Anil Chaturvedi has been in the world of banking since the 1970s. After quickly ascending the ranks at the State Bank of India, he moved into high-level management roles at ANZ Grindlays, Merrill Lynch, and—most recently, the Hinduja Bank of Switzerland.
And while many of us understand that banks are important for the economy in some way, we don’t know exactly why. Fortunately, with Anil Chaturvedi to guide us, we can pull back the veil of complicated company structures and jargon to truly gain an understanding of the way banks work and the important role they play in the world economy.
What Do Banks Do?
There are a few different types of banking including retail, business, corporate, private, and investment banking. The first four of these are distinguished mostly by who they serve. For example, retail banking deals with consumers and small businesses. Business banking deals with mid-sized businesses. Corporate banking deals with large corporations. And private banking deals with high-net-worth individuals.
As you might imagine, the services that an average consumer needs are far different than the services a corporation or a high-net-worth individual needs. That’s why, when people like Anil Chaturvedi talk about banking, they refer to things like “retail” or “corporate” banking.
Investment banking is a little different than the other four types of banking because it deals with the financial markets. Investment banks don’t take deposits. Instead, investment banks provide services to various entities who need to raise capital or are pursuing a merger or acquisition.
However, in its simplest form, the function of a bank is to make it more efficient for people to borrow and save their money. Banks take deposits from savers and lend that money to borrowers. Banks also process payments, provide checks, and offer safety deposit boxes to their clients. In a sense, a bank just allocates capital and invests it.
What Role Do Banks Play in the Global Economy?
Whether you’re evaluating the role of a bank in a small town, a country, or the entire globe, it doesn’t change all that much. That’s why, for the most part, Anil Chaturvedi and other bank executives like him can move seamlessly from role to role at banks throughout the world. While the customs of certain countries may change and there may be some cultural adjustments, as Anil Chaturvedi has shown, it’s possible to go from banking in India to the United States and Switzerland and still be a highly successful manager. That’s because, at their core, the services that banks offer to borrowers at all sizes of banks are essentially the same.
In any capitalist economy, banks are extremely important because they are the gatekeepers of credit.
To understand the role of banks, it will help to actually imagine a world without banks. Let’s say you needed to store your money in a safe place. Without a bank, what would you do? You could try to keep it safe on your own, but you couldn’t afford the same security resources a bank could. And even if you could, it’s far more affordable (and thereby efficient) to keep your money in the bank. Moreover, banks give you the opportunity to make a small, but essentially risk-free, return on your deposits. In case sacrificing free money isn’t bad enough, without a bank, you’d also have no place that could facilitate secure payments.
Perhaps more important, at least in the grand scheme of things, than the benefits a bank provides to savers is the benefits it provides to borrowers. Think about how businesses would make money without the benefit of bank loans. The old cliché, “it takes money to make money” might be a tired phrase, but it’s also quite true. Without a bank, a home builder (for example) would have to find a different way to come up with the cash to develop land, build a home, and sell it to a buyer. Coming up with the cash by themselves in the first place might simply not be an option.
Cash flow is already a serious issue for small business owners, even with the help of banks. In fact, in the United States, 82 percent of small business fail because of cash flow issues, according to a study by U.S. Bank. Without the assistance of a bank loan, businesses that rely on lots of capital to get started or maintain profitability would suffer even more. Not to mention, it’d be far more difficult for entrepreneurs to pursue a potential opportunity with limited access to capital.
While many people like to vilify banks, as Anil Chaturvedi and his colleagues have seen since 2008, you could actually see how banks make it possible for a wider range of people to have the opportunity to succeed. Without banks, only an extremely wealthy few would have the money to make large capital expenditures to start a capital-intensive business.
Of course, you could argue that business owners could just find private investors to lend them cash. However, that can get expensive for the business owners. Moreover, if there were no banks, entrepreneurs would be left with fewer options to raise money. This would give private investors even more leverage, making raising money even more expensive for business owners. Again, you can see how this would lead to less opportunity for regular people and a better situation for extremely wealthy people.
There’s no doubt small business owners would suffer without banks like those run by Anil Chaturvedi in Switzerland, India, and the United States.
Anil Chaturvedi and the Role of Banks
There’s no doubt, banks took a significant PR hit after the recent financial crisis. And in many cases, rightfully so. But as Anil Chaturvedi has seen throughout his career, banks are a critical part of what makes an economy tick. Mr. Chaturvedi started his career in India with the State Bank of India which oversaw great economic growth that continues today in the emerging economy of India. Without banks, that growth would not have been possible.