Corporate banking

Commercial banking

• Commercial banking has conventionally been the backbone of banking. Banking was
created to conduit idle resources in households to fruitful purposes in business.

• Over the long period of time that banking has been in subsistence, the nature of
products provided to commercial customers has undergone a gigantic change.

• Several new types of products have been introduced in response to the changing
demand in the marketplace and certain old products have turned into obsolete.
 Commercial banking

Some of the products that are currently offered by banks to their commercial
customers are as follows --
• Industrial Loans
• Project Finance.
• Syndicated Loans
• Leasing
• Foreign Trade Financing
• Bills of Exchange
 What is Corporate Banking?

• Provides Corporate Finance advisory, structured finance, and the extension of capital to
corporate clients

• Corporate Bankers are coverage officers who are the primary point of customer contact
(aka “Relationship Managers”). Corporate bankers are responsible for:
o forming trusted advisor relationships with clients
o developing integrated financing strategies to satisfy complex client financing needs
o providing innovative intellectual and financial capital to clients

• Corporate Bankers partner with Investment Banking and product groups such as
Capital Markets, Derivatives, and Cash Management/Treasury groups to provide the full
spectrum of banking services to clients
Corporate Banking

• The Corporate Banking product offering is focused on debt and other

corporate finance products:

Investment Corporate
Banking Banking

Structured Cash Management /

M&A Equity Debt
Products Treasury

• Strategic • IPOs • Debt • Receivables • Cash

Advisory • Follow-On Issuance Securitization management
• Divestitures Issues • Acquisition • Asset Based • Securities
• Acquisitions • Preferred Finance Finance Services
• Convertibl • Bilateral & • Project Finance • Trade
es Syndicated • Synthetic / Finance
Loans Leveraged • Investments
• Derivatives Leases • Agency &
• Commercial • Commodities / Trust
Paper FX • Corporate
• Hybrids/ • Equity Cards
Convertibles Derivatives
• Pensions
Corporate Banking

• For large multi-national corporations, corporate bankers primary

contacts in a company are the CFO and Treasurer

Coverage Product Offering

Board of Directors
Strategic and Financial
Advisory
Investment
CEO
Banker

CFO

Capital Structure Management

Treasurer
Corporate
Banker
Assistant Treasurer

Cash Management and

HR Ops other Treasury Products
 Corporate banking

Expectations of Corporate Customer

• Smooth operation
• Time honored financial support on liberal terms
• Personalized services
Corporate v/s Retail Banking
 Corporate v/s Retail Banking
Corporate Banking
• Small number of customers
• Narrow client base
• Large value transactions
• Large number of transactions
• Inter-bank transactions
• Larger sum of money
• Inter-bank markets
• Funds for business undertakings
• Low cost of processing
• Bank has Lower spreads
Retail Banking
• Mobilization of deposits for individuals
• Lending to small business and retail local markets
• Large volume and low value transactions
• Liabilities are mostly related to various types of
deposits accounts
• Loan portfolio is dominated by the consumer
loans
• High processing cost
• Higher interest spread
 Corporate v/s Retail Banking

Corporate Banking Retail Banking

• High level of customer relationship

• Moderate level of customer relationships
• Range of options with high technology
• Concept of a personal banker component
• Close attention and quick service to • Value differentiation comes from
customer service
customers
• Dedicated, highly professional employees
• Each customer has unique requirements at junior and middle management level
value differentiation
• Custom solutions and total service
• Product needs to be well defined, easily
approach serviceable and potentially profitable.
 Why Good Customer Service is Important
• Customer retention is far less expensive than customer acquisition
• Existing customers are more likely to buy from you than new customers
• Great customer service results in a reduction of overall problems
• Excellent customer service improves public persona and strengthens your brand
• You're more likely to retain your customers for longer
• Word-of-mouth advertising is the best kind of advertising that money can't buy
• It improves employee turnover in your business
• Great customer service opens doors for new partnerships and other opportunities
• It conveys strong moral values and beliefs in the company's mission
• It elongates the life of any business
 Why Good Customer Service is
Important
• Today’s digital savvy customers have a world of banking options available at a tap of their
phone – and they are ready to change banks if they don’t get the experience they desire .

• Keeping on top of what customers want is clearly crucial to acquiring a new customer and
retaining existing ones in an environment of high switching and low loyalty.

• When financial institutions understand what their customers really want, banks and
customers both win.
 Why Good Customer Service is
Important
When thinking about the Future Banking Ecosystem keep in mind the following top
five things customers want from their bank

• Customers want banking to be easy

• Customers want options for how they bank
• Customers want responsive customer service
• Customers want to be better understood
• Customers want great value from their financial products and services
 Factors influencing the Bank-Corporate
Customer Relationship
Component Sub-factors
External Environment Economic factors, such as:
• Competition in the customer’s industry
• Competition in the banking industry
• Interest rate
• Inflation
• Business cycle
Technological factors, such as:
• Communication networks
• Technology adoption in banking industry
Legal/ political environment, such as :
• Political stability
• Regulations on business
• Policies related to banking
 Factors influencing the Bank-Corporate
Customer Relationship
Component Sub-factors
Atmosphere of the Power / Dependence (of one party relative to the other party)
Interaction Cooperation / Conflict (between the two parties)
Trustworthiness (perceived reduction in risk and uncertainty)
Interaction Process Information exchange
Business exchange (e.g. financial transactions)
Social exchange between the personnel of the bank and the corporate
customer
 The Partnership-Relationship Lifecycle

• The early stage --- building relationship keeping in mind its own set of objectives.
• The development stage --- transactions happening and allotment of relationship
officer
• The long term stage --- characterised by mutual trust, loyalty and satisfaction.
Building enduring relationship.
• The partnership-relationship stage --- A sense of mutual interdependence
develops.
 Benefits of Partnership Relationship

1. Development of sense of interdependence

2. Demand for the bank’s product offerings becomes less sensitive to price
changes.
3. Cross selling of more products to same client. Corporates gaining access to
more products at favourable terms.
4. Ability of client to leverage relationship in getting instant credit in case of
contingencies.
 The Product Mix

• Liability Products
• Asset Products
Liability and Asset Products in Corporate
Banking
Product Category Products Details if any
Liability Products Salary accounts
Current accounts Roaming current account
Escrow current account
Customised current account
Fixed deposits
Payment cards
Liability and Asset Products in Corporate
Banking

Product Category Products Details if any

Asset Products Trade Finance Export Finance
Import Finance
Corporate Finance Working Capital Finance
Structured Products
• Dealer Financing
• Vendor Financing
• Long-term Financing
• Brand Financing
• Transporter Financing
• Securitisation
Project Finance and term loans Project-specific loans
Long-term loans
Medium-term loans
 New Product Development & Innovation

• New Product Development

• Categorization of new products --- introduction of credit cards,
customization, targeting SMEs
• New product adoption – ex. brand financing
 Other Innovations in Bank Marketing

Type of Innovation Examples

Operations innovation Digitization of documents
Use of CRM software applications
Media innovation Use of the Internet as a promotional medium
Pricing innovation Discounted pricing for bundled products, for e.g., equipment
financing with insurance cover
Delivery innovation Electronic fund transfer
Electronic data interchange
Web based banking
 Pricing

Pricing Factors
• Cost --- Fixed costs and variable costs as well as risk involved in lending
• Competition --- Three pricing strategies --- Price skimming, Price penetration and
Price parity
• Customers --- Attributes of the customers --- bargaining power, credit rating, priority
sector classification.
Perception about bank (good brand) and value added services
• Constraints --- RBI regulations and government policies
 Promotion

1. Personal Selling
2. Advertising --- Print media --- newspapers, magazines, journals etc.
Electronic media --- television, radio and internet
3. Public Relations --- It focuses on providing publicity to bank, improving public image and
overcoming any negative image it may have
Press releases, annual reports, seminars, in house magazines & newsletters, CSR
initiatives, event sponsorships etc.
4. Sales Promotion --- incentives for buying / using products. Internal promotions (incentives
and promotion to employees), performance linked bonuses.
 Distribution

• Bank Branches and Direct Sales Force

• Internet Banking and Phone Banking
 The SME Segment

Factors Influencing Bank Lending to SMEs --- considered as highly risky businesses due to
• Insufficient credit information
• Inadequate credit appraisal
• Poor risk management
• Poor repayment records
• Limited market power
• High share of intangible assets
• Low market credibility
 The Changing Scenario

• Shifting of banks’ focus to SME sector

• Innovative products for SME sector
• Development of credit rating mechanism by NSIC (National Small Industries
Corporation)
• RBI guidelines for one time settlements of SSI-related NPAs.