Introduction to Commercial Banking: What You Need to Know!

In a country like India, commercial banks are hidden heroes with a monetary superpower. They play a vital role in aiding a nation’s growing economy. Commercial banks make a significant contribution to the success of small businesses and industries. They also help mobilise funds through savings and other deposit schemes. Commercial banks offer banking services, investment loans and credit facilities that help businesses get the funding they need to move ahead. India’s development and progress are closely linked to commercial banking. These banks fall under the purview of the RBI Act of 1934 and are sorted under four main categories which are the private sector, public sector, Foreign banks and Regional Rural banks.

So what is commercial banking exactly? It is a banking system that offers various deposit and withdrawal operations, loans and other services. The two primary objectives are lending and borrowing. They take money from the general public as deposits and lend it to organisations at a reasonable interest rate. These actions keep the wheels of the national economy oiled and running.

Commercial banks make up our country’s financial past, present and future. So if you are planning to join this industry, keep reading as this post does a deep dive to explain commercial banking and its direct functions.

Functions of Commercial Banking

What is commercial banking‘s primary function? To borrow and to lend money. They have other services on offer as well. But the two listed above are the main ones. Let us take a closer look at how a commercial bank operates.

• Deposit facilities (Or Liabilities)

Commercial banks are a safe place to deposit money. When people have surplus funds or set aside a small amount for savings, they can put the cash into commercial banks for which they generate a good rate of interest. When needed, they can take out the money immediately. The money is secure here because all commercial banks are audited on a regular basis to ensure there is nothing untoward going on. Here is how we can explain commercial banking in simple words: It is the function of borrowing or collecting deposits from people, which in turn allows banks to offer loans.

The deposit schemes in commercial banks are as follows:

• • Current Accounts

This type of bank savings scheme is perfect for traders and business owners who make several deposits and withdrawals for work purposes. There is no option of generating interest in this type of account.

• • Savings Accounts

Salaried people who want to save a portion of their monthly income can use this account to save their money and earn interest.

• • • Term Deposits — are safe fixed investments that have a short maturity period.
    • Fixed deposits — are safe, fixed investments that have a longer lock-in period than term deposits.

• Money lending facilities (Or Assets)

What is commercial banking‘s main business objective? Providing loans. This is the way the banks make a profit. There are a number of options that allow you to borrow money from the bank. Businesses can get much-needed capital from these commercial banks, allowing them to continue operations, purchase infrastructure and pay for various transactions or expenses. The banks assess the borrower’s credibility and the collateral offered before granting the loans.

The lending options in commercial banks are as follows:

• Loans — Offered to borrowers on interest for a period of time.
• Credit cards — borrowers use the cards provided by the banks for credit.
• Trade Finance — the banks finance or offer credit to businesses or traders based on accounts receivable.
• Commercial vehicle funding — businesses are loaned funds to purchase vehicles for commercial purposes.

Also Read – Functions and role of commercial banks in the Indian economy

What are other commercial banking services?

While banks mostly dabble in lending and loaning, they also offer other amenities such as:

• Insurance 

Commercial banks work with insurance companies to offer insurance products.

• Money transfers

Electronic fund transfers between businesses and companies are possible with commercial banks.

• Investment services 

Commercial banks offer funds for investment opportunities to companies.

• Foreign Exchange

The banks also offer foreign exchange services for businesses that trade internationally.

Also Read – How to Get a Job in a Private Sector Bank – A Detailed Guide

What is commercial banking’s most lucrative job profile? 

The role of the relationship manager is very crucial in commercial banks. The RM professional is someone who takes care of the client’s needs. They are responsible for maintaining relationships with customers or organisations while adding more people to their database. A good relationship manager knows all the product features and services, such as types of loans, savings accounts, credit cards, etc. He is able to understand what the clients want and find financial products that fit their requirements. To step into the shoes of a relationship manager, you should be a proficient salesperson.

Skills required to be a relationship manager 

1. Analytical thinking

A good RM has the foresight and mental capacity to understand how various products, the economy and other financial factors affect his client. He should be able to connect his customers to the right financial services.

2. Industry knowledge

When you work in banking, you must have a deep understanding of how the finance industry works. Skilled relationship managers know how to make connections between various finance scenarios and are able to support their clients by applying their vast knowledge.

3. Communication skills 

Confident and clear communication is an underrated skill but plays a very important role in this job profile. When you can efficiently communicate your ideas and advice to clients and company professionals, you have a higher chance of making better sales.

4. Sales and presentation abilities

A good relationship manager has the ‘gift of the gab’. This means this professional is so good at persuading customers that he could even sell ice to an Eskimo. You have to convince your clients of the importance of the commercial bank’s financial products and how they can help them in various situations.

Also Read – Key skills for Managers in Commercial Banks

What is commercial banking’s connection with Proschool?

IMS Proschool is one of India’s top coaching institutes, with over 15 learning centres and 20,000 students. Taught by experienced professionals, the courses include CFA, CFP, financial modelling and PG investment banking. These four programs are highly acclaimed and well-designed, helping students gain valuable knowledge and skills in the finance field. They also help to explain commercial banking concepts, skills and industry updates. The professors use innovative learning methods, critical thinking techniques and real-world training to help students master their course. These courses can greatly enhance your resume and make you a formidable candidate during the recruitment process.

Highlights of learning with Proschool:

• You can attend classroom-based sessions or enrol for courses online.
• The teachers focus on customised study plans and doubt-clearing sessions to ensure all students get personalised attention.
• You learn core topics that help to explain commercial banking.
• Students can access over 2,000 practice papers, mock tests, a learning library, videos and other study resources.
• The institution has created a placement program for students who have cleared their courses.
• To help you ace the recruitment process, you also receive training in professional communication, interview etiquette and writing resumes.

FAQs

What is the difference between commercial banking and retail banking?

Retail banking provides banking services to individuals and families, whereas commercial banking offers its products to businesses, government firms and other organisations.

What are commercial banks’ main clientele?

Commercial banks offer basic banking facilities to people and small to mid-range businesses. They also give loans and credit services to companies.

What commercial banking institutions are the best to work with in India?

The biggest commercial bank in India is the SBI. Other prominent banks include ICICI, HDFC, Bank of Baroda and Axis Bank.

What qualifications do you need for a career in commercial banking?

You need a degree in finance, business or accounting to become eligible for a job in this industry. It also helps to hold certifications such as CFA, CFP, PG investment banking or financial modelling, as they give you the skills and prowess required to work in commercial banking.

What is commercial banking’s relationship with digital banking?

Almost all banks offer digital banking these days. Most customers also prefer to attend to their banking needs online. Many commercial banks have digital websites and apps that provide similar digital services. For instance, Citi Commercial Bank launched CitiDirect, an online platform with all of its products and services available to customers.

Conclusion

If you came to this page to understand what commercial banking is, hopefully, you have a better idea now. To sum it up, commercial banks play a huge role in building the economy by mobilising funds and helping businesses gain loans. It is a lucrative field to work in and can be a launchpad for other profiles within the finance industry.