Merchant Bank is an entity that performs different types of financial activities for its clients. This bank does not provide any regular banking services to the general public. They manage international finances and provide services like raising funds, providing financial advice to businessmen, etc. There is an exposure to high risk in this type of banking. Popular merchant banks of repute include Citibank, HSBC, etc.
Wholesale bank provides banking services to other institutional customers, big companies with strong balance sheets, government agencies, etc. These do not provide services to individual people and small companies. It also includes lending and borrowing among banks and huge financial institutions on a very large scale. There is a low risk in this banking if compared to Merchant banking. Popular wholesale banks include ICICI Bank, Canara Bank, etc.
Merchant Banking vs Wholesale Banking
The main difference between Merchant bank and wholesale bank is that merchant bank manages international services and also provide services to many businessmen whereas wholesale bank provides services to institutional customers, big companies.
Comparison Table Between Merchant Banking and Wholesale Banking (in Tabular Form)
| Parameter of Comparison | Merchant Bank | Wholesale Bank |
|---|---|---|
| Concept | This is a bank which works on commercial loans and investment. These were the first modern banks. | This is the supply of services by banks to real estate developers, big companies, investors, and etc. |
| Risk | There is an exposure to high risk in this type of banking. | There is comparatively a low risk in this type of banking if compared to Merchant banking. |
| Deals with | This bank deals in international finances, buy and sells shares, stock exchanges, etc. | This bank deals with large multinational firms, the corporate sector, the public sector, etc. |
| Best Advantage | They have access to traders, and markets that a company or individual could not possibly reach. | They provide extra security to depositors and also on low transaction fees. |
| Example | 1. Yes Bank 2. Bajaj Capital Ltd. 3. Tata Capital Markets Ltd. | 1. Bank of India 2. ICICI Bank 3. Canara Bank |
What is Merchant Banking?
These are those banks that provide services including loan services, fundraising activities, and financial advice to businessmen and corporate sector individuals. This bank does not provide any regular banking services to the general public. They manage international finances and provide services like raising funds, providing financial advice to businessmen, etc. Popular merchant banks of India of repute include Yes Bank, Axis Bank, etc. Popular banks of Internationally includes JP Morgan, Goldman, Citi, and etc. These also give their consultancy services on trade and technologies.
What are the advantages of Merchant Banks?
- We can achieve counselling and advice from these banks.
- These banks help companies to utilize their funds properly and support them for good growth.
- We can get easy loans and debt funding with the help of this bank.
- They have a very vital and an essential role in today’s economy of a country.
- They help a company or a firm to invest their funds in stock market.
What is Wholesale Banking?
Wholesale banking refers to doing banking business with industrial and business entities, mostly corporate and trading houses, including multinationals and prime public sector. They cannot accept deposits from individuals and raise funds through bulk deposits. This bank deals with large investors, real estate involved people, big and some mid-size companies, the corporate sector, the public sector, etc. These do not provide services to individual people and small companies. It also includes lending and borrowing among banks and huge financial institutions on a very large scale. Some popular wholesale bank includes Canara Bank, Bank of India, ICICI Bank. They give loan on a greater amount such as setting up the industry, machinery loans, and etc.
What are the advantages of Wholesale Banks?
- They provide extra safety to depositors.
- They provide cash management solution.
- There is a low risk in this banking if compared to Merchant banking.
- They fulfil Huge working capital requirements.
- They help in control over financial transaction monitoring and recovery.
Main Differences Between Merchant Banking and Wholesale Banking
- Merchant banks provide financial support including raising of funds, and financial advices to businessmen and public sector involved people whereas Wholesale banking means to do banking business with industrial and business individuals, mostly corporate and trading houses, including multinationals and prime public sector.
- Merchant Banks deals in international finances, exchanges of stock, etc whereas Wholesale bank deals with large multinational firms, the corporate sector, the public sector, etc.
- Merchant banks give trade finance services to their clients whereas there are only a few wholesale banks that provide trade financing services to their clients.
- The job of a wholesale bank is a financier whereas the merchant banks act as a financial advisor.
- Interest rates with merchant banking are high on deposit as compared to wholesale banking which is low than merchant banking.
- A merchant bank requires the registration of SEBI as per SEBI rules and regulations whereas wholesale banks do not require SEBI registration.
Conclusion
We can see now that both the banks are very much different from each other in all aspects. The work of a wholesale bank is to act as a financier whereas the merchant banks act as a financial advisor. Merchant Banks have a big role in international financial institutions.
They provide services like credits and funds transferring, providing advice to financial consultations, etc. They help and advice a company on how to manage their funds. On the other hand, wholesale bank deals with big multinational firms, the corporate sector, the public sector, etc. These do not provide services to individual people and small companies. It also includes lending and borrowing among banks and huge financial institutions on a very large scale.
References
- https://content.kopykitab.com/ebooks/2018/04/17755/sample/sample_17755.pdf
- https://www.persee.fr/doc/reco_0035-2764_1992_num_43_2_409350