In the organised sector of the Indian money market, co-operative banks and commercial banks are parallel financial institutions. Both render almost identical banking functions of deposit mobilisation, provision of remittance facilities, and advancing of loans. Nevertheless, both institutions are distinct in nature, scope and operations.
We may distinguish between co-operative banks and commercial banks on the following counts:
1. Commercial banks are joint-stock banks. Co-operatives banks, on the other hand, are co-operative organisations.
2. Commercial banks are governed by the Banking Regulation Act. Co-operative banks are governed by the Co-operative Societies Act of 1904.
3. Commercial banks are subject to the control of the Reserve Bank of India directly. Co-operative banks are subject to the rules laid down by the Registrar of Co-operative Societies.
4. Co-operative banks have lesser scope in offering a variety of banking services than commercial banks.
5. Commercial banks in India are on a larger scale. They have adopted the system of branch banking, so they have countrywide operations.
Co-operative banks are relatively on a much smaller scale. Many co-operative banks follow only unit-bank system, though there are cooperative banks with a number of branches but their coverage is not countrywide.
6. Commercial banks in India are of two types: (i) public sector banks and (ii) private sector banks. Co-operative banks are private sector banks.
7. Commercial banks mostly provide short-term finance to industry, trade and commerce, including priority sectors like exports, etc. Co-operative banks usually cater to the credit needs of agriculturists.
8. Co-operative banks offer a slightly higher rate of interest to their depositors than commercial banks.
9. In co-operative banks, borrowers are member shareholders, so they have some influence on the lending policy of the banks, on account of their voting power.
Borrowers of commercial banks are only account- holders and have no voting power as such, so they cannot have any influence on the lending policy of these banks.
10. Co-operative banks have not much scope of flexibility on account of the rigidities of the bye-laws of the Co-operative Societies. Commercial banks, on the other hand, are free from such rigidities.