Question

Explain in general terms how savings institutions differ from commercial banks with respect to their sources of funds and uses of funds. Discuss each source of funds for SIs. Identify and discuss the main uses of funds for SIs.

Answer 1

Saving institutions are the thrift institutions formed up by the local communities for promoting saving among the local community.They take the deposits of local people and lend them back to local people in need in form of mortgages,consumer loan and small business loans whereas commercial banks are the financial institutions that accepts or lend money to people as per the guidelines formed by the regulating authority like RBI etc.The other key difference between both of them is that commercial banks are highly regulated than the saving institutions.Moreover commercial banks are basically for the purpose of business and earn profit whereas saving institutions are not for profit but to help its members in need.

	Saving Institutions	Commercial banks
source of funds	From the local people of the community who wants to save their little amount.	From the general public,corporates,firms,goverment,RBI,IMF,World bank etc.
uses of funds	Granting of loan to its members at lower rates of interest for the purpose of samll business,agriculture,consumer loans etc.	Granting of loans to general people in need,corporates,government etc,House loan,for the purpose of entering into new projects,derivatives,to earn profits.etc

Main source of funds of SIs are Depositers or members of the institues.

Uses of funds:

• To give loan to members at the lower rates
• to invest the collected amount in corporates equity and therefore earning dividend
• Giving capital funding to promote merger and acquitions
• to grant loan for various purpose like house loan,mortagage etc.