BANKING LAWS

A PROJECT REPORT

SUBMITTED TO ARMY INSTITUTE OF LAW

IN PARTIAL FULFILMENT OF THE REQUIREMENT

FOR THE DEGREE

OF

B.A. L.LB

FOURTH YEAR

2017-2018

DIFFERENCES BETWEEN RETAIL BANKING AND

CORPORATE BANKING

SUBMITTED TO: SUBMITTED BY: JUHI

BHUTANI

Ms RAMNEEK KAUR ROLL NO. 1471

1
 CERTIFICATE:

THIS IS TO CERTIFY THAT I JUHI BHUTANI ROLL NO 1471 HAS WORKED

FOR HER B.A. L.LB PROJECT REPORT UNDER DIRECT AND CLOSE

SUPERVISION. THE PROJECT WORK ENTITILED ‘DIFFERENCE BETWEEN RETAIL

AND CORPORATE BANKING’EMBODIES ORIGINAL PIECE OF WORK DONE BY

ME AND IS A BONAFIDE PIECE OF WORK.

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 ACKNOWLEDGEMENT

I am thankful to everyone who supported me for I have completed my project effectively and

efficiently.

I am equally thankful to my Banking Laws Professor MS. RAMNEEK KAUR who guided

me at every step with the project matter with utmost patience.

Last but not the least I want to thank my friends and batch mates for lending a helping hand

and suggesting ideas for improvement in my project.

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 TABLE OF CONTENTS

1. INTRODUCTION............................................................... 5

2. TYPES OF BANKING.........................................................6-7

3. RETAIL BANKING...............................................................7-8

4. CORPORATE BANKING...................................................8-10

5. DIFFERENCE...................................................................10-12

6. C0NCLUSION.......................................................................13-14

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 RETAIL BANKING V. CORPORATE BANKING

INTRODUCTION-

In a service industry like banking the most important need is naturally the human resource
development . During the early phase of banking development in India after independence the
opportunities for employment of educated manpower were relatively limited. The banking sector
was the preferred employer for the educated persons in the country in addition to civil services .
Certain rigidities have also developed as it is a industry largely belonging to the public sector. With
the entry of new technology in the this sector it has lead to introduction of electronic technology for
transactions settlement of accounts book keeping and all other related functions .1 Those who do
not keep pace with the trend are bound to lose out. In the recent period the imperatives for the
speeding up the modernization of technology and intensifying the use of technology have become
sharper. The thrust is upon the commercially important centres which account for 65% of banking
business in terms of value2. There are now a large no. of fully computerized branches across the
country.

Now there is switch over from cash based transactions to paper based transactions specially
after the Digital India initiative. The developments and use of communication networks has
helped the banking industry to improve the quality of its services. Beginning modestly with leased
line terrestrial technology i.e. the BANKET and its communication software ;the RBI Net;
INFINET; SPNS of ATMs are worth mentioning. Needless to say the payment system plays a
critical role in development of financial institution. In India the design , management , regulation of
electronically based payment systems are becoming the focus of policy deliberations3. But in India
the problem stands on the fact that ‘People of the nation do not understand our banking and
monetary system for if they did there would be a revolution before tomorrow morning’-
Henry Ford. The Indian banking system over the years has not been overtly enthusiastic about
absorption of technological innovations for its operations. In fact the real impetus was provide by
the comprehensive reports of Rangarajan Committees set up by Reserve Bank of India. The Indian
banking industry has undergone a tremendous growth since nationalization of 14 banks in 1969.
Banks are not islands They are an integral part of the society they serve. After discussing so much
about banking the question which arises is what is banking ?

a)Banking is an industry that handles cash, credit and other financial transactions.

1
Bimal Jalan ‘Banking and Finance in the New Millennium Speech delivered at the 22 nd Banking Conference in
New Delhi on 15th January 2001 , The Journal of Indian Institute Bankers.
2
Ibid
3
Dr. B.R. Sharma and DR. R.P. Nainta ‘ Banking law and negotiable instrument , Allahabad law Agency , 3rd
e.d. , pg. 157

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b) As per Section 5(b) of the Banking Regulation Act, 1949 , "banking" means the accepting, for
the purpose of lending or investment, of deposits of money from the public, repayable on demand
or otherwise, and withdraw able by cheque, draft, order or otherwise.

The banking system is a crux of any modern financial country. It is a mechanism through which
money supply is created and controlled.

The structure of the banking system is categorized in various types. When we talk about banks, we
are talking about several different types of financial institutions, conducting different kinds of
business. Some banks are very large and carry out many different functions, others are more
specialised. Some have operated for hundreds of years and some have taken on new kinds of
business quite recently.

TYPES OF BANKING-Not all banks carry out the same range of activities. Banking
activities can be generally divided into the following types:

1. Central Banking-The duty of central banks is to maintain financial stability, otherwise a

country's economy will not operate properly. Central banks act as regulators of their country's
interest rates by controlling the amount of money in circulation and buying and selling currencies.
They amass reserves and act as lenders of last resort, should another bank get into trouble. They
exist as a separate entity from all the other banks.

2.Retail Banking- Retail banks are the high street banks we are all familiar with. They take
deposits from individuals, provide saving facilities and pay interest on these accounts. They also
lend money to individuals, in the form of loans and overdrafts, and charge interest on the money
they lend. They provide a range of other financial services.

3.Commercial Banking-Commercial banks, or divisions of banks, provide banking services to

businesses, from small companies through to corporate banking directed at large corporations.
They help companies raise finance to expand their businesses and to maintain their cash flow by
lending them money. They provide a wide range of other financial services.

4. Investment Banking-Investment banks distribute and underwrite (guarantee the sale of) share
and bond issues; they trade securities on the financial markets and advise corporations on capital
market activities such as mergers and acquisitions. Investment banks originally developed in the
USA and these banks have now taken over many roles that were previously carried out by UK
merchant banks.

6
5.Digital Banking- The ability to manage your finances online from the computer, tablet, or smart
phone is becoming more and more important to consumers. Banks will typically offer digital
banking services that include:
 Online, mobile, and tablet banking
 Mobile check deposit
 Text alerts

6. Para Banking- Para banking activities are defined as those banking activities which a bank
performs apart from its daily activities like withdrawal or deposit of money.Under Para banking
activities banks can undertake activities either departmentally or by setting up subsidiaries.

7.Offshore Banking-When a bank accepts currencies of countries abroad, such an activity is

known as Offshore banking. Sometimes people require more than their local banks can offer. In
such cases, they opt for Offshore banking. It provides financial and legal benefits like privacy and
minimal taxation.

8. Corporate Banking- Corporate banking, also known as business banking, refers to the aspect
of banking that deals with corporate customers.

9.Unit Banking- USA is where such type of banking was first introduced. In such a type of
banking, all the operations are performed from a single branch. A customer having an account in a
specified branch has to undergo all banking activities through that branch.

DETAILED STUDY ABOUT RETAOL BANKING-

Meaning- Retail banking is a typical mass-market banking where individual customers use local
branches of larger commercial banks. They transact directly with the individuals rather than
corporations or business houses.
Services offered include savings and checking accounts , mortgages, personal loans, debit cards,
credit cards.
History- The organised banking services started in 15th Century and 16th century Europe , when
banks began opening branches in commercial areas of large cities . The consolidation of the bank
networks in a integrated manner gave a boost to retail banking. A ready market for mobilization
and development of their funds is an untapped potential for their business. 4

4
R. N. Chaudhary ‘Banking Laws ‘ , Central Law Publications, 2011 e.d. pg 86

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Characteristics- Retail Banking is characterized by three basic features-
a) multiple products
b)multiple channels of distribution
c)multiple customer groups.
Why Retail Banking- The retail banking is there because of many reasons-
a) Changing Customer demographic demands
b) Higher penetration of technology
c)reduction of Cost
d)Market demands and challenges
d)Needs of Individual customers
Five Focus areas of Retail Banking :The focus areas for retail banking are-
a)Imagination
b)Emotional Connection
c)Functional and technical advantage
d)Personalized contact
e)Testing and Improvement
Five Commandments guiding Retail Banking- There are certain commandments which guide
this sector they are-
a) Market offering and positioning
b)Customer relationships
c)Competitor’s study
d)Customer care and feedback
e)Employees satisfaction
Retail Banking Strategies- The strategies adopted by new age banking organizations in India are-
a)Constant innovation in products and services to match the requirement of the customer
segment
b)Quality service and quickness in delivery.
c)Introduction of new delivery channels
d)Detail market research
e)Cross selling of products
f)Business process outsourcing
f)Tie up arrangements
g) Centralized database for branch banking whereby any customer can access his account in
any branch
h)Courier pickup for cheques and demands

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Advantages of Retail Banking- Retail Banking in today’s time helps us in various things like for
example-
a) Retail deposits are stable and constitute core deposits
b)They are interest sensitive and less bargaining for additional interest
c)Retail Banking increases the subsidiary business of banks
d) It results in better yield and improved bottom line for a bank.
e)It is a good revenue for funds deployment.
f) It focuses on Individual small units.
g)The risk is spread and the recovery is good.
Disadvantages of Retail Banking- The flip side to the coin is also present as some of the negative
point regarding retail banking are-
a) Designing own and new financial products is very costly and time consuming for the
bank.
b)This does not allows the bank to exploit the advantage of earning huge profits from single
customer as in a case of wholesale banking.
c)The banks are investing heavily in technology they are not able to exploit the same to the
full extent.
Challenges to Retail Banking- There are certain challenge to retail banking which are as follows-
a) The issue of money laundering is very important in retail banking This forces all the
banks to consider their documents which they accept while approving the loans.
b)Banks are expected to take utmost care to retain the ongoing trust of public
c)Dependency on technology has brought it departments’ additional responsibilities.
d)security level has increased
e)Acute shortage of manpower talent of this specific nature in the modern banking
professional sector.

DETAILED STUDY ABOUT CORPORATE BANKING-

Meaning- Corporate banking is the tailor-made financial services that financial institutions offer to
corporations in the context of corporate financing and raise capital. 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).
History - The term was originally used in the U.S. to distinguish it from investment banking, after
the Glass-Steagall Act of 1933 separated the two activities. While the Act was repealed in the

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1990s, corporate banking and investment banking services have been offered for many years under
the same umbrella by most banks in the U.S. and elsewhere.
Characteristics- The corporate banking segment of banks typically serves a diverse range of
clients, ranging from small to mid-sized local businesses with a few millions in revenues to
large conglomerates with billions in sales and offices across the country. Commercial banks offer
the following products and services to corporations and other financial institutions:

 Loans and other credit products – this is typically the biggest area of business within corporate
banking, and as noted earlier, one of the biggest sources of profit and risk for a bank.
 Treasury and cash management services – used by companies for managing their working
capital and currency conversion requirements.
 Equipment lending – commercial banks structure customized loans and leases for a range of
equipment used by companies in diverse sectors such as manufacturing, transportation and
information technology.
 Commercial real estate – services offered by banks in this area include real asset analysis,
portfolio evaluation, debt and equity structuring.
 Trade finance – involves letters of credit, bill collection, and factoring.
 Employer services – services such as payroll and group retirement plans are typically offered by
specialized affiliates of a bank.

Objectives of Corporate banking- The various objectives of corporate banking are as follows-

a)Maximizing share of wallet with multinationals.

b)Increase customer loyalty and boost CIB’s market share in all sectors through cross-selling
Global Transaction Services (GTS) products.
c)Expand CIB’s loan portfolio with special emphasis on financing medium-sized projects.
d)Enhance the bank’s fee income stream through increasing trade business services.
Advantages of corporate banking- The various advantages of corporate banking are-

 Strong corporate business model.

 Highly experienced staff reinforced by continuous training to keep pace with latest
industrial trends both economically and technically.
 Strong customer base enjoying a healthy and diversified portfolio that is well-positioned in
primary growth industries including, but not limited to: Oil and Gas, Power,
Petrochemicals, Infrastructure, Food and -Agribusiness, Tourism, Shipping and Ports and
Real Estate.
 Ability to provide a wide and innovative array of financing schemes.

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  Broad coverage to include companies with sales revenues above EGP 60 million, thus
establishing a foothold in this untapped segment to create future growth potential.

Disadvantages of corporate banking – The various disadvantages are as follows-

 Corporate banking or business accounts are often more expensive than traditional bank
accounts.
 Banks may charge fees for night deposits, for processing a certain number of checks and
for the payroll services.
 Depending on the size of your business, some of the services offered may not be needed,
and you may still be charged for the services even if you're not fully using them.
 Different banks may offer different services and charge different fees, and it can be
difficult to compare the services. Signing up for a commercial account before your business is
ready for one will cost you and may slow the growth of the business. If you choose the wrong
bank, you may have a difficult time opening a new account and transferring all of the services
to another bank. This can cost you both time and money.

Challenges to corporate banking- Challenges exist as well. A slight majority of respondents (56%)
cite a lack of consistency and quality of services across geographies as the single biggest
complaint. Lack of communication, inconsistent pricing and outdated processes are also frequent
sources of frustration. Steven Lewis, Lead Global Banking Analyst, summarizes the issue:
“Corporations expect that top-tier banks come to the table with a certain depth and breadth of
products and services. The challenge for banks is delivering consistent service quality and pricing
globally. To do so, they must make sure their local teams are communicating and align
compensation to reduce personnel turnover.5

DIFFERENCE BETWEEN RETAIL AND CORPORATE BANKING

Retail banking and corporate banking services are offered mostly by commercial banks who
maintain separate divisions for their retail customers and corporate clients. In some instances,
commercial banks team up with investment banks to provide a number of investment banking
capabilities to their business clients. Retail banking serves the needs of individual customers and
includes services such as accepting deposits, maintaining savings and checking accounts, and
providing loans to individuals for a variety of purposes. Corporate banking serves the needs of
business customers and offers savings accounts, checking accounts, loan facilities, credit facilities,

5
Investopedia staff ‘Retail v. Corporate Banking, http://www.investopedia.com/articles/general/071213/retail-
banking-vs-commercial-banking.asp last accessed on 26th August 2017

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trade finance, foreign exchange, etc. solely for companies and businesses. They are two basic
components of banking industry. The key functions of both the banks are –

Key Functions of the Retail Banks

There are a large number, a variety of products and services offered by most retail banks.
Fundamental services include a quintessential checking and savings accounts, a line of credit like
home mortgages, vehicle loans, personal loans at high-interest rates. Credit cards, remittance
services are a few profitable offering that retail banking presents to its clients.

Needless to say, the financial strength of an individual is the deciding factor in the services that will
be offered to the client. If the client is of high potential then the client might be offered a private
banker, or a relationship manager who will manage their banking requirement, however, if the
client is of modest means would need to perform the tasks themselves either through a teller or
through the technology integrated mediums of transactions offered by most retail banks these days,
like ATM, Online transactions, internet banking etc., to name a few.cz

Key functions of Corporate Banks

One of the ways that corporate banks can ensure profit is by sanctioning loans and other products
of credit, which become a key factor in corporate banking. Managing the cash flow or the working
capital of the corporate, with Treasury and currency conversion requirements is another area of
function. Corporate banks also structure and customise loans managing the expansion needs to
businesses such as offering equipment loans for the manufacturing clientele. Trade finance, bill
collection, credit letters and payroll are common tasks handled by this sector for the companies
they are representing. Some banks might also offer commercial real estate analysis, portfolio
evaluation, debt and equity structuring as well. Through the commercial banking intervention,
banks might also offer asset management to their clients.

Most large banks have a separate division to handle the retail and corporate function as both these
function guarantee as great profit centres.

The existence of both the wings of banking is essential for the healthy functioning of local and
global economies. While one brings in deposits from personal customers (Retail Banking), which
in turn enables corporate banking to offer expansion assistance to companies, further leading in
creating jobs and aiding the expansion of economies.

Highlights of Retail Banking-

 Retail banking is a part of bank that directly deal with consumers or individuals, located
in the nearby city

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  Retail banking is an activity done by bank with the customers face to face.
 Retail banking is clear or visible face to the consumer.
 Retail banking is also named as Consumer banking or Personal banking.
 It includes the services like savings account, current accounts, different types of loan,
mortgages, debit and credit card, retirement planning, certificate of deposit etc.
 For retail banking, customer deposit is the most important source of fund.
 Retail bank makes profit from the interest margin of the lender and borrower
transaction.
Highlights of Corporate Banking-

 Corporate banking only provide services to the large business corporations and business
groups. 6
 Corporate banking first used in United States of America to differ it from the
investment banking.
 Corporate banking is also known as Business banking.
 In short corporate banking is a one type of segment that caters service to the range of
clients from big corporate firm to mid-scale company.
 Corporate banking earn profit from interest and fees they charge for services.
 Corporate banking provide services like saving account, current account, loan facility
like secured and unsecured and credit facility to corporate.
 It also offer some more services like Trade finance, Foreign exchange, Custody, and
Derivatives.
 In short it offers a services that are tailor-made to corporate firms.
Summary7

BASIS RETAIL BANKING CORPORATE BANKING

Small number of clients as compare to

Number of clients Large number of clients
retail banking.

Cost Low processing cost High processing cost

Relationship Medium level of relations High level of relations

Transactions lower value transactions Higher level value transactions

6
Retail Banking v. Corporate Banking, Published on 26 th June 2017,
http://www.bankexamstoday.com/2017/06/retail-banking-vs-corporate-banking.html last accessed on 31st
August 2017
7
Ibid

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 CONCLUSION-

The falsity of the well known lines by Kipling is becoming more and more apparent everyday. The
two world wars and the developments which followed them have played a significant role in
throwing the west and east in each other’s arms in regards to the banking sector. Now the times
have changed ‘Times change and we with time’ has allowed us to keep pace with the new trends
of other countries but yet the under developed countries are still not equipped with all the facilities
as that of the developed countries. There was a time when India’s banking sector used to be
confined only to the metropolitan areas . Today the mushroom growth of banks have reached the
remotest areas of the country and catered to all needs of section of society. In the banking sector the
introduction of the electronic technology for transactions, settlements of accounts, book keeping,
and all other relevant functions is now an imperative . Increasingly we like it or not the trend is
going on to all banking transactions being electronic and those who do not keep pace with it are
bound to lose out. Monetary policy of the country is directly related to the economic development
of the country and is controlled by Government and Reserve Bank of India. Commercial banks play
a major role in banking system. In present scenario banks are considered blood vessels of the
country . If it is properly controlled heart will function smoothly otherwise will be a danger to
life . Both types of banking play an important role for the smooth functioning in an economy. Both
offers services related to the segment oriented. They design service keep in mind the need of the
clients.

PRESENT SCENARIO :- The Indian retail banking has shown a tremendous growth . in 2004-05
42% of credit growth came from retail. Over the last 5 years CAGR has been over 35%. Retail
credit level crossed 189K Crore in 2004-05 . Market has transformed into a buyer’s market from a
seller’s market . With the advent in technology and more and more people depending on
commercialization and online transactions involving offshore transactions the problem of bad loans
and identity thefts is becoming rampant. The bankers have to deal with a large number of matters
as they serve as custodian of stock shares and other valuable finances8 of the govt but the people
not providing adequate commitment for the same is proving to be quite hefty for the bank. In the
financial stability report released by RBI as at end of June 2016, it is expected that gross bad loans
at commercial banks in India could increase to 8.5% by March 2017, from 7.6% as compared to

8
Tannan’s ‘Banking Law and Practice in India , Lexis Nexis Butterworth, Vol. 1 , 22 nd e.d. pg 18

14
March 2016 9 Government of India and commercial strive hard to clean the balance sheet of banks
with positive bottom line. It is a big challenge for the Indian banking sector to curb the NPA’s and
at the same time clean the balance sheet. The present government from time to time was mulling a
mechanism to solve the bad loan issue. Allowing banks to acquire core sector assets (steel, power
& shipping) and ask state run companies to manage them is another measure thought off by the
government. The NPAs are increasing which will lead to a catastrophe in the, mainly the
government owned banks. The only way it looks like is to find sufficient capital to fill-up their
resources.10

SOLUTION - The message is quite apparent. Balance sheets needs to be cleaned, stringent
measures are required particularly in the public-sector banks. It is the right time for government to
think about its privatisation strategy as far as state-run banks are concerned and let them freely
compete in the market.

8.Indian Commercial Banks & their Current Scenario posted in finance articles ,
http://www.mbaskool.com/business-articles/finance/17183-indian-commercial-banks-a-their-current-
scenario.html last accessed on 31st August 2017

10
Ibid

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 BIBLIOGRAPHY
BOOKS-
1. Tannan’s ‘Banking Law and Practice in India , Lexis Nexis Butterworth, Vol. 1 , 22nd
e.d.

2. R. N. Chaudhary ‘Banking Laws ‘ , Central Law Publications, 2011 e.d.

3. Dr. B.R. Sharma and DR. R.P. Nainta ‘ Banking law and negotiable instrument ,
Allahabad law Agency , 3rd e.d.

ONLINE SOURCES-

1.Indian Commercial Banks & their Current Scenario posted in finance articles ,
http://www.mbaskool.com/business-articles/finance/17183-indian-commercial-banks-a-their-
current-scenario.html last accessed on 31st August 2017

2. Retail Banking v. Corporate Banking, Published on 26th June 2017,

http://www.bankexamstoday.com/2017/06/retail-banking-vs-corporate-banking.html last
accessed on 31st August 2017

3. Investopedia staff ‘Retail v. Corporate Banking,

http://www.investopedia.com/articles/general/071213/retail-banking-vs-commercial-
banking.asp last accessed on 26th August 2017

16