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    Definition of Central Bank

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    Neha_18
    Central banks are the supreme financial institutions that regulate banking and monetary systems within a country. They aim to promote monetary stability and maintain the value of the national currency. In India, the Reserve Bank of India acts as the central bank and was established in 1934. Central banks have authority to issue currency, oversee commercial banks, employ credit controls, advise the government, and manage foreign exchange reserves. Commercial banks accept deposits from the public and lend funds to individuals and organizations, facilitating economic activity. They provide various banking services and generate income from interest and fees. The key difference between central and commercial banks is that central banks regulate financial systems while commercial banks serve all citizens.

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    Definition of Central Bank

    Uploaded by

    Neha_18
    153 views6 pages
    Central banks are the supreme financial institutions that regulate banking and monetary systems within a country. They aim to promote monetary stability and maintain the value of the national currency. In India, the Reserve Bank of India acts as the central bank and was established in 1934. Central banks have authority to issue currency, oversee commercial banks, employ credit controls, advise the government, and manage foreign exchange reserves. Commercial banks accept deposits from the public and lend funds to individuals and organizations, facilitating economic activity. They provide various banking services and generate income from interest and fees. The key difference between central and commercial banks is that central banks regulate financial systems while commercial banks serve all citizens.

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    Central banks are the supreme financial institutions that regulate banking and monetary systems within a country. They aim to promote monetary stability and maintain the value of the national currency. In India, the Reserve Bank of India acts as the central bank and was established in 1934. Central banks have authority to issue currency, oversee commercial banks, employ credit controls, advise the government, and manage foreign exchange reserves. Commercial banks accept deposits from the public and lend funds to individuals and organizations, facilitating economic activity. They provide various banking services and generate income from interest and fees. The key difference between central and commercial banks is that central banks regulate financial systems while commercial banks serve all citizens.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    153 views6 pages

    Definition of Central Bank

    Uploaded by

    Neha_18
    Central banks are the supreme financial institutions that regulate banking and monetary systems within a country. They aim to promote monetary stability and maintain the value of the national currency. In India, the Reserve Bank of India acts as the central bank and was established in 1934. Central banks have authority to issue currency, oversee commercial banks, employ credit controls, advise the government, and manage foreign exchange reserves. Commercial banks accept deposits from the public and lend funds to individuals and organizations, facilitating economic activity. They provide various banking services and generate income from interest and fees. The key difference between central and commercial banks is that central banks regulate financial systems while commercial banks serve all citizens.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    Definition of Central Bank

    Central Bank is the supreme financial institution that regulates the banking and monetary system
    of the country. It is formed to bring monetary stability, issue notes and maintain the value of a
    countrys currency in the international market. It administers the currency and credit system of
    the nation.
    In India, the Reserve Bank of India plays the role of a central bank, which came into existence,
    after passing an act in parliament in 1934. The bank is headquartered in Mumbai, Maharashtra.
    The following are the main functions of the Central Bank

    It is authorized to issue currency notes except coins and notes of small magnitude.

    It has the power to control, direct and supervise the commercial banks. It also helps them
    at the time of need.

    It employs various measures to control the credit operations of the commercial banks.

    It is the banker and advisor to the government of the country.

    It acts as a manager of foreign exchange reserves.

    It collects and publishes the information relating to banking and financial sector.

    It oversees the credit and monetary policy of the nation.

    Definition of Commercial Bank


    The entities that provide banking and financial services to a large number of people are known as
    Commercial Banks. They act as a mediator between the borrowers and savers. The Commercial
    Banks receive deposits from the general public and lends it on high interest to the individuals and
    organizations. In this way, the mobilization of savings takes place and the economic cycle goes
    on smoothly.
    In earlier times, people used to deposit money in post offices for saving purposes, when the
    requirement of the banking system was felt. The people want an establishment where they can
    deposit their savings and withdraw it at the time of need. At present, there are more than 600
    commercial banks in India, which include public sector banks, private sector banks, scheduled
    banks, non-scheduled banks, nationalized banks etc. The important functions of a Commercial
    Bank are:

    It accepts deposits from the general public, firms, institutions and organization. Further, it
    gives the facility to withdraw money on demand. Banks pay interest on deposits at
    various rates on different deposits.

    It lends money to public, institutions and organization in the form of long term and short
    term loans for a certain period and charge interest on the amount lent. Moreover, it
    provides overdraft and cash credit facilities to the customer.

    It performs agency functions like collections of bills of exchange and promissory notes,
    trading of shares and debentures, payment to third parties on standing instructions of the
    customer, etc.

    It provides the facility of safe keeping of valuables like jewelry and documents.

    It collects, transfers and makes payment of funds on behalf of the customer.

    It provides the facility of ATM card, Debit Card, Credit Card, cheques etc, to its account
    holders.

    Key Differences Between Central Bank and Commercial


    Bank
    The following are the differences between central bank and commercial bank
    1. The bank, which monitors, regulates and controls the financial system of the economy is
    known as Central Bank. The financial institution which receives the deposits from people
    and advances them money is known as Commercial Bank.
    2. Central Bank is the banker to banks, government and financial institution, whereas
    Commercial Bank is the banker to the citizens.
    3. The Central Bank of India i.e. the Reserve Bank of India is governed by RBI Act, 1934.
    Conversely, the Commercial Bank are governed by the Banking Regulation Act, 1949.
    4. The Central Bank is a publicly owned institution while the Commercial Bank can be
    publicly or privately owned institution.
    5. The Central Bank does not deal with the general public, but Commercial Bank does.
    6. The Central Bank has got the authority to print and issue the notes. On the other hand,
    commercial bank is not having such authority.
    7. The main purpose of Central Bank is public welfare and economic development. In
    contrast to, Commercial Bank, which runs for profit motive.
    8. There is only one Central Bank in every country, but the Commercial Banks are many
    which serve the whole country.

    Conclusion
    The Central Bank is the chief public financial institution that governs the entire banking system
    in the country. It has full control over all the commercial banks of the country. The Central Bank
    regulates the flow of money in the economy. Various measures are adopted by the apex bank like
    Cash Reserve Ratio, Statutory Liquidity Ratio, Bank Rate, Repo Rate, Reverse Repo Rate, etc. to
    control the supply of money.

    Comparison Chart
    Basis for
    Comparison
    Meaning

    Investment Bank
    Investment bank refers to a financial
    institution, that offers services like
    underwriting of securities, brokerage
    services and so on.
    Customer specific service

    Commercial Bank
    Commercial bank is a bank that provides
    services like accepting deposits, lending
    money, payment on standing order and
    many more.
    Standardized service
    Nation's economic growth and demand
    for credit
    Millions

    Offers
    Associated
    Performance of financial market.
    with
    Customer base Few hundreds only
    Individuals, government and
    Banker to
    All citizens
    corporations.
    Fees, commissions or profit on trading
    Income
    Fees and interest income
    activities.

    Definition of Investment Bank


    The term investment bank is used to define a financial institution that performs intricate financial
    transactions. These banks links the big corporations with the investors. The banks serve its
    customers in a number of ways like assisting government and corporations in issuing securities,
    helping the investors in buying stocks, bonds, etc. providing advisory services and so on.

    The banks generate its income by charging fees for its advisory services. Further, the banks
    trading business is subject to profit or loss. These banks play a crucial role in aiding companies
    or government to take well planned decisions and raise funds easily. The services provided by an
    investment bank are given as under:

    Underwriting of securities

    Raising of capital

    Asset management

    Wealth management

    Advisory services

    Merger and Acquisitions

    Assisting companies in making an Initial Public Offer (IPO)

    Definition of Commercial Bank


    The term commercial bank refers to an establishment which is engaged in providing banking and
    financial services to the public at large. In earlier times, there was no such institution where
    people can deposit their money safely or take loans. So they used to go to money sharks to
    borrow funds and they deposit their money in the post offices. Later on, banks are being
    developed that works as a banker to all the citizens of the country.
    Commercial banks are owned publicly or privately or by the combination of the two. The banks
    help in the mobilizations of savings across the economy. It is governed by the Banking
    Regulation Act of India, 1949.
    The banks accept deposits from the citizens of the country at a nominal interest rate and use that
    money in extending credit to other customers (borrowers), charging a higher rate of interest from
    them. In this way, commercial banks makes its income from the left over amount of interest.
    In addition to this, one of the major source of banks income is the fees charged by them for
    offering various services to the public. The diverse range of services provided by the commercial
    banks are:

    Accepting deposits

    Advancing loans

    Overdraft and cash credit facility

    Payment on standing instructions

    Withdrawal of money on demand

    Collection of bills and promissory notes

    Trading in shares and debentures on behalf of customer

    Locker facility

    ATM card, Debit Card, Credit Card facility

    Mobile banking

    Internet banking

    Key Differences Between Investment Bank and Commercial


    Bank
    The basic difference between investment bank and commercial bank are indicated below:
    1. A financial intermediary set up to provide investment and advisory services to the
    companies, is known as an investment bank. Commercial Bank is a bank established to
    provide banking services to the general public.
    2. Investment bank offers customer specific service whereas commercial bank offers
    standardized services.
    3. The customer base of a commercial bank is comparatively higher than an investment
    bank.
    4. The investment bank is related to the performance of the stock market while economic
    growth and the credit demand affect the rate of interest charged by the commercial bank.
    5. The investment bank is a banker to individual, government, corporations, etc. On the
    other hand, commercial bank is a banker to all the citizens of the country.
    6. The investment bank generates its income from fees and commission. Unlike
    Commercial bank, which generates income from interest and fees.

    Conclusion
    The basic difference between these two financial intermediaries is the audience they cater to as
    well as their area of business. While commercial banks serve all the citizens of the country and
    its main business is to accept deposits and grant loans. Investment banks deals in securities and
    so its primary activity is to trade in financial assets and provide advisory services.

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