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Friday, November 25, 2011

Spectrum of roles across Banking and Financial Services Industry

Working in the banking and financial services sector is challenging and pays well. It’s important however, to understand the different roles.

Are you in your final year of college or graduation and have you been wondering, what next? Accounting? Writing code for a software company? Call centre executive? Can you think of a sector that hires over a million people, pays well, and transacts in billions of dollars?

In the ever expanding world economy, banking & financial sector play a predominant role in regulating and supporting the flow of capital it’s the Banking and Financial Services (BFS) industry. This includes a wide spectrum of roles across banks, mutual funds and brokerages. Don’t forget that over 30 per cent of IT and BPO companies’ revenues come from servicing this industry. People move across banks, NBFCs, IT firms and BPO companies, using their experience for a range of roles.

Roles and responsibilities

Broadly, BFS players are divided into Banks and Non Banking Finance Companies or NBFCs.
What’s the difference?

The key difference relates to what you do regularly, without even thinking about it —withdraw money whenever you want! A bank is the only institution that is licensed to accept deposits which are repayable on demand — i.e. whenever the depositor wants. A bank collects money from depositors at a certain cost, and makes money by lending it out or investing it for higher returns.

Working in BFS is interesting, challenging and pays well. It’s important however, to understand the different roles, and the skills needed for each. Don’t look for the ‘glamorous’ roles — look for those where your personality and skills will ensure you perform well. If you enjoy what you do, you’ll do well.

Given this background, let us then understand the Banking and Financial Sector world. The key businesses in BFS can be broadly classified into six sub-divisions:
• Retail Banking & Finance
• Corporate Banking & Finance
• Private Banking & Wealth Management
• Treasury & Capital Markets
• Investment Banking
• Asset Management

Retail Banking and Finance

Retail, or individual banking, handles the banking needs of individuals and small businesses. The primary role is to mobilise deposits for the bank, via savings accounts, fixed deposits, current accounts, etc.

Retail loans are popular — personal loans, education loans, vehicle loans, home loans and credit cards. They also offer services such as lockers, demand drafts and foreign currency. So when you open an account, apply for a credit card, issue a demand draft etc, its retail banking at work.
Two important points:
First, for a bank, deposits are liabilities as they have to be returned to the account holder.

Loans generate income for the bank, and are called ‘asset products’.

Therefore, in Retail Banking, you either work on the liabilities side or on the assets side.
Second — and most important — the Retail banking division is typically the largest recruiter, especially for graduates.

Most people don’t bother to study much about it, and business schools ignore it but it makes perfect career sense to understand this division and start here. Private banks hire thousands of people for this division, and in large public sector banks, it runs into tens of thousands!
NBFCs also do a lot of retail lending. Simply put, if you are looking for a job, you will find most opportunities in retail banking.

Corporate Banking and Finance

The main responsibility of this division is to lend, and the target segment is corporates — large and mid-sized corporates. They give short-term loans, called working capital loans, and long-term loans called term loans.

Corporate Banking also offers services to corporates, such as trade finance and cash management, to help them in the course of their business.

Corporate banking hires reasonable numbers, though mostly post graduates — MBAs and CAs. Large NBFCs also lend to corporates.

Wealth Management

This is a personalised form of banking for the wealthy called High Networth Individuals or HNIs. It revolves around ensuring profitable investments for such clients. Traditional banking needs (deposits, cards, other services) of a client are also catered to by a specialised Relationship Manager. It needs, therefore, an understanding of various banking products and services, as well as investment products such as mutual funds.
Watch out for this sector. It is definitely the next ‘hot’ or sunrise sector; there is a huge gap between the numbers that Wealth Management needs, and available resources.

Treasury and Capital Markets

This is the division where financial products such as equities, bonds, currencies, and other exotic products are traded. These transactions can be on behalf of customers. That is, if Maruti wants to pay a million dollars for imports, it can’t buy this foreign currency on its own — it has to go via a bank. Banks also trade on their own behalf.

Institutions in this space:

Banks: Stock, bond & currency markets.
Brokerage firms and Mutual Funds: Stock and bond markets.

Banks usually hire MBAs and CAs for trading roles. Graduates have a good chance in the brokerage firms and Mutual Funds.

Investment Banking (‘I Banking’)

This ‘glamorous’ division covers activities such as:
Mergers and Acquisitions (M&As)

Raising capital (via shares or bonds) also called  Merchant Banking

Management graduates from premier business schools tend to be offered these positions. However, if you have the necessary skills, there is nothing stopping anyone entering this sometimes over-rated space.
Remember, from a job perspective, the numbers here are very small. So don’t get obsessed with I-Banking. While it may sound glamorous, you will probably be involved only in preparing presentations and Excel sheets for the first year!

Asset Management

Mutual Funds are an integral part of the BFS world, managing over Rs 400,000 crores of funds. The legal entity managing the funds is called an ‘Asset Management Company’, or AMC. AMCs hire graduates and post graduates in sales and research roles.

What do we mean by research? Well, for them to invest all that money, they need to track companies and industries, and decide where to invest. MF sales are also a large opportunity.

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