Ch12 Organization of Banking Industry

Organization of Banking
Industry
Types of Bank Organizations
• Unit Banks
• Holding Companies
• Branch Banks
Banking Entities
• Unit Banks
• Indiana Community Bank, USA
• Heartland Community Bank, USA
• Holding Companies
• Citi Group
• State Bank of India Group
• Branch Banks
• Punjab National Bank
• Indian Oversees Bank

Unit Banks
•Single entity.
• Located in a specific area.
• Functions as a community bank.
• Banks are customer based.
•Capital is comparatively lesser than other banking

structures.
•Structure is based on the needs of the customers.

Holding Companies
• Organization owns and manages subsidiaries.
• Utilizes its financial strength to acquire ownership

of subsidiary banks.
• Large capital structure.
• Standardization of subsidiary organizational structure.
• Possibility of establishing banks across

several localities.
Branch Banking
• Single entity.
• Establishment of branch offices.
• Possibility of functioning across several localities.
• Location of banks based on the needs of the society.
• Possibility of operating banks on a large or small scale.
• Scope for future expansion of banking functions.

Comparative Features
Unit Holding Branch

Feature Ban Compan Compan
k y y
Efficiency ‐ Scale Less Some Most
Efficiency ‐ Scope Most Most Some
Flow of Funds Low Possible Easy
Competition Exists No Exists
New Entry Easy Little Easy
Market Access Tough Easy Easy
Liquidity Low High High
Decentralized Power Most Little Moderate
Sensitivity to Society Most Little Moderate
Convenience to Customers Most Little Most
Organization of Banks based on Ownership Pattern
• Nationalized Banks (Government owned)
• Private banks
• Foreign Banks
Banking Entities (Illustrative)
• Nationalized Banks
• Indian Bank
• Corporation Bank
• Andhra Bank
• Private Banks
• ICICI Bank
• Axis Bank
• HDFC Bank
Banking Entities
• Foreign Banks
• Sonali Bank
• Oman
Internationa
l Bank
• Mizuho
Corporate
Bank
• Societe
Generale
Bank Performance Comparison (2011)
Nationalized Privat Foreig

Banks e n
Banks Banks
Number of Offices 45640 11968 316
Number of Employees 475082 218679 27968
Business per Employee (lakh) 1144.77 823.26 1559.74
Profit per Employee (lakh) 6.95 8.1 27.59
Capital and Reserves &
Surplus (lakh) 205857 138589 80972
Cost of Funds 4.93 4.56 3.11
Return on Assets 1.03 5.11 1.74
Capital to Risk Adjusted
Asset Ratio (CRAR) 13.47 16.46 16.72
Net Non‐Performing Assets
(NPA) Ratio 0.92 0.56 0.67
Reference:
http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Statistical%20Tables%
20Relating%20to%20Banks%20of%20India
Banks Functioning in India
Bank
Classification 1999 2003 2006 2009 2010 2011
SBI & Associates 9 9 9 8 6 6
Nationalize
d Banks 19 19 20 20 21 21
Domestic
Private 34 30 24 23 21 21
Banks
Foreign Banks 41 36 29 31 34 34
Reference:
http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Statistical%20Tabl
es%20Relating%20to%20Banks%20of%20India
Organization of Banks Based on Size
• Large Banks
• Large Capital
• Large Depositor base
• Small Banks
• Less Capital
• Small Depositor base

Banking Business Models
• National banks
• Regional banks
• International banks
• Community banks
• Development banks
• Core banks
• Service banks
National Banks
• Banks are entitled to operate across the country.
• Usually have operations in more than one region of the

country.
• Large number of bank branches.
• Comparatively large size capital banks.
• Centralized operational structure.

Regional Banks
• Local banks.
• Banking operations are within the region.
• Cater to the specific needs of the region.
• Regional banks are established to focus on

the requirements of the place of operation of the bank.
• Focus on a specific locality and function as specialized

banks.
Community Banks
• Specialty banks.
• Cater to the banking requirements of a specific society.
• Based on a specific locality or built on the branch

structure to cater to the needs of the community in
different areas.
• Subject to the same regulations as that of other bank

models.
Development Banks
• Focus is on development activities.
• Funded by the government.
• Objective of the bank is to meet the government targets.
• Meets the funding requirement of large projects or

activities that are considered essential for the community
but not necessarily profit based.
International Banks
• Engage in banking operations across several countries.
• Large customer base.
• Familiar with regulatory requirements of each country.
• Banking risks are prominent since operations are subject

to the impact of banking functions across other nations.
Core Banks
• Function as deposit mobilization and lending

agencies for project finance.
• Subject to regulations from the Central bank.
• Services are based on the interest rate prevalent in the

system.
• Larger capital base.
• Subject to capital adequacy requirements to meet

the core banking risks.
• Requires investor trust.

Service Banks
• Function as supportive players of core banks.
• Perform roles such as insurance / asset management /

mutual funds / credit card / venture capital assistance /
consumer finance / leasing activities / trustee services
etc.
• Uses the customer base acquired from core banks.
• Income is based on operations of the banks and not

entirely on the interest rates.
Commercial Banking Functions
Investment Functions

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Organization of Banking

• Indiana Community Bank, USA

• Heartland Community Bank, USA

• State Bank of India Group

• Punjab National Bank

• Indian Oversees Bank

• Located in a specific area.

• Functions as a community bank.

• Banks are customer based.

•Capital is comparatively lesser than other banking

•Structure is based on the needs of the customers.

• Organization owns and manages subsidiaries.

• Utilizes its financial strength to acquire ownership

• Large capital structure.

• Standardization of subsidiary organizational structure.

• Possibility of establishing banks across

• Establishment of branch offices.

• Possibility of functioning across several localities.

• Location of banks based on the needs of the society.

• Possibility of operating banks on a large or small scale.

• Scope for future expansion of banking functions.

Unit Holding Branch

• Nationalized Banks (Government owned)

Nationalized Privat Foreig

• Large Depositor base

• Small Depositor base

• Usually have operations in more than one region of the

• Large number of bank branches.

• Comparatively large size capital banks.

• Centralized operational structure.

• Banking operations are within the region.

• Cater to the specific needs of the region.

• Regional banks are established to focus on

• Focus on a specific locality and function as specialized

• Cater to the banking requirements of a specific society.

• Based on a specific locality or built on the branch

• Subject to the same regulations as that of other bank

• Focus is on development activities.

• Funded by the government.

• Objective of the bank is to meet the government targets.

• Meets the funding requirement of large projects or

• Engage in banking operations across several countries.

• Large customer base.

• Familiar with regulatory requirements of each country.

• Banking risks are prominent since operations are subject

• Function as deposit mobilization and lending

• Subject to regulations from the Central bank.

• Services are based on the interest rate prevalent in the

• Larger capital base.

• Subject to capital adequacy requirements to meet

• Requires investor trust.

• Function as supportive players of core banks.

• Perform roles such as insurance / asset management /

• Uses the customer base acquired from core banks.

• Income is based on operations of the banks and not

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