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.
The wholesale bank provides banking services to other institutional customers, big companies with solid balance sheets, government agencies, etc. These do not provide services to individual people and small companies.
Key Takeaways
- Merchant banking provides specialized financial services to businesses, such as corporate advisory, capital raising, and underwriting.
- Wholesale banking provides financial services to large institutions, governments, and corporations, including lending, cash management, and treasury services.
- Although both types of banking serve large clients, merchant banking emphasizes advisory and capital-raising services, while wholesale banking provides a broader range of financial products and services.
Merchant Banking vs Wholesale Banking
The difference between a Merchant bank and a wholesale bank is that a merchant bank manages international services and provides services to many business people. In contrast, a wholesale bank assists institutional customers and big companies.
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Comparison Table
| Parameter of Comparison | Merchant Bank | Wholesale Bank |
|---|---|---|
| Concept | This is a bank which works on commercial loans and investments. These were the first modern banks. | This is the supply of services by banks to real estate developers, big companies, investors, etc. |
| Risk | There is an exposure to high risk in this type of banking. | This type of banking has a comparatively low risk compared to Merchant banking. |
| Deals with | This bank deals in international finances, buys and sells shares, stock exchanges, etc. | This bank deals with large multinational firms, the corporate and public sectors, 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 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 banks provide loan services, fundraising activities, and financial advice to business people 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, financial advice to business people, etc.
What are the advantages of Merchant Banks?
- We can achieve counselling and advice from these banks.
- These banks help companies to utilize their funds appropriately and support them for good growth.
What is Wholesale Banking?
Wholesale banking refers to doing business with industrial and business entities, primarily corporate and trading houses, including multinationals and the prime public sector.
They cannot accept deposits from individuals and raise funds through bulk pledges. This bank deals with large investors, real estate-involved people, big and some mid-size companies, the corporate sector, the public sector, etc.
What are the advantages of Wholesale Banks?
- They provide extra safety to depositors.
- They provide cash management solutions.
Main Differences Between Merchant Banking and Wholesale Banking
- Interest rates with merchant banking are higher on deposits than wholesale banking, which is lower 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.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
