Difference Between Commercial Bank and Small Finance Bank

What is Commercial Bank?

Commercial banks are financial institutions that provide a wide range of services to businesses, governments, and individuals. They are the primary source of financial services in the global economy and are essential to the functioning of the modern monetary system.

Commercial banks provide various services, including deposits, loans, and investments. They accept deposits from customers, who can then use the funds to make payments, transfer funds, and purchase goods and services. Customers can also use their promises to invest in bonds, stocks, mutual funds, and other financial instruments.

Commercial banks provide loans to businesses, governments, and individuals. They use the funds they receive from customers and other sources to lend money to borrowers. These loans can be used to purchase assets, fund business operations, and finance consumer purchases.

Commercial banks also provide investment services. They offer a variety of investment products, such as stocks, bonds, mutual funds, and other financial instruments. These investments can help customers diversify their portfolios and make higher returns. In addition to providing traditional banking services, commercial banks may also offer services such as trust and estate planning, insurance, and wealth management. They also offer credit cards, merchant, and foreign exchange services.

Local and international authorities heavily regulate commercial banks, helping ensure that customers’ funds are safe and secure ad that banks operate ethically and transparently.

What is Small Finance Bank?

Small finance banks are specialized banks that provide essential banking services such as deposits and loans to small businesses and individuals. These banks focus on providing financial services to small business owners, small-scale farmers, and low-income households who need to be adequately served by traditional banking systems.

Small finance banks also offer services such as mobile banking and internet banking. Small finance banks focus on providing financial inclusion by providing access to banking services to those who are underserved or unserved by traditional banking systems. These banks offer business and working capital loans to small businesses and entrepreneurs.

Small finance banks also offer microfinance services such as microloans, micro-savings, and micro-insurance. These banks work with organizations and self-help groups to provide access to banking services to low-income households and rural areas.

Small finance banks play an essential role in the financial inclusion of low-income households and small businesses in India. These banks are helping to expand access to banking services to those who need to be adequately served by traditional banking systems.

Difference Between Commercial Bank and Small Finance Bank

  1. Commercial banks offer higher interest rates for savings accounts than small finance banks.
  2. Commercial Banks tend to be more conservative in risk management than Small Finance Banks.
  3. Commercial banks have a more expansive branch network than small finance banks.
  4. Commercial banks use advanced technology, while small finance banks typically use simpler technology.
  5. The Banking Regulation Act of 1949 regulates commercial banks, while the Small Finance Bank Act of 2016 regulates small finance banks.

Comparison Between Commercial Bank and Small Finance Bank

Parameters of comparisonCommercial BankSmall Finance Bank
LicensingThe central bank licenses commercial banks.The Reserve Bank of India licenses small finance banks.
OwnershipShareholders own commercial banks.Promoters own small finance banks.
 Scope of ServicesCommercial banks provide a wide range of services.Small finance banks offer services related to basic banking and other financial services.
Capital RequirementCommercial banks require a large amount of capital to operate.Small finance banks require a smaller amount of money.
Loan ProductsCommercial banks offer a wide range of loan products.Small finance banks focus on providing smaller loans for the underbanked population.

References

  1. Commercial Banks as Creators of â•ŸMoney (yale.edu)
  2. Journal of Economic Development 2010a.p65 (researchgate.net)