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.