5 December 2023

Difference between Commercial Bank and Development Bank

Banks for Development Vs Commercial the purpose of commercial bank organization is to provide public utility banking services, such as taking deposits and making loans. Conversely, a development bank is a multifunction financial institution that was established to support development by providing money to the agricultural and industrial sectors.

What is a Development Bank?

The expression development bank refers to a specialized financial organization that is being created to provide medium and long-term loans to provide infrastructure facilities to encourage the development of the industrial and agricultural sectors. In addition, it offers commercial entities promotional activities, and investments and guarantees operations and shares underwriting. Development bank's main duty is to provide money for capital-intensive projects with low rates of return, typically over a longer amount of time.

What is a Commercial Bank?

A commercial bank is a type of financial organization that offers checking account services, accepts deposits makes various loan types, and gives basic financial products to individuals and small businesses, such as saving accounts and certificates of deposit(CDs). The majority of people use commercial banks for their banking needs. The way that commercial banks make money by lending money, including mortgages, auto loans, business loans, and personal loans. and collecting interest. The money that banks use to find these loans comes from deposits made by customers. Commercial banks comprise both private and public sector banks. The main duty of commercial banks is to provide financial services to people and companies, encouraging long-term economic growth and stability in the political, social, and economic domains.

Difference between Commercial and Development Bank

  • The main purpose of commercial banks is to make a profit through interest earned by lending at high interest rates, Development banks on the other hand aim at achieving social profit through effecting development projects.
  • Commercial banks are the banks that are established to undertake basic banking services, for the general public. Conversely, development banks are the financial institutions, set up to provide funds to new and budding companies and projects related to economics, agricultural, and industrial development.
  • Commercial banks raise funds by accepting public deposits, Conversely, development banks raise funds from borrowing, government grants, and selling of securities.
  • Commercial bank offers loan for short and medium terms, On the other hand, medium and long-term loans are offered by development banks.
  • Commercial banks are financial institutions, conversely, development banks are multipurpose institutions.
  • Commercial banks target the masses as they have many products to offer, On the other hand, Development banks target only the development sector.
  • Commercial banks are profit-seeking business entities, Conversely, development banks are established to encourage development.
  • Commercial banks are set up as companies under the Companies Act, and development banks are set up under the special act passed by the government.
  • Commercial banks provide legal, business advice, and credit investigation services are provided for a definite fee. Contrarily counselling and advisory services are provided for the development and promotion of the enterprise by a development bank.
  • Commercial banks provide cheque amenities where deposits can be made and withdrawn with cheques. Conversely, development banks don't provide cheque amenities.
  • Commercial banks aim at making a profit by lending money at a high rate of interest, in Contrast development banks aim to achieve social profit, by providing funds for capital-intensive projects.
  • Commercial banks deal with the general public and business entities Conversely development banks deal with the government.
  • A commercial bank is established as a joint stock company, called a banking company, on the flip side development banks are set up under a specialized act, passed by the parliament.
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