Wholesale Banking - Definition, Advantages, Disadvantages

What is Wholesale Banking? Wholesale banking refers to the banking services offered by banks to larger customers. The customers are various entities and the list is given below.

  1. Mortgage banks
  2. Commercial Banks
  3. Large Corporations
  4. Mid-sized Companies
  5. Real Estate Developers and Investors
  6. Institutional Customers
  7. Government agencies

Wholesale Banking includes currency conversions and large-scale transactions. Wholesale banking is also called corporate banking or commercial banking, as opposed to retail banking which involves small customers like individuals.

This article aims to discuss in detail the concept of wholesale banking which holds relevance for various competitive exams as well as the IAS Exam.

Wholesale Banking Services

  1. Specialised Finance.
  2. Loan Syndications.
  3. Structured Transactions.
  4. Securitisation.
  5. Credit Structuring.
  6. Public Sector Infrastructure financing.

Advantages of Wholesale Banking

  1. There is additional safety for depositors.
  2. Lending to Government to carry out long term projects with heavy investments.
  3. Better Cash management.
  4. Massive working capital requirement of large businesses can be fulfilled.
  5. Customers of wholesale banking have the advantage of having lower transaction fees.
  6. It will help companies have transactions on a large scale.
  7. The major advantage in wholesale banking is that a client can have easy and one-place access to all its finances and their details. This makes internal stock transfers, fund transfers, allocations and distributions simpler.

Disadvantages of Wholesale Banking

  1. Interest Rates are very high.
  2. Processing Fees are also very high.
  3. Have to pay for services even if they are not availed.
  4. It is expensive to maintain accounts and records.
  5. Risk of large scale loss if the bank closes down.
  6. Wholesale banking increases the risk it poses to the clients as all their funds are parked in one institution and the businesses depend on the financial health of the bank for a smooth run.
  7. In cases of economic downturns, if the banks crash, all the dependent businesses come to a standstill instantly.

Thus, businesses usually diversify into several financial institutions to remain afloat during any crisis.

Aspirants can check the following relevant links to assist their upcoming UPSC Exam preparation –

Wholesale Banking in India

Some of the major banks in India, involved in Wholesale Banking are given below-

  1. State Bank of India (SBI)
  2. ICICI
  3. IDBI Bank
  4. Punjab National Bank
  5. Bank of Baroda
  6. Central Bank of India
  7. Bank of India, etc.

The status of Wholesale Banking in India is as follows –

  1. India presents a strong case for the growth of wholesale banking due to the continued globalization of Indian companies.
  2. India is seen as a favourable investment destination, with increasing infrastructure spending, robust markets, stable government and currency, low deficits, etc.
  3. Wholesale banking thus comprises a major share of the banking revenues due to the above factors and also due to an increased inclination of government towards mid-segment companies which have increasing banking requirements.
  4. Even in wholesale banking, it is corporate banking that comprises a lion’s share i.e. about 85%. Likewise, with the rebound of the economy and a positive outlook, the possibility of growth in investment banking, M&A etc. is highly likely.

Wholesale Banking- UPSC Notes:- Download PDF Here

The above details would help candidates preparing for UPSC 2021

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