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Commercial Banks or Retail Banks



Commercial banks are joint stock companies, which are dealing with money and credit. It is an institution which accepts deposits, creates business loans, and offers related services. Commercial banks also allow for a range of deposit accounts, such as checking, savings, and time deposit. While commercial banks offer services to individuals, they are primarily concentrating on receiving deposits and lending to businesses. In India, however there is a mixed banking system, prior to July 1969, all the commercial banks, 73 scheduled and 26 non-scheduled banks, except the state bank of India and its subsidiaries-were private sector banks. On July 19, 1969, however, 14 major commercial banks with deposits of over 50 Corers were nationalized. In April 1980, another six commercial banks of high standing were also taken over by the government.
Commercial banks provide products & activities dealing directly with individuals, small businesses & Corporate. It is the term used for a normal Bank to differentiate it from an Investment Bank & is what people normally call a "Bank". In some English-speaking countries outside North America, the term "Trading Bank" is used to indicate a commercial bank.

The commercial banking structure in India consists of :

Scheduled Commercial Banks in India

Non - scheduled Banks in India

Scheduled Banks in India constitute those banks which have been included in the Second Schedule of RBI Act. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. The scheduled commercial banks in India includes State bank of India and its associates, nationalized banks, foreign banks, private sector banks, co-operative banks and regional rural banks.

A Commercial Bank undertakes the following functional roles :

  • Raises funds by collecting deposits from businesses and consumers through different deposits like; savings deposits, recurring deposits and time (or term) deposits.
  • Makes loans to businesses and consumers
  • Trades in Corporate bonds and Government bonds

A commercial bank’s primary liabilities are deposits and primary assets are loans and bonds. Commercial banks can be further subdivided into;

Retail Banking Division

It deals directly with individual consumers and small businesses

Commercial Divisions

It deal with Corporations or large businesses

Draw-backs of Commercial Banking

Despite of the numerous advantages, there are some draw backs in this commercial banking. These are as under :

  • Management of large number of clients may become a problem, if IT systems are not proper.
  • Rapid development of products can lead to IT complications.
  • The cost of maintaining large number of small value transactions in branch networks will be relatively high, unless the customers use alternate delivery channels like ATMs, internet and phone banking etc. for carrying out banking transactions.
Deposits and Bank Accounts
Fixed deposits