Banking Sector, Segments & It’s Classifications

Banking industry players process a variety of products from savings accounts to loans and mortgages, offer various services from check cashing to underwriting, cater to different types of customers from individuals to large corporations , serving various geographical areas, from rural villages to cross-border operations. . Thus, the banking sector is made up of several types of banks, with their own objectives, roles and functions. In this article, we will explore the different sectors, segments and classifications of banking based on parameters such as products, customers, types, etc.

The banking sector has experienced enormous growth over the past few decades. Banks have evolved from traditional deposit and loan institutions to large organizations offering a variety of products and services. Banks can be classified in different ways based on various parameters such as status, segments, customers, products and services, etc. Here we will discuss the most commonly used classifications in banking:

• Banking product segments prescribed by RBI
• Bank geographic segments prescribed by RBI
• Segments of key banking sectors
• Key banking functions

RBI Prescribed Banking Product Segments

Banking RBI teaserReserve Bank of India, prescribed four major business segments in 2008, viz. “Treasury”, “Corporate/Wholesale Banking”, “Retail Banking” and “Other Banking Activities”. They have also prescribed “Domestic” and “International” as uniform geographic segments for segment reporting purposes under accounting standard AS-17. These segments are briefly described below:

RBI Segment 1: Cash

Cash includes the entire investment portfolio including financing and investing activities. Cash management refers to the process of managing a company’s assets, cash and working capital, with the ultimate goal of managing the company’s liquidity and mitigating its operational, financial and reputation. Treasury management provides greater understanding and control of complex funding, liquidity and risk management processes. The big banks have a stranglehold on the provision of cash management products and services.

RBI Segment 2: Retail Banking

Retail banking would include exposures that meet the four criteria of orientation, product, granularity and low value of individual exposures. These retail exposures are defined in the Basel Committee on Banking Supervision document “International Convergence of Capital Measurement and Capital Standards: A Revised Framework”. The orientation criterion refers to exposure to one or more people or a small business. Small businesses are those with a total annual turnover of less than INR 50 crore. Product Criterion Exposure means exposure to specified specified products such as revolving credits, lines of credit, overdrafts, term loans, installment loans, student and education loans, other leases and small business facilities and commitments. It also includes housing loans. The granularity criterion stipulates that the overall exposure to a borrower must not exceed 0.2% of the entire retail portfolio. Further, the “low value of individual exposures” criterion specifies the maximum aggregate retail exposure to a borrower at Rs.5 crore.

RBI Segment 3: Corporate/Wholesale Banking

Wholesale Banking includes all advances to trusts, partnerships, corporations and statutory bodies, which are not included in “Retail Banking”.

RBI Segment 4: Other banking activities

The other banking activities segment includes all other banking activities not covered by the 3 segments above. It also covers all other residual transactions such as para-banking transactions.

Banking geographical segments prescribed by RBI

Teaser of banking geographic segmentsGeographic segment 1: Domestic

Personal and corporate banking services are primarily intended for domestic customers residing in the country of registration. Domestic operations are the primary market for the majority of deposits and advances.

Geographic segment 2: International

Although in general, the domestic market is the main source of income for most banks, banks also have significant global operations that contribute significantly to their income. Private banks and other global banks have much larger global operations and most smaller banks in India have relatively smaller international operations.

Main banking sectors

Banking market teaserBased on the types of banks and the products and services offered, banks can be classified as banking industry sectors in the following four ways:

  1. Retail banking
  2. The Commercial Bank
  3. investment bank
  4. Central banks

This classification into sectors is based on the profile of the clientele and the products and services offered by each type of bank.

Banking sector 1: Retail banking

Retail banks are the banks that serve the needs of individuals and the most common banking format we know. They include deposit-oriented banking institutions like savings banks, loan associations, credit unions, savings banks, and other savings banks like the post office.

Individuals are the targeted consumers for retail banking and banks offer a variety of products and services to this clientele, including savings accounts, safe deposit boxes, fixed and recurring deposits, home loans, loans consumer loans, personal loans and unsecured and revolving loans, such as credits. maps.

Banking Industry Sector 2: Commercial Bank:

This category represents business and corporate banking and includes commercial and foreign banks. Commercial banks offer the same types of products and services as retail banks, however, as retail banks target individual consumers, commercial banks focus on businesses and commercial enterprises. Products and services include consumer and commercial deposits, business loans, mortgage and real estate loans, overseas operations, investments in high quality securities and industrial loans.

Banking sector 3: Investment banking:

Products and services in this category include management of portfolios of financial assets, trading in securities, fixed income, commodities and currencies, corporate advisory services for mergers and acquisitions, financing of businesses and the underwriting of debt and equity. Trading activities include trading both on behalf of clients and on the bank’s own account.

Banking industry sector 4: Central banks:

Central banks are banks of bankers, and each country usually has a central bank that occupies a central position in the banking system and acts as the highest financial authority. The main function of this bank is to regulate and supervise the entire banking system of the country. It is a bankers bank and a credit controller in the country.

Banking function teaserThe banking sector is developing rapidly. It is estimated that the assets of the 1,000 largest banks are worth nearly US$100 trillion. As the industry grows, banks manage a diverse portfolio of functions. In addition to the segments discussed above, banks must also manage the following functions and can also be categorized according to functions:

Bank transactions(Personal and commercial banking includes personal banking and transaction banking)
Compensation functions (Internal and external reconciliations and internal and external netting)
Asset Management (Provide asset management products and services)
Wealth management (High net worth clients with a full range of investment, trust and other wealth management solutions)
Treasury and risk management (Provide custodial, advisory, financing and other services to clients to protect assets, maximize liquidity and manage risk)
Card issuance and management (Credit card issuance and credit and transaction management for card companies)
Commercial intermediary (Acting as depository, registry, exchange, trading or broker-dealer participant)
Activating functions (Human Resources, Finance, Banking Technology, Supervisory, Legal and Compliance)