Banking Awareness Notes For SSC CGL / CHSL / SBI /RBI Exam 2019-20 on : wholesale banking

Wholesale banking refers to the complete banking solution provided by the merchant banks to the large scale business organizations and the government agencies or institutions. To avail the facility of wholesale banking, the companies need to possess a strong financial statement and operate on a large scale. Usually, multinational companies are the clients of wholesale banking.

Features of Wholesale Banking

As the name signifies, wholesale banking operates to serve the large scale business objectives.

  • Large Scale Operations: Wholesale banking majorly meets the enormous financial requirements of the large scale companies and the government.
  • Low Operational Cost: The cost of carrying out transactions and other banking operations is quite low due to a limited customer base and few numbers of transactions.
  • High Risk Involved: The risk level involved in wholesale banking is very high. T the failure of the borrower company can lead to the collapse of all the parties associated with it.
  • Control Over Financial Transaction Monitoring and Recovery: Due to limited customers, it becomes convenient for the banks to monitor the financial transactions and recover the loans and advances.
  • Huge Impact on Non-Performing Asset: If there is delay or default in the repayment of loans and advances provided under wholesale banking, the non-performing assets of the bank increases.
  • High Cost of Deposit: The interest rates paid by the banks on the deposits made by the substantial business entities is high.

Advantages of Wholesale Banking

The following are other benefits of wholesale banking:

  • Provides Extra Safety to Depositors: In wholesale banking, the banks treat the deposited funds with a high level of safety and put the amount in comparatively secured investment opportunities.
  • Low Transaction Fees: The banks charge the transaction fees at a discounted rate for the customers of wholesale banking.
  • Facilitates Large Trade Transactions: It supports the high-value transactions of the companies operating on a large scale.
  • Fulfils Huge Working Capital Requirements: Large business associations require a considerable amount of funds to carry out day to day operations. Thus, wholesale banking accomplishes this need by providing funds for working capital.
  • Lending to Government: These banks even lend funds to the government of the country for carrying out various long-term projects.
  • Provides Cash Management Solution: Wholesale banking also facilitates effective cash management, i.e. acquisition and investment of cash into the right opportunity.

Drawbacks of Wholesale Banking

The transactions of wholesale banking involve a high amount of funds which makes it a complicated affair.

  • High Risk: As we know that the lumpsum transactions take place in wholesale banking, there is a high level of risk involved.
  • Expensive Business Accounts: Maintaining accounts and records is a costly affair in wholesale banking when compared to traditional bank accounts.
  • High-Interest Rates and Processing Fees: The borrower company is liable to pay off high interest and processing fees on loans and advances to the banks.
  • Relies on Stability of Location: When the company deposits a large amount at a single location, i.e. the wholesale bank, there is a risk of loss if the bank faces a situation of downfall.
  • Payment for Unused Services: In wholesale banking, there is always a complaint that the client companies have to pay even for those services which are not used by them.
  • May Lead to Client’s Exploitation: When the borrowed sum is of high value, there are chances that the borrower company may be exploited by the bank.

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