation’s monetary authority, regulator and supervisor of the financial system, exchange control manager, and currency issuer. RBI is responsible for the country’s monetary policy, bank regulation, foreign exchange, and government debt management.

The RBI is the custodian of India‘s foreign exchange reserves and the manager of the country’s currency and credit systems. It is also responsible for maintaining price stability and promoting economic growth. The primary purpose of the RBI is to maintain price stability and foster financial stability. To achieve this, the RBI sets monetary policy, which includes setting interest rates and controlling the money supply.

The RBI also plays a vital role in the decree and supervision of the banking system. It sets capital adequacy requirements, prescribes risk management guidelines, and monitors banks’ performance. It also has the power to take corrective action when necessary. In addition, the RBI also plays a critical role in the foreign exchange market. 

The RBI also regulates and supervises foreign exchange operations in the country. It is also responsible for the security and integrity of the banking system.

Difference Between Commercial Bank and RBI

  1. RBI sets interest rates for commercial banks, while commercial banks set their interest rates based on the RBI’s guidelines.
  2. Commercial banks are required to maintain a certain level of capital, while the RBI does not have any capital requirements.
  3. Commercial banks provide loans and other credit facilities to individuals and businesses, while the RBI does not give credit.
  4. Commercial banks are allowed to lend to the public, while the RBI cannot lend to the public.
  5. RBI sets the Bank Rate, the rate of interest that commercial banks must pay when borrowing from the RBI, while commercial banks do not put the Bank Rate.

Comparison Between Commercial Bank and RBI

Parameters of ComparisonCommercial BankRBI
RoleCommercial Banks provide retail banking services to the public.RBI maintains the stability of the Indian economy.
OwnershipCommercial Banks are owned by shareholders and are in the private sector.RBI is owned by the government and is in the public sector.
FunctionsCommercial Banks offer services such as deposits, loans, and investments.RBI focuses on monetary policy, regulation of commercial banks, and printing of currency.
Balance SheetCommercial Banks Include loans, investments, deposits, liabilities, and equity.RBI includes government securities, foreign exchange, gold, and other assets.
RegulationRBI and the Banking Regulation Act regulate commercial banks.RBI controls the retail banking sector in India.

References

  1. https://www.ripublication.com/ijbamspl17/ijbamv7n2spl_05.pdf
  2. Commercial Banks as Creators of â•ŸMoney (yale.edu)