Difference between Retail Banking and Wholesale banking

Wholesale banking typically involves a small number of very large customers such as big corporations and governments, whereas retail banking consists of a large number of small customers who consume personal banking and small business services. Wholesale banking is largely inter-bank markets to borrow from or lend to other banks/large customers, to participate in large bond issues and to engage in syndicated lending. Retail banking is largely intra-bank; the bank itself makes many small loans. Get an update on the banking in weblink

Most of the Indian public sector banks practice retail banking; they are slowly practicing the concept of wholesale banking. On the other hand, most of the well established foreign banks in India and the recent private sector banks practice Wholesale banking alongside retail banking.

As a result of this difference, the composition of income for a Public sector bank and a well established private sector bank is different. While a major portion of the income for large public sector banks is from lending operations, in the case of any private sector bank in i=India, the amount of nonoperating income is substantially higher. The composition of the other income is the commission on bills/ guarantees/ letter of credit, counseling fees, syndication fees, credit report fees, loan processing fees, correspondent bank charges. Internationally too, in the case of any bank, the non-interest income is substantially more than the interest income. This is considered as a healthy sign, as the investment required for earning a non-interest income is negligible. Non-interest income is from activities, which are not fund based but fee-based. Hence very little capital is required to carry on such activities.

Deposits accounts offering the withdrawal facility are the savings bank account as well as the current account. The nomenclature of the savings bank account is different in different countries. For example, saving bank account with the withdrawal facility through cheques is referred a\to as check accounts. India. While the balances in the savings bank account get interested, the balances in the current accounts do not get interested.

Deposit account without the withdrawal facility come in different categories:

  • Lump sum investment for specific periods, after which the principal amount is paid back together with the interest for the entire deposit period. This is on a cumulative basis or reinvestment basis.
  • Lump sum investment for specific periods and interest is paid on a periodic basis. The principal amount is paid back on maturity/ due date.
  • Periodic investment,  less frequent than the previous one but investment is usually substantial and repayment on a cumulative bai=sis together with interest. Periods of the investment may not be of the same size.