A bank is a financial institution that plays an important role in various economic sectors. Banks accept deposits from customers and pay annual interest on those deposits. Banks use these deposits to make loans to other customers in a variety of ways. The difference between the two interest rates is the bank's profit margin. People feel safer putting their money in the bank, which raises the overall standard of living. The bank pays annual interest on deposits, which aids in the preservation of money's value against inflation.
Banks also offer a service for people wishing to expand and develop their businesses and help people to save and grow their wealth. They even provide financial advice and financial services. Accounts of various types, such as current accounts, savings accounts, fixed deposit accounts, provident fund accounts, and so on, can be established. Banks are taking several steps to protect themselves from risks that they might face in the future. One way is to increase the number of deposits that they have so that they can take out more loans and make more profits.
We can use bank loans and mortgages to buy items that are out of our price range and repay them over time. Many people use such loans, for example, to buy real estate, expand businesses, acquire land, or buy automobiles or cars. These bank loans and business investments are critical to the country's economic development.
And nowadays, credit cards and online payments are used, and liquid money is less used due to technological advancements. Banking purposes vary depending on the type of consumers, such as retail banking, personal banking, or corporate banking. Providing such services requires specific skills, training, and experience. In this given document, we will define and see how the corporate and private banking sector’s function and provide their differences.
Corporate Banking Vs. Private Banking
The banking system today has grown so far and there is an abundance of options for choosing banks. And the offers and deals and money they provide and handle also differ. The best one to choose from a variety of options depends on how we want our money to be handled and dealt with. Of course, different banks provide minorly different offers because of us, consumers. The confusion seems never-ending.
Learning the definitions, functions, offers & deals, and lifestyle expectations of different bank sectors might clarify some things for you.
Corporate and private banking services are most probably provided by large banking companies. But today, most banks, even mid-sized banks, provide such options for their clientele. The main difference between the two sectors is that private banking provides its services to people of high net worth or people with huge sizable assets. But the corporate banking sector provides its services to industrialists, mid-sized companies, real estate investors, and large corporate clients.
The word itself gives out the definitions for both the banking sectors. The term "private" refers to more personal accustomed services rather than a mass-market retail banking system. And the term "corporate" as we all know refers to a large company or group. Both banks provide their clientele with an abundance of choices in their services. Let's dive in deep for more of how each bank functions in & out providing each of their clients whether they be local or international.
Difference between Corporate Banking and Private Banking in Tabular form
|The word gives out the meaning of the banking sector. The corporate banking system provides to a large company, mid-sized companies, real estate investors, international businesses and so on.
|Similarly, the private banking sector refers to banking provided to a person of interest in private. A person who is of High-net-worth. A person having large-scale assets and properties.
|The establishment took place in America after the second world war in the 1950s.
|The private banking sector was established in the UK and Switzerland in the year 1685.
|The corporate banks engage in contributing their services by giving out credit & loan management tips, asset management, capital formation and some other financial advice necessary.
|In the private banking sector, a person having a bank account is given special wealth management tips by an expert in the field, the financial advice on how further they should invest the money for it to multiple.
|The customers are large-scale corporate companies, even small and mid-sized companies can be costumer of corporate banks.
|The customers of private banks are the high-net-worth individuals (HNWIs), such as Ratan Tata, Elon Musk, Jeff Bezos, and Gautam Adani. People have earnings in the millions and billions.
|The company has lots of profitable offers to take from the corporate bank if need be, such as underwriting securities, specialised asset management, detection and fraudulent activity, and even some advice on trading.
|HNWIs get exempted or lower their taxes by diversifying their portfolio. operation of foreign currency, remittance and concierge services, and even performing bulk transactions for customers' finances and loans.
|The loans and credits are available in all the corporate banks for their customers. Different banks provide different interest rates and return policies.
|The loans and credits are given to private banks for tax planning and philanthropy.
|Acceptability of risk
|The risk is involved but is comparatively less than private banking.
|The risk is high as the investment and amount of money involved for an individual are high.
|Various options are provided by different banks.
|The limit of withdrawing money in private banking is 20 lakhs per day.
What is Corporate Banking?
The banking sector which evolves around most businesses and corporate is known as and corporate bank or business bank. The client of corporate banks ranges from small to mid-sized businesses with millions in revenues to large multi-billionaire companies across the country.
Corporate banking was coined in the United States of America to distinguish it from investment banking. Until the Glass-Steagall Act of 1933, which was repealed in the 1990s, most banks offered corporate and investment banking under the same name.
These banks are originators for providing loans to customers. Due to such investment in large companies and corporations, economic growth is increasing. The loan provided to the company is used for company expansion, hiring different people for different jobs. The large loans offered by corporate banks allow a company to stay in business.
The types of account we can have in corporate banking is the same as retail banking i.e., current account, savings account, and fixed deposits. But as we get an annual interest in retail banking no such perk is there in corporate banking.
Some corporate banks have a scheme for high-risk/high profit but the customer should have the courage to take the high risk, and in corporate banking sectors, most businesses and large companies often take the high-risk path. And such banking even provides access to some unregulated hedge funds.
The corporate bank provides cash management software or an app to simplify payment and collection management. They also offer a variety of plans to businesses, such as health insurance, retirement plans, and disability programmes for employees.
Corporate banks offer the following products and services to corporations and other financial institutions:
- Loans and other credit products
- Cash management services
- Equipment lending
- Corporate Real Estate
- Trade finance
- Employer services
- Asset management
- Securities underwriters
What is Private Banking?
The private banking system was first started in Switzerland and the UK in 1685. They are owned by individuals or limited partners. They serve their HNWIs (High-Net-Worth-Individuals) and UHNWIs (Ultra-High-Net-Worth-Individuals) with different functions such as banking, investing, financial support, wealth management, and futuristic interesting ideas.
The idea started in Venice when the first bank started to manage the personal finances of wealthy families. Since then the term "private" referred often stood out from other banking services which served the most common and middle-class families in the region. In the initial days of the private banking sector, it was viewed as high-toned & sumptuous as it only provided services to wealthy people of the region.
As to start an account in a private bank requires $2,50,000.00 which in Indian Rupees to this day is roughly Rs.1,99,65,875.00. This amount is much less than what it used to be in the earlier period which is 2 million dollars. Such private banks are meant for mass-affluent customers.
The other meaning of "private" in the private banking system is secrecy. The HNWIs, by allocating assets & finances or hiding them from tax authorities, minimise their taxes. Many individuals still commit such illegal acts of tax fraud to minimise their taxes by millions.
Most notable private banks all-over world are China's Bank of Communication (1908) & China Merchants Bank, France's Société Générale & Compagnie Financière Edmond de Rothschild, India's AXIS bank, ICICI Bank, HDFC Bank & Kotak Mahindra Bank. And the list goes on of banks in countries like Germany, Italy, Liechtenstein, Netherlands, Switzerland, UK and USA.
Private banks offer the following products and services to corporations and other financial institutions:
- Bank Secrecy
- Offshore trading advices
- Unbiased advices
- Lead Generations
- Copious options for fee structure
- Asset management and/or allocations
- High-end returns fulfilment
- Capital formation
- Tax management
Main Difference between Corporate Banking and Private Banking in Points
- The first and main difference would be a personal bank is for HNWIs and UHNWIs, and a corporate bank is for large companies, organisations and government bodies.
- In a private bank, the financial needs of an individual are satisfied by giving financial services, and loans account handling. In the case of corporate banking, the customer is the company the financial need of the company is satisfied through the same financial services, but the number of people involved differs, and so do the terms of corporate banking.
- Although corporate banking provides the same bank account type as a retail bank account. The individual gets annual interest for the amount deposited in a private bank account, but no such interest is provided in corporate banking. When compared to corporate banks, the number of loans granted by private banks is higher.
- Both the banking system and the amount of money that can be debited have a daily restriction of Rs. 20 lakhs for private banks and a variety of options for corporate banks.
- The scheme provided by the private banking system is of high risk to high profit or moderate profit, but the scheme that is avail to corporate bank consumer are of high-risk high profit.
- A variety of services are provided by each banking sector. The private banking system serves its clients with tax management, offshore trading advice, wealth management, asset allocation, high-end returns, and so on, whereas the corporate banks serve with securities underwriting, corporate real estate, equipment lending, employer service, trading finance, and so on.
- Along with profits come the risk that is to be bear by the consumer. Because the amount of money involved is huge in private banking since all clients are either millionaires or billionaires, the acceptability of risk is highly impactable to clients and even banks. And in the case of corporate banking, the amount of money involved is too comparatively less than private banks but is huge too. As a result, the acceptability of risk is high.
- For cash debiting, the private bank provides credit cards, debit cards, ATMs, and even specialized private platinum credit and debit cards are provided to the most affluent & loyal clients, and on the other hand, the corporate bank provides corporate credit cards and lines of credit.
- With a private banking account, one can do trading and invest in the stock market, companies or organisations cannot do that with a corporate bank account.
The financial sector is one of the most important parts of the global economy – both private and corporate. The corporate and private banking sectors take the deposit of the consumers and later on-lend the loans to those in need. Banking also helps create credit, provide financial advice, facilitate trade and even help in the formation of capital. And in the modern world, consumers increasingly need banks for paying bills. And bank earns incredible profit in lending loans also they can incur a significant cost for the firm.
Both corporate banking and private banking fulfil the needs of their respective consumer in the best way possible. Both sectors have advantages and disadvantages, but they are growing at a rapid pace in these times. Furthermore, customers are given the option of choosing between private and corporate banking. Furthermore, the consumer should have no difficulty determining which type of bank account - savings, current, fixed deposits, wealth management, high-end returns and so on - is required to meet their needs.
Profits & losses, loans, types of accounts, interest rate, cash management & access and insurance are the most important, and basic things we look at when any consumer chooses their choice bank. Understanding the difference in each and choosing the best that satisfies your need is crucial. And due to growth, the technology most banks are operating online which makes it even more convenient and easier on both ends – consumers and bankers.
- Corporate Banking vs. Private Banking | Wall Street Oasis
- Corporate Banking vs. Private Banking: Major Differences | Indeed.com Hong Kong
- Difference between Corporate, Retail, Investment Banking, and Private Banking (managementstudyguide.com)
- Corporate Banking vs. Private Banking: What's the Difference? (cfi.co)