types of banks for banking students
Corporate Banking: Cooperative banking typically serves the financial needs of large
corporate houses- both domestic and multinational-public sectors and governments.
However, traditionally banks had primarily been focusing on production based activities and
financed working capital requirements as well as term loans to corporates due to following
reasons:
• From the beginning till the pre-reform era, business houses were heavily
dependent on banks for their financial needs. The capital markets were not well
developed, joint ventures norms had not been liberalized, mergers and
5
acquisitions were not the preferred route and numerous restrictions were placed
on raising finance from overseas markets.
• The banking institutions too showed a preference for providing credit to the
corporates. This way their paper work was markedly reduced as the numbers of
clients were less. Not only the workload was eased but also the risk involved was
considerably less as corporate borrowings were made against collaterals after
verifying their capacity for repayment.
• The government had also earmarked priority sectors, and as such banks had to
comply with the targets allotted to them.
After liberalization, many corporates could not face the competition and went into
the red. Economic downturn and recessionary environment resulted in poor performance
of many borrowers. As a direct consequence of all these, the NPAs of banks started
mounting. However, according to the RBI annual report of 2005-06, the credit demand by
the corporate sector has turned robust on the back of strong industrial performance.
Furthermore, banks are expected to have greater financing opportunities in the area of
project finance, especially in the infrastructure sector, given the conversion of two major
financial institutions into banks. Banks have been focusing mainly on syndication of debt
to ensure wider participation in project finance and wholesale leading segment.
Features
Corporate banking serves the need of corporates, those having a legal entity. They offer
business current accounts, make commercial loans, participate in syndicated lending and
are active in inter-bank markets to borrow/lend from/ to other banks. Many banks offer
structured products, capital market services and corporate solutions. Corporate banking
involves comparatively fewer borrowers and the account size is usually large and
sometimes it can turn into billions of dollars.
Services
I. Corporate banking services include:
II. Working capital and terms loans, overdrafts, bill discounting, project
financing.
III. Cash management both short term holdings of cash as well as funds
held for longer periods.
IV. Financing of exports and imports including export credit
arrangements.
V. Project finance
VI. Transmission and receipt of money.
VII. Handling foreign currency and hedging against changes in value.
In recent times, there has been a marked shift from corporate to retail banking. The major
reason for avoiding corporate accounts is the mounting non-performing corporate
accounts. Difficulty in pricing the services and high risks involved are some of the other
reasons for overlooking corporate accounts. However this is very lucrative segment
provided care is taken in identifying and focusing on selected business segments and
catering to their requirements, e.g. for the SME segment, credit is paramount whereas for
big corporates, customized solutions are needed. Systematic account planning process
can help to identify the profitable customers, and pricing of services can help the bank to
get rid of asset quality problem. Most developed nation’s banks have separate corporate
bank divisions which help them to avoid the pitfalls of one size fits all policies.
corporate houses- both domestic and multinational-public sectors and governments.
However, traditionally banks had primarily been focusing on production based activities and
financed working capital requirements as well as term loans to corporates due to following
reasons:
• From the beginning till the pre-reform era, business houses were heavily
dependent on banks for their financial needs. The capital markets were not well
developed, joint ventures norms had not been liberalized, mergers and
5
acquisitions were not the preferred route and numerous restrictions were placed
on raising finance from overseas markets.
• The banking institutions too showed a preference for providing credit to the
corporates. This way their paper work was markedly reduced as the numbers of
clients were less. Not only the workload was eased but also the risk involved was
considerably less as corporate borrowings were made against collaterals after
verifying their capacity for repayment.
• The government had also earmarked priority sectors, and as such banks had to
comply with the targets allotted to them.
After liberalization, many corporates could not face the competition and went into
the red. Economic downturn and recessionary environment resulted in poor performance
of many borrowers. As a direct consequence of all these, the NPAs of banks started
mounting. However, according to the RBI annual report of 2005-06, the credit demand by
the corporate sector has turned robust on the back of strong industrial performance.
Furthermore, banks are expected to have greater financing opportunities in the area of
project finance, especially in the infrastructure sector, given the conversion of two major
financial institutions into banks. Banks have been focusing mainly on syndication of debt
to ensure wider participation in project finance and wholesale leading segment.
Features
Corporate banking serves the need of corporates, those having a legal entity. They offer
business current accounts, make commercial loans, participate in syndicated lending and
are active in inter-bank markets to borrow/lend from/ to other banks. Many banks offer
structured products, capital market services and corporate solutions. Corporate banking
involves comparatively fewer borrowers and the account size is usually large and
sometimes it can turn into billions of dollars.
Services
I. Corporate banking services include:
II. Working capital and terms loans, overdrafts, bill discounting, project
financing.
III. Cash management both short term holdings of cash as well as funds
held for longer periods.
IV. Financing of exports and imports including export credit
arrangements.
V. Project finance
VI. Transmission and receipt of money.
VII. Handling foreign currency and hedging against changes in value.
In recent times, there has been a marked shift from corporate to retail banking. The major
reason for avoiding corporate accounts is the mounting non-performing corporate
accounts. Difficulty in pricing the services and high risks involved are some of the other
reasons for overlooking corporate accounts. However this is very lucrative segment
provided care is taken in identifying and focusing on selected business segments and
catering to their requirements, e.g. for the SME segment, credit is paramount whereas for
big corporates, customized solutions are needed. Systematic account planning process
can help to identify the profitable customers, and pricing of services can help the bank to
get rid of asset quality problem. Most developed nation’s banks have separate corporate
bank divisions which help them to avoid the pitfalls of one size fits all policies.
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