The Pros and Cons of Commercial Banking

Editor - CoolAvenues | January 04,2014 04:08 pm IST


Lending, borrowing, risk and returns – this is what commercial banking is all about. Take deposits from customers, lend them out to businesses or even back to the same customers for that odd car loan and you are in business.

If you want to add further value, provide other services like credit cards, cash management and custodial services.

The Indian commercial banking industry, for long dominated by nationalised banks and a few large foreign banks is now coming of age, with new aggressive private banks entering the market and relaxed regulations providing a favorable atmosphere for launching new products and services.



1). Deregulation:

Over the past ten years, commercial banking activity has witnessed a fair amount of deregulation. The Reserve Bank of India no longer dictates the day to day working of the banks and prefers to play the part of a watchdog. The easing of controls has led to increased competition in the industry, with banks vying with each other to provide new products and better service to their customers.


This has implications on the nature of jobs that banks now offer and the kind of people they recruit. The days of comfortable 9 to 5 jobs in foreign banks with assured promotions are over. From being conservative and risk-averse, banks now aim at quick market entry and aggressive pricing. New products being launched and are being promoted in a more organized manner with increased importance being placed on banks’ perception in the marketplace.


2). New Players and Mergers:

A number of private banks have entered the fray and are providing stiff competition to foreign banks who have enjoyed premium pricing because of superior service. The recent acquisition of TimesBank by HDFC Bank and the buzz on impending mergers is will lead to consolidation in the industry, and lead to the formation of large banks. This change in structure of the industry will increase the level of competition, and banking should be an exciting place to be in.


3). Technology

In India, commercial banking activity has traditionally not been very dependent on technology. The only banks having good banking platforms were the foreign banks who enjoyed a competitive edge in providing fast and efficient service to customers, thereby charging premium prices.

With the cost of technology coming down, and access to fast and reliable telecommunication networks becoming much easier, the way banking will be done is set to change radically. The concept of brick and mortar branches is increasingly giving way to ATM networks, electronic banking and banking over the internet.

This is by far the most exciting development in commercial banking and most commercial banks have realised that if they do not open out their systems for servicing customers electronically, their survival may be at stake. The increased use of technology in banks requires individuals who are not only comfortable with technology but can also find ways of applying technology in providing new services and improving processes.


 4). Types of Jobs Going Around

Since banks offer a variety of products and services, it is important to be clear about the kind of career that one is looking for. Categorized below are the kind of jobs that one can expect in commercial banks. Most banks recruit separately for different streams of banking, though movement across functions is possible.


a). Retail Banking:

Jobs in retail banking include customer services, branch operations and product development. An entry level MBA can expect to be assigned a medium sized branch as a branch manager, or as head of a department supporting retail bank activities. For branch management jobs, good communication and selling skills would be an advantage. In most banks, this is the thrust area as an aggressive and efficient branch network is a prerequisite for gaining customers. As corporate banking becomes increasingly competitive, this is the area where most banks are looking for maximum returns in the medium term.

With a much greater diversity of products that a branch can now offer, this job calls for good product knowledge and cross-selling skills. It also calls for exceptional people-management skills as this is a front-line job, exposed the customer complaints and requests.

Both foreign and private banks offer meaty branch management jobs with a high level of business development orientation.

Among the foreign banks in India, major players in retail banking are HSBC, Standard Chartered, ABN Amro and ANZ Grindlays. HDFC Bank (including TimesBank), ICICI Bank and Global Trust Bank are the aggressive private sector banks into retail banking.


b). Corporate Banking:

This involves lending to businesses who want to meet their working capital as well as long term capital requirements through loans from banks. Jobs in corporate banking are relationship management, with a relationship banker typically looking after a number of accounts. Responsibilities include analyzing the financials of the customer, determining the quantum and nature of loans required, assessing the risk and monitoring the performance of the company on and on-going basis. Good financial analysis and risk assessment skills are as important as communication and selling skills as competition in this segment has traditionally been stiff. However, with increasing levels of disintermediation being witnessed, larger banks are also shifting their focus to the mid-market corporate segment, which offers the highest potential for growth in the coming years.


c). Treasury and Asset Management:

All commercial banks have treasury departments to manage their liquidity, interest rate risk and foreign exchange risk. Relatively few in number, these jobs are typically high pressure, high risk activities and carry a much higher remuneration package. Recruitment for these is often done separately. Banks look for a good understanding of macro-economics, working of financial systems and risk management skills while recruiting for these jobs.



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