What is International Banking?

International banking

Why should you open an account in an international bank? What benefits will you get if you have an account in any international bank? There may be a lot of questions coming to your mind regarding International banking. 

This article will be a comprehensive answer to your every question regarding international banking facilities. Please read this article to the end, and it will clear your concept related to it. 

Before we jump deep into the concept, type, and benefits of opening an account in an international bank, let’s start from the beginning, what international banking is and its meaning.

What is International Banking?

An international bank is an economic institute that is operated beyond the boundaries of their origin country. When any bank provides its services for the people inside and outside the country, their service is referred to as an international banking service. 

Such banks open accounts of people across the globe. They obey the legislation of both home and the host country legislation. They have various branches in different countries around the world. They don’t hesitate to give heavier amounts of loans as compared to any central or national bank.

While talking about the foreign bank policy of the reserve bank of India (RBI), it has two basic principles. As per the RBI (reserve bank of India) rule in India, the total of foreign banks operating in India is 46. 

Also Read: Difference Between Interbank and Intra Bank

International Banking Meaning

The simple and fair meaning of international banking is providing banking services like financial dealing, loan offer, opening an account for the people outside the country or the host people. 

In other words, such a bank which has financial deals across the globe will be part of an international banking system by following the government rules.

It is a similar banking facility to the other banks; the only difference is that you can use their services at the international level. For instance, most MNCs (multinational companies) have their account in the international banking system for their international transactions.

Types of International Banking

International banks are the heart of international finance as they have globalized the world of finance across the globe. There are a lot of diversities based on their functionality and services, which establish their types. 

As different people across the globe have their different needs, that isn’t easy to fulfill by the same type of national or international bank. That is why it becomes significant to classify the banks and their roles in society. 

In other words, we can say that there are different types of banks for the different types of needs of people worldwide. Now, let’s look deep into the various types of international banks and their roles, functionality, and services for the people across the country and beyond the country’s boundary.

Also Read: Top 10 International Banks in India

Types of International banks can be divided based on their service or expertise. So, based on it, there are six types of banks discussed below. 

1. Commercial Banks

A commercial or retail bank serves or deals in basic transaction services like deposits and the withdrawal of funds. This type of bank permits its clients to invest internationally in the global markets. 

They play a vital role in modern financial organizations. They deal in services like providing small loans for a small-time fragment, taking money deposits, and looking after the country’s financial trades.

2. Exchange Banks

Exchange banks usually look after the foreign investments and trades of a nation. Their prime functions include collecting and accepting foreign bills. 

They sell and buy foreign currencies to support people, especially business people, to exchange their currency in the desired currency as per their requirements. They have a small contribution to the internal trade of a country.

3. Industrial Banks

Industrial banks are very few in India as compared to other countries like Japan and Germany. Industrial banks usually deal with the various industries of the country. 

Their prime function is to provide heavy loan amounts to the different companies to buy their latest machines, tools, and appliances to enhance their technology and establish a strong position in the market. 

Many industrialists borrow heavy loans for a long period. Similarly, they receive a hefty amount of deposit from several industrialists.

IDBI (Industrial Development Bank of India) and ICICI (Industrial Credit and Investment Corporation of India) are common industrial banks in India. However, there are a few more like SFCs, IFC, and FII.

4. Cooperative Banks

Cooperative banks mainly deal with the people who are associated with agriculture and farming. This bank has a prime function of helping the farmers by providing them a loan to cultivate grains. 

On the contrary, the land mortgage bank provides a loan amount for the long term, which is needed if farmers purchase a piece of land. 

On the other hand, cooperative banks provide short-term loan amounts to the farmers to purchase seeds and fertilizers for farming purposes. This type of bank plays a vital role, especially in rural areas.

5. Savings Banks

Saving banks like the post office is doing good enough at their level. Their main function is to collect small savings, and they act like a courier in India to carry the useful items from one place to another. The post office has the largest network chain in India.

6. Central Banks

Besides, all the types of banks mentioned above are central banks that function like providing small loan amounts to the citizens of India and opening their savings account. The government of India owns this bank.

Also Read: Difference Between Current Account and Savings Account

Benefits of International Banking

  1. There are a lot of advantages of the international banking system, but we will discuss some major significance of it. Since different countries have different laws in the banking sector, if you want to reside in any other country, you may open your account before shifting there. It will always be useful.
  2. You can generate some wealth as interest if you reside in any other country either for study or work. So, you can earn some revenue as an interest by depositing and doing transactions from the bank in that particular country. You can use this interest to maintain your living expenses there. In case you have sufficient money, then you can plan your retirement with it. You only need to keep saving in your account, and you may get a good interest for that.
  3. If you are planning to shift from the local to global. Your economic condition may be adversely affected. This scenario will help you survive if you have some money in your international bank account as there is a possibility that some of your assets may be frozen so that you can’t use them.
  4. Suppose you are living in another country, you came you for some time, you suddenly notice that your home account is not accessible for some reason. Then your foreign may act as a backup plan until you visit the branch to inform or know about the breaches.
  5. If you have another account in any international bank, then there is a possibility that you may get a relatively high currency exchange rate. You only need to understand some fundamentals of foreign currency exchange.It can stretch your assets or funds to a small extent. You can easily determine which currency will be more profitable for you. You only need to change the cash in either currency then interchange it in the other currency to give you more return. It will give you a good return which you can invest somewhere for your economic support.
  6. You will have a better investment opportunity if you have any other account in any international or foreign bank. You will have the option to buy shares and stocks from your other account too. Besides this, you may have a lot of other opportunities to invest in such companies in which you will be unable to invest from your home country’s account. In this way, there will be limitations on such investments by your home government if the investment is legal in that particular country where your other bank account is running.
  7. Your offshore accounts offer quite more asset protection. Suppose, for any reason, if your home account gets seized by the government, then you will have enough assets and money in your other account because it will be out of reach from the domestic government. But, you can use it easily whenever and from wherever you need.

Also Read: How e-RUPI is different from a digital currency?

Examples of International Banking

Suppose that the American company Microsoft is running in London. It will require enough funds to meet its requirements. In this case, Microsoft can borrow money from the banks in London to run its company in a better way. Here the bank available in London provides funds to an American company which may be a great example of an international banking facility.

Final Thoughts

Opening an account in foreign banks or being a part of an international banking system is always profitable in several ways. Either you are bankrupt in your home country, or you want to make some foreign investments. It will always be a good and favorable asset throughout life.

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