Difference between Investment Banking and Commercial Banking

Meaning

Investment Banking is a financial service sector primarily dealing with assisting companies, governments, and other entities in raising capital.

Commercial Banking refers to the banking activities primarily focusing on providing services to businesses, individuals, and institutions.

Focus

It focuses on assisting corporations and institutions in raising capital through underwriting, M&A, and advisory services.

It focuses on providing banking services to individuals, businesses, and institutions, including deposits, loans, and payment services.

Regulation

Investment Banking is regulated by Securities and Exchange Board of India (SEBI).

Commercial Banking is regulated by the Reserve Bank of India.

Clients

It includes businesses, governments, institutional investors, and high-net-worth individuals.

It includes individuals, small and large businesses, governments, non-profit organizations.

Services

Services of investment banking includes underwriting securities, M&A, capital markets services, corporate finance, and financial advisory.

Services of commercial banking includes deposits, loans (commercial, personal, mortgages), payment services, and treasury management.

Risk

It includes high risk because of involvement in complex financial transactions and market activities.

It includes moderate risk because of traditional banking activities and exposure to credit and interest rate risks.

Capital Requirement

Generally requires higher capital reserves.

It requires lower capital as compared to investment banking.

Revenue Source

It derives its revenue from fees/commissions for services provided, such as advisory fees, underwriting fees, etc.

It derives its revenue primarily from the interest earned on loans, fees from banking services(such as overdraft fees, etc.), and other charges.