What is Corporate Banking? Corporate banking is a significant division of commercial banks. This is a relatively new concept that has been adopted by many banks. This article explains Corporate Banking with its topic of Meaning, Definition, Characteristics, Bank list, Difference, Importance, and Advantages. Corporate banking is a subset of business banking that involves a range of banking services that offer only to corporates. The services include the provision of credit, cash management facilities, etc. Many business owners may go as far as using a different bank for their corporate account to ensure funds are not being muddled up. Furthermore, most companies require that you open a corporate account for the value proposition of your business to become valid.
Here are explain Corporate Banking: Meaning, Definition, Characteristics, Bank list, Difference, Importance, and Advantages.
Corporate banking also refers to business banking that identifies with the items and services that include loaning or credits between the bank and the bank’s client. The corporate banking segment of banks typically serves a diverse clientele, ranging from small-to-mid-sized local businesses with a few million in revenues to large conglomerates with billions in sales and offices across the country.
Definition of Corporate Banking:
By ICICI Bank, “They offer corporates a wide range of products and services, the technologies to leverage them anytime, anywhere and the expertise to customize them to client-specific requirements. From cash management to corporate finance, from forex to acquisition financing; they provide you with end-to-end services for all your banking needs.”
According to my accounting course as;
“Corporate banking is the tailor-made financial services that financial institutions offer to corporations in the context of corporate financing and raise capital.”
What is the definition of corporate banking? Typically, corporate banking is a specialized division of a commercial bank that offers various banking solutions; such as credit management, asset management, cash management, and underwriting to large corporations as well as to small and medium-sized enterprises (SMEs). Corporate banks might be offering similar services to retail banks; however, the major distinction is the clientele and the amount of money and profit involved.
Characteristics of Corporate Banking:
The following characteristics of corporate banking below are;
- Clientele or Customer: A bank’s business banking unit usually serves small to middle-sized businesses and large conglomerates.
- Authority: A company’s corporate banking accounts can only be opened after obtaining consensus from the board of directors of the company. It means that they must authorize by an official vote or a corporate resolution. As well as, the company’s treasurer usually opens corporate accounts.
- Liability: Since companies are recognized as separate legal entities under the law, all contents of corporate accounts are the property of the company and not of the individual board members. It means that there is a certain degree of independence to corporate accounts. It also indicates that the personal creditors of the board of directors are not entitled to the contents of the corporate account of a company.
- Credit rating: The conduct or functioning of the corporate account forms part of the credit history of the company. It affects the valuation and share prices of the company, the interest rates applicable to loans extended to the company, etc.
- Bankers: Corporate banking requires a degree of expertise in the industry. Thus, corporate bankers are extremely well paid. JP Morgan Chase, Bank of America Merrill Lynch, and Goldman Sachs are some of the largest commercial banks in the world.
Bank list for Commercial and Corporate Banking in India:
The following bank list by NSDL below are;
Bank Name (A-Z): Allahabad Bank, Andhra Bank, Axis Bank, Bank of Bahrain and Kuwait, Bank of Baroda – Corporate Banking, Bank of Baroda – Retail Banking, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, City Union Bank, Corporation Bank, Deutsche Bank, Development Credit Bank, Dhanlaxmi Bank, Federal Bank, ICICI Bank, IDBI Bank, Indian Bank, Indian Overseas Bank, IndusInd Bank, ING Vysya Bank, Jammu & Kashmir Bank, Karnataka Bank Ltd, Karur Vysya Bank, Kotak Bank, Laxmi Vilas Bank, Oriental Bank of Commerce, Punjab National Bank – Corporate Banking, Punjab National Bank – Retail Banking, Punjab & Sind Bank, Shamrao Vitthal Co-operative Bank, South Indian Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of India, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, Syndicate Bank, Tamilnad Mercantile Bank Ltd., UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank, and Yes Bank Ltd…
The Difference Between Retail Banking And Corporate Banking:
Retail Banking and Corporate Banking make up for the two very essential components of the field of finance. While retail banking mainly deals with individual customers, corporate banking focuses more on the corporate world. Apart from these, there are quite a few other differences between the two that will highlight in this article. The following difference between Retail and Corporate Banking provides and reference by medium.com below are;
Very popularly known as consumer banking or personal banking, retail banking consider being the more visible face of banking of the general public. The most vibrant character of this branch is the presence of numerous bank branches all over the major cities. Usually, there is no, one specific bank which only focuses on catering to the needs of the general public, usually, banks have branches that specialize in this field. Whereas on the other hand, corporate banking very popularly knows as, business banking. It is meant to highlight that aspect of banking, which solely deals with corporate customers. This type of banking popularly knows to be the key profit center, for most banks in the USA as well as other nations.
In terms of products and services, both branches differ widely. While on one hand, retail banking offers several services like checking and savings accounts, certificates of deposit and Guaranteed Investment Certificates, Mortgages on residential as well as investment properties, automobile financing, credit cards, lines of credit, foreign currency and remittance services. Apart from these services, there are a few more targeted services, that generally offer through another division; or, an affiliate of the bank like, stock brokerage, Insurance, Wealth Management, Private Banking and so on.
On the other hand, the corporate banking segment of the banking sector usually says to deal with clients on a varied scale. Here the clients usually range from small to mid-sized local business firms, to huge conglomerate with billions in the sale. It is the commercial banks, which usually offer a range of corporate banking products and services like, loans and other credit products, which is by far the biggest area of business for corporate banks. Other services include treasury and cash management services, equipment lending, treasury and cash management, commercial real estate, trade finance, employer services and so on.
While these two branches may have their differences, they are equally important for the economy, both on a domestic as well as a global level. Retail Banking usually is responsible for bringing in, large customer deposits, that enable banks to make loans to their retail and business customers. Whereas on the other hand, it is the commercial banks, which help in making the loans to enable businesses to grow as well as hire more people, thus in a way contributing to the economy of any particular country. Despite their differences, both of these fields highly prefer as career options, by several finance aspirants. To get their dream career and jobs, a lot of candidates go a step ahead and seek to get industry-relevant education, by opting for several certification programs, offered by Imarticus Learning.
Need and Importance of Corporate Banking:
The following need and importance of corporate banking below are;
As a start-up, it is vital to account for every naira to effectively help you track your business activities and analyze what expenses to cut down on, what areas need more investing; what revenue stream yields the highest income, and so on. It is also important to keep all invoices and receipts, to account for every business transaction carried out using the corporate account.
How your business funds manage, directly impacts the corporate image of your company. If you are writing a check to a supplier or receiving money from a customer, checks or deposits need to address to your business name. Additionally, it will be a hassle managing the inflow or outflow of cash; if your business and personal finances do not keep separate.
With a business account, you may choose to allocate money to pay employees as your staff increases in size. You can also use your corporate account to partner with other businesses, or use it for mass payments. Whatever the case is, it is convenient to transact transparently to monitor growth in your venture.
As a start-up, potential investors must perceive that your venture is running smoothly and effectively. Whether it is a bank loan or a private equity investment you are aiming for; opening a corporate account will increase your chances of accessing loans. This is because your investors can better track how the business has been running to date; before making any long-term commitments.
When your start-up becomes operational; there is a need to open a corporate account to keep your accounting transparent for external auditing. It will determine whether or not you should be paying taxes to the government. It will also help auditors to determine the precise amount of taxes your business should be paying; based on the net profit being generated by your company.
Bills of Exchange:
Companies often use bills of exchange for accounts receivables and account payables purposes. For instance, if company A agrees to pay company B at a later date, they could sign a bill of exchange for the same. Company A can then take this bill of exchange to the bank to getting the bill discounted.
Advantages of Corporate Banking:
The following advantages of corporate banking below are;
It is a segment of financial services necessary for corporations, like funding, capital structure, allocation of finances and more. It is largely related to financial planning and how finances must be implemented at various stages of the business. The basic function of a bank is giving credit to its customers. It doesn’t just end there. It is the process that covers various stages from granting credit to its recovery.
Credit management also includes setting up the terms and conditions; the policy of agreement, analysis of risk factors and other related functions. In simple words, this segment takes care of the money owned by corporations or individuals. This segment of corporate banking directs and decides where to invest the money. Management of cash flow of the corporates is one of the key functions of corporate banks.
This segment ensures efficient collection, distribution and investment of cash in an organization. It ensures efficient implementation of resources and various other financial operations. Also, Corporate banking involves a specialized loan department that oversees the process of granting loans to the corporation; compliance with the credit regulation policies, and other management-related functions. The loan department of corporate banks must ensure that they must maintain the bank’s profit.