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    Role of Retail Banking in Financial Market ?


    Introduction

    A commercial bank is a type of bank that provides services such as accepting deposits, making business loans, and offering basic investment products.

    Commercial bank can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to individual members of the public (retail banking).

    In the US the term commercial bank was often used to distinguish it from an investment bank due to differences in bank regulation.  After the great depression, through the Glass-Steagall Act ,  the U.S. Congress required that commercial banks only engage in banking activities, whereas investment banks were limited to capital markets activities.  This separation was mostly repealed  in the 1990s.

    DEFINITION OF 'COMMERCIAL BANK'

    A financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit. The traditional commercial bank is a brick and mortar institution with tellers, safe deposit boxes, vaults and ATMs.  However, some commercial banks do not have any physical Branches and require consumers to complete all transactions by phone or internet.  In exchange, they generally pay higher interest rates on investments and deposits, and charge lower fees.

    Meaning

    Commercial banking activities are different than those of investment banking, which include underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients.  Some commercial banks, such as Citibank and JPMorgan Chase, also have investment banking divisions, while others, such as Ally, operate strictly on the commercial side of the business.


    Importance of Commercial Bank

    Commercial banks play a key role in the economy both at a national and global level.  The importance of commercial banks include the fact thet they serve as a trusted and safe place where the funds of people and business can be kept on their behalf, reducing the necessity to keep large sums of money on the private or business premises.  On the international level, commercial banks serve as a source for transferring money from one country to another, eliminating the need to travel with money.  The money paid by depositors into their savings
     
    What does an Investment Bank Do?

    *. Raise capital for clients
    *. Advise corporations, states, or other entities on capital structure, strategy, business combinations
    *. Create and sell securities to institutional and retai clients
    *. Manage money for institutional and retail clients
    *. Trade on a proprietary basis
     
    INVESTMENT BANKS ?

    × Investment banking means the business of providing credit facilities, providing consultancy and advisory services relating to corporate and investment matters of making investments on behalf of customers

    × The main function - to provide services to corporate sectors such advisory and management services, stock broking services, loan syndication, portfolio management and others.

    × It plays important role - to complement banking system by providing avenue for individuals and corporations to source funding for their business activities as well as diversifying their portfolio investment.
     
    Barbell players

    • - Combination business playing at each end of the asset complexity scale
    • - At the low end, cost leadership through high straight-through processing (STP) scale, universal connectivity, and efficiency
    • - At the top end, building on low-end flow engine to deliver complex structuring with deep expertise in specific higher-margin solutions

    Asset specialist

    • - Deep expertise in specific complex products, nonstandard exchanges/platforms
    • - Engage in higher-margin activity for returns
    • - May be market maker in chosen asset classes

    Universal players

    • - Global reach and extensive asset and solution suit
    • - Require in-house scale for cost leadership on flow
    • - However, also need ability to attract talent to provide specialist solutions

    Local specialists

    • - Deep capability in individual markets or regions
    • - Strong local knowledge, networks, and connectivity
    • - Expertise in the range of assets from chosen markets
    • - For flow products, cost leadership through efficient exchange-to-exchange operations and technology at scale; universal connectivity

     Basis.                  Central Bank                           Commercial Banks

    1. Number  There is only one Central Bank   The number of Commercial
                        in a country.                                   Banks in a country   

    2. Status.    Central Bank is an apex              Commercial Banks are units
                        institution of the money.             in the banking system which
                        market.                                         work under the control of
                                                                              Central Bank.
     
    3. Aim.      The aim of Central Bank is to      The primary objective of
                    control and supervise monetary    commercial banks is to earn
                     and banking systems.                   profit.

    4. Ownership. Central Bank is owned by the   Commercial Banks may be
                             government.                            owned by government or by
                                                                              private parties.

    5. Dealing.   Central Bank does not deal      Commercial Banks deal with 
                         directly with the public.            the public.

    6. Issuing of Central Bank has the monopoly  Commercial Banks are not
        Currency   to issue currency.                     authorised to issue currency


    7. Credit.    Central Bank controls          Commercial Banks create credit
                      availability of credit in the     in the economy.
                       economy.
     
    Characteristics Of Retail Banking

    *  Banking Facility targeted at individual customers.

    * Focussed towards mass market segment covering a large population of individuals.

    * Offer Asset, Liability and Misc. products.

    * Delivery model is both physical and virtual.

    * Extended to small and medium business also.
     
    Retail Banking Services

    Retail Banking
     
    * Loan Originations
    *Savings, Checking & Term Deposits
    * Consumer, Mortgages,HELOC
    * Participation &  Investor Loans
    * Retirement Plans
    * Safe Deposits Box

    Regulatory Reporting

    * Freddie, Fannie & GNMA, HUD Reporting
    * IRS Forms & Reports

    Integration & Interfaces

    * Integration & Interfaces to Channels (i - Banking, ATM, VRU)
    * ACH
    * Credit card Switches

    Commercial Banking

    * Checking Accounts
    * Commercial Loans, Line of Credit
    * Trade Finance
    * LC, BG, Open Accounts
    * Bills for Collection
    * Negotiation, Discount & Purchase
    * Factoring & Forfeiting
     
    Retail Banking Vs. Corporate Banking

                             Retail banking

    *. Bank that deals directly with retail customers.
    *. Also known as customer banking or personal banking.
    *. Retail banking is the visible banking to the general public.
    *. Bank branches located in abundance in most major cities.

                          Corporate banking

    * Known as business banking, refers to the aspect of banking that deals with corporate customers.
    *. The term was originally used in the U.S. to distinguish it from investment banking.
    * Corporate banking is a key profit center for most banks.
     
    Retail Banking Is Changing

    *. Reduced barriers of entry
    *. Lower transaction costs
    *. Decreasing profit margins
    *  Increased competition from traditional and non- traditional players
    *. Instant product customization
    *. Issues with customer retention
    *. Innovative ideas with shortened cycles
    *. Transition from " branch" model to " omnichannel
         model"


    "55% of bank executives view non- traditional new players as a threat, while 31% believe they present innovative partnership opportunities" - PWC Retail Banking 2020: Evolution or Revolution" Report
     
    Meaning of Retail Banking

    *. Retail banking is generally refers to offering financial services, products related to deposits and  assets to individual customers for personal consumption.  Banks concentrate on various segments like professional, housewives, pensioner, children, salaried class etc. Different types of product like recurring deposit, saving bank deposits, F.D., credit cards, housing & consumer loans are offered by bands of the above mentioned market segments.
     
    Retail Banking - Services Provided

    *. Services provided are :

    • Safe store of wealth
    • Payment mechanisms ( money transmission system)
    • Financial intermediation ( savings and lending )
    • Other wide services such as financial advice, FOREX, share dealing, insurance etc.

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