What is bank?

A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers that have capital deficits to customers with capital surpluses.

What is Central Bank?

Central Bank is responsible for managing the monetary policies of the government or states with which they are associated. The most important role of any central bank is to maintain stability of the money supply and financial markets. Central banks can influence current interest rates with their actions, and in times of financial crisis, can act as alender of last resort" to commercial banks.

What is Commercial Bank?

Commercial Bank is for-profit, private or public companies, which make a profit on the difference between interest rates paid to, and earned from, businesses and individuals.

The difference between the Commercial bank and Central bank are briefly explained in detail as follows:-

Commercial Bank

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A Commercial Bank was established under Banking Regulation Act, 1949. A commercial bank occupies a subordinate position in the banking structure of a country. There is a large number or network of different commercial banks in a country. It is a profit oriented financial institution. A commercial bank cannot print currency notes. It creates credit money. It can be owned by the government or it may be privately owned. A commercial bank performs certain primary and secondary functions. It cannot act as a clearing house. Individuals and institutions are the account holders of these banks. It can provide short term and medium term loans to the individuals and industries. Only a few commercial banks are nationalized.

Central Bank

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The Central Bank of a country was established under a special statue. In India RBI was established under the RBI Act of 1934. The central bank occupies a dominating position as it is the apex bank among all the banks in the country. There can be only one central bank for the entire economy. It is a non-profit making financial institution. The central bank has the monopoly power to issue currency notes from Rs.2 and above. It is owned by the central government. A central bank regulates money supply in the country by exercising its control on commercial banks. It can act as clearing house. All commercial banks and the government are the account holders of this bank. It can provide loans to schedule banks and financial institutions. A central bank itself is a government bank.