Thursday, November 7, 2013

A Laymans Guide to Private Banking


Have you heard of the term "Private Banking"? You may have found this term in news articles in our papers and websites about major banking conglomerates like a JP Morgan or a Credit Suisse setting up their private banking services in India. We all know what a bank is and the kind of service a bank provides for customers like you and me but this term Private kind of makes it a little confusing isn’t it? If you are one of those people who do not understand the term fully, don’t worry. The idea behind this article is to explain just that!!!

So, What is Private Banking?

Private Banking is nothing but regular banking and financial services provided by banks to customers who have sizeable assets. The term "private" refers to customer service rendered on a more personal basis than what happens in a regular bank, usually via dedicated advisers. Each adviser has only a handful of customers and they dedicate their time and attention towards keeping the customer satisfied.

History of Private Banking

Actually speaking, private banking was the start of the whole banking revolution. Many centuries ago, royal families and the incredibly wealthy folks needed someone to manage their finances. Knowledgeable folks pitched in, managed their money and provided customized services triggering the birth of Private Banking. The kind of personalized service has been almost similar in spite of the fact that it has been many generations since it all started. As banks grew in size, they wanted to expand their customer base to include the rest of the population who could not afford Private Banking which led to the birth of the modern day "Retail Banking" which you and me use everyday.

Service Offered To a Private Banking Customer

The Term "Financial Services" is an umbrella term within which all possible services a customer could get can be grouped under. But, to be specific Private Banks offer many or all of the service as listed below:
• Bank Accounts
• Credit Cards
• Loans
• Investment Advisory Services
• Brokerage Services
• Safety Deposit Lockers
• Etc.

Personalized Service, Unbiased Advise, Anytime/Anywhere Access etc. are some key tag lines that Banks would use to attract customers for their Private Banking Services...

Is Private Banking Profitable?

Yes, VERY!!!

Did you expect any other answer? Did you think that a bank would offer personalized services to the ultra-rich folks if it isn’t profitable for them? Each customer is probably worth in crores and banks usually charge a fixed fee ranging from 0.5% to 1% of the average assets maintained by the customer with them as the annual charges. So, one customer who maintains a 1 crore portfolio would be paying a fee of around 1 Lakh every year just to be a customer.

Private Banking in India

Private Banking is still in its infancy in India but as one of the fastest growing Emerging Markets, India is considered an untapped market by the finance community. The Reserve Bank of India has started giving out Private Banking Licenses to a few major players to operate within India and the momentum seems to be picking up. With the Income levels of the Average Indian going up on a yearly basis with more and more millionaires, the future seems extremely bright for the Private Banking Industry in our country. No Wonder all major multinational banks are trying to enter India and set up their Private Banking practice...

Trivia:
In order to be eligible to be a Private Banking Customer, most banks will expect you to have assets worth at least Rs. 50 lakhs with them.

Top Private Banks in the World

The Top 15 Banks in the world by just the size of the money in their Private Banking Division is as follows:

RankNameAssets Under Management
(In US$ Billions)
1UBS1700+
2Bank of America1670+
3Wells Fargo1400+
4Morgan Stanley1300+
5Credit Suisse850+
6Royal Bank of Canada625+
7HSBC400+
8Deutsche Bank380+
9BNP Paribas340+
10Pictet320+
11JP Morgan Chase310+
12Citi Group250+
13Goldman Sachs240+
14AMN AMRO210+
15Barclays200+

You may be wondering why there is a + at the end of each number in the table. The + indicates that the number could be much higher than this today due to the fact that the numbers were all picked from the Internet which could be at least a few months old.

Just to give you the size in rupees - 200 billion USD is 1,24,63,00,00,00,000 rupees which is the expanded form for 12 Lakh Crores. The bank in 15th place has assets worth 12 lakh crores. Imagine the assets that UBS has in Rupees. The number of Zeros could probably give us a headspin...


Best Private Banks in the World

Based on the type and quality of services offered to its customers, the top 5 Private Banks in the world as of 2013 are:

1. UBS
2. Credit Suisse
3. JP Morgan
4. HSBC
5. Citi

These 5 banks have been the top 5 (Trading places up/down each year) for many years now...

Banks that Offer Private Banking Services In India

After RBI started approving licenses for Private Banking Services in India a couple of years ago, many banks (both Indian and Foreign) applied for the same. The RBI has a very tight scrutiny process after which only a few applications were approved.

Some of the large Indian Banks whose licenses were approved are (In No Specific Order):

1. ICICI Bank
2. HDFC Bank and
3. Kotak

Some of the Foreign Banks whose licenses were approved are (In No Specific Order):

1. Credit Suisse
2. HSBC
3. Royal Bank of Scotland
4. ING Vysya


Foreign Banks like HSBC, Credit Suisse, Royal Bank of Scotland, ING Vysya Bank etc. too offer Private Banking Services in India..


Happy Private Banking!!!


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