The Difference Between Commercial and Investment Banks

Banks are broadly classified into two types based on the work they perform, namely commercial banks and investment banks. Commercial banks perform numerous services to customers, such as receiving money as a deposit and granting them access to withdraw their money via their accounts. They also provide loan services to customers. Commercial bank operations in India are regulated by the Reserve Bank of India, the highest financial authority in the country. Investment banks, on the other hand, offer investment services to their clients, helping them raise capital by performing complex financial transactions in the stock market.

Banking in India 

The banking sector in India is one of the largest in the economy, with about two trillion dollars’ worth of assets being managed. With over 1485 urban banks and 96,000 rural banks, it is considered a significant sector to pursue a career. Many young people strive to get employed in banking institutions because of the good pay and opportunities for career development. The two types of banks are briefly discussed below:

Commercial banks

Commercial banks allow people to deposit money at a particular interest rate. They then loan out this money to other customers at a designated interest rate. This is how they make their profit. Commercial banks perform different services such as receiving deposits, overdrafts, loan facilities, withdrawals, ATM card and debit card issuance, internet and mobile banking, trading shares, and bill collection. 

There are numerous job opportunities in the world of commercial banking. You may choose to work as a mortgage banker, commercial lender, manager, trust officer, etc. 

Investment banks 

They serve as an intermediary between investors and big businesses to raise capital for companies and government corporations. They perform advisory roles in investment and help their investors safely invest in stocks and bonds. Investment banks earn their profit by charging a certain amount as fees for their services. These banks are privately owned, and their clientele comprises governments, companies, and pension bodies. Graduates take on jobs as analysts in this field and later become associates. One can become a manager or director depending on the level of success achieved. 

Let's delve into some of the significant differences between commercial banks and investment banks. 

Difference between Commercial and Investment Banks

1. Commercial banks provide services to a large population. Perhaps almost every adult citizen in India uses the services of commercial banks. On the other hand, investment banks only offer their services to investors and government organisations, with a much smaller client base than commercial banks. This also means there are more workers in the commercial banking sector and hence a better chance to get employed there. 
2. Investment banks offer services based on customers' demands. Their services are uniquely fashioned to suit customers' needs. However, commercial banks offer a general list of services such as deposits, withdrawals, and money lending. 
3. Commercial banks make a profit from the rates attached to their different services. These rates vary depending on the kind of service and the amount of money involved in these transactions. Investment banks, however, profit from the fees charged for every service they perform for their clients. This comes in the form of a commission for every trading activity of customers. 
4. The risk factor involved when it comes to commercial banking is significantly low, both for the bank and its customers. This is perhaps why many people are customers of commercial banks and do not worry about the safety of their assets. Investment banking comes with high risk as assets can be lost during trading. The erratic nature of the stock market sometimes results in a huge loss of assets. 

Ending Thoughts 

The world of banking is increasingly expanding, with its roots in every industry and commercial setup, making its services indispensable. While commercial banking and investment banking may differ in the services they offer and their mode of operation, both are interesting places to start a career in. As a graduate looking to explore the banking sector, it is essential to have sufficient knowledge of the field and what it entails to find out which is the most suitable for you.