Banking is an industry that handles financial transactions. There are different types of banks functioning in various sectors of health, education, business, profession, agriculture, and so on to keep the economy running.
Group banking, Chain banking, Branch banking, Unit banking, Mixed banking are the 5 types of Banking.
Group Banking vs Chain Banking
The difference between Group Banking and Chain Banking is that Group Banking is a group of several that exist and function under a single holding company. Whereas, in chain banking, a chain of banks live and function under a single person or a group of people.
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Group Banking refers to a system in which a group of banks functions under a single holding company; the control a company can have over 2 financial institutions.
These groups of banks have to follow the rules and regulations of the company. They have to function within the barriers of the company.
Chain Banking refers to a system where there is a chain of banks controlled by an individual or a small group of people. The individual or group of people can hold at least three chartered banks.
They function independently and can avoid the barriers of working under a single holding company.
|Parameters of Comparison||Group Banking||Chain Banking|
|Possession||A single company owns the institutions.||The institutions are separately owned and are not a part of a single entity.|
|Acquisition||The group of banks can be acquired by any company involved in any sector.||The banks can be acquired by any individual or family involved in any sector.|
|Functioning||These banks function within the barriers of the single holding company.||These banks function within the barriers of the individual or group of individuals.|
|Period of Prominence||Group banking system gained prominence in America during 1925-1929.||They came into prominence in America after 1929.|
|Example||State Bank of India- SBI in India.||KarurVysya Bank and Lakshmi Vilas Bank in India.|
What is Group Banking?
A banking system in which a single holding company owns and controls more than two financial institutions/ banks is known as Group Banking.
This system of Banking gained popularity in the United States of America between 1925 -1929. To own these banks, the company need not be in the banking business.
The company can be working or conducting business in any legal industry or sector such as banking, agriculture, textile, medicine, entertainment, etc.
The banks function according to the rules and regulations laid down by the holding company. The management and administration are centralized. The SBI in India is an example of Group Banking in India.
The mainboard of directors and the separate entity of each bank is maintained. Because of centralization, there is better mobility of resources and credit facilities.
The accounting methods followed are the same for all the banks, which help build better auditing reports. Not only funds but expertise are also made available from one bank to another in case of requirement.
In case a particular bank or institution fails to perform well, it can have adverse effects on other banks, resulting in negative effects on the holding company’s reputation.
What is Chain Banking?
A banking system in which more than three chartered financial institutions/ banks are owned and controlled by a single person or a group of persons or family is known as Chain Banking.
This banking system originated in America and gained prominence in the year 1929 after the stock market crash.
In this system, the ownership can be acquired by buying significant shares of the financial institutions. The individual or individuals can control the banks independently or unified.
In India, Karur Vysya Bank and Lakshmi Vilas Bank have headquarters in a commonplace and board of directors, making it an example of Chain Banking.
The individual or group of individuals are not forced to be involved in banking. Even in chain banking, the owners can be working in any sector of business or profession.
The rules and regulations, as well as the administration and working of the banks, can be the same or different, according to the decision of the owners.
The accounting methods to be followed also depend on the choice of the owners.
The other advantages and disadvantages are similar to that of Group Banking, such as mobility of funds, credit, expertise, and effect on the other banks.
Main Differences Between Group Banking and Chain Banking
- The financial institutions in Group Banking are owned by a single holding company and in Chain banking by a single person or group of persons.
- The institutions in group banking can be held by a company working in any sector. In contrast, in chain banking by anyone working in any sector or profession.
- The administration in group banking is controlled by the holding company. Although, in chain banking, the administration is governed by the owner/ owners.
- The group banking system was popular in the USA during 1925- 1929. Whereas the chain banking system became popular after 1929.
- State Bank of India is an example of Group banking in India. Karur Vysya Bank and Lakshmi Vilas Bank is an example of Group banking.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.