Wholesale banking refers to the banking services offered by banks to larger customers such as institutional customers, huge companies with strong balance sheets, government agencies, local governments, and pension funds etc.
It is also called corporate banking or commercial banking, as opposed to retail banking which involves small customers like individuals.
The services provided under wholesale banking include – large trading transactions , currency conversion, underwriting, consultancy, loan participation, merchant banking, trust services and merging, etc.
FEATURES OF WHOLESALE BANKING
- High Cost of deposit – The interest cost paid by the bank on depositing the money by these companies is high.
- Low operational cost – Since the volume of transactions and customer base is limited in wholesale banking the cost of carrying out transactions and other banking operations is quite low.
- High Risk involved – In Wholesale banking, the risk factor is quite huge. If the borrower company gets dissolved, then the associate parties and workers are also failed.
- Large scale operations – It mainly aims to fulfill the financial requirements of companies operating on large scale and the government.
- Easy recovery of loans and advances – Due to limited customer base the banks can easily monitor the financial transactions and recover the loans and advances.
FUNCTIONS OF WHOLESALE BANKING
The various functions performed by wholesale banking are listed as below –
- Accepting Deposits : Wholesale banks accept deposits from large companies and provide high interest on the deposited funds.
- Making Advances : The primary function of wholesale banks is to provide loans and advances to large scale business entities.
- Creation of Credit : The wholesale banks increase the flow of funds in the economy by initiating loans and deposits by the government and large scale companies.
- Fund Management : The wholesale banks play an important function of managing and handling the funds deposited by the clients in an adequate manner.
- Trust and Consultancy services : The wholesale banks also provides trust building and consultancy services to their customers.
- Underwriting & mergers and acquisitions : The wholesale banks also act as underwriters on behalf of their clients and help in raising capital for their projects. Apart from this, these banks facilitate the merger of two or more companies across the globe and also the acquisition of one business unit by the other is organization.
Thus, Wholesale banking is a complete solution to all the banking requirements of large scale companies having high turnover and net worth and help in facilitating the smooth transfer of funds, proper allocation and investment of excess capital & internal stock transfers.