Difference between manufacturing company and banking company

1. DIFFERENCE BETWEEN A MANUFACTURING COMPANY AND A BANKING COMPANY
SN PARAMETER MANUFACTURING COMPANY BANKING COMPANY
1. Deals in Physical Products Raw Material and Finished Product is primarily Money or its form /
commitment.
2. Operating
Network
required
Manufacturing Centres can be in limited
numbers across Geography. Both
Manufacturing and Sales network can be
outsourced to dealers which may not be
owned by the Company.
Requires Wide network of Branches spread across the country to
meet varying customer needs based on geography.
3. Product
Sale Cycle
Once the product is sold, the transaction
is over for the Company.
In case of Deposits, Advances, BG and LC etc., the transaction
lasts till the repayment or extinguishing of the liability and the risk is
carried till then by the Bank on its books.
4. Relationship
with Debtor
and Creditor
Only the Debtor is a customer Both the Debtor and Creditor is a customer and the relationship has
to be managed and nurtured for long periods of time.
5. Regulation Level of Regulation is relatively less
Limited restriction on where to invest and
how much to invest
 Highly Regulated by International and Domestic Regulators and
Laws.
 RBI, MOF, CBI, CVC, RTI, FIU, State Government,
 Wide range of Laws are applicable for Transactions and
Operations
 are constrained by regulation in both where they invest their
funds and how much they invest
6. Compliances /
Disclosures
required
Relatively limited number and range of
Compliances and disclosures
Level and Range of Compliances and disclosures to be met are
large in number and at different levels in the organization
Penalties are severe and can lead to loss of licence.

2. SN PARAMETER MANUFACTURING COMPANY BANKING COMPANY
7. Risks Involved
– Type and
Level of Risk
Relatively the risks are limited and can be
better managed.
 Banks are subject to a wide range of Risks which includes –
Credit Risk, Market Risk, Operational Risk, Capital Risk,
Reputation Risk, Forex Risk, Money Laundering Risk,
Concentration Risk, Interest Rate Risk, HR Risk, Technology
Risk, Country Risk, Compliance Risk, Liquidity risk, Systemic
Risk, Strategic Risk, Settlement Risk, Legal Risk, Maturity Risk,
etc. and Hence Structured Risk Management on ongoing basis
is required.
 Risks are highly Dynamic
 Risk levels are High in terms of Intensity and Frequency
 Risks have to be managed at every level : International,
National, Regulator, Bank HQ, RO, Branch, Transaction
8. Assets Mainly physical assets comprising fixed
assets (Land, bldg., plant and machinery)
and current assets ( Stocks, Debtors)
Mainly financial assets comprising Bonds, equities, Mutual funds,
CP, CD, Loans, BG, LC,
9. Future income Assets and Liabilities of mfg concern
generate income for current periods from
sale of goods and services
Deposits and Loans created with varying maturities are sources of
future expenditure and income. The major source of income is
interest and fees.
10. Accounting
standards
Major portion of the assets are not marked
to market
Significant portion of the assets of a financial service firms are
marked to market
11. Provisions Provisions are based on actual losses
and buffers are not created for future
losses.
Banks usually create provisions for losses that average out losses
over time and charge this amount against earnings every year.

3. SN PARAMETER MANUFACTURING COMPANY BANKING COMPANY
12. Characteristics
of assets and
liabilities in
balance sheet
No of items, Size, timing, flow, mix,
volatility, value, cost, yield of assets are
liability items in balance sheet are limited
relative to a bank
Assets and liability items are large, varying and dynamic in terms of
- No of items, Size, timing, flow, mix, volatility, value, cost, yield
13. Leverage The leverage of a mfg. company is in the
range of 1:2 to 1:5
 Basel Committee recommends Risk weighted CRAR of 8%
which works out to leverage of 1: 12.50.
 The leverage prescribed by Basel 3 is 3% without risk weighting
and netting which works out to a leverage of 1:33
 Banks are therefore highly leveraged.
14. Liquidity Mfg. companies are relatively liquid
considering the nature of its current
assets and current liabilities. Assets can
be liquidated at short notice.
By its very nature of business, Banks are illiquid since the loans
granted for varying periods (which are the major components of
assets) cannot be liquidated at short notice.
15. Involvement of
Public Money
The public money in Mfg. companies is
restricted to Share Capital, Bonds and
Fixed deposits raised if any.
Since depositor’s money is the raw material, the entire Banking
business rests on Public Money which has to be repaid in time
irrespective of recovery from the borrowers.
16. Off-Balance
Sheet Size
and Range
The no, range and quantum of Off-
Balance sheet items is limited relatively.
The no, range and quantum of Off-Balance sheet items for BG, LC,
Forward Contracts, Derivatives etc is high and hence the relative
risks remain in Banks books and have to be managed actively
17. Impact of
failure
Impact of failure is limited. Impact of failure is direct and large which may lead to disturbances
in the economy affecting all depositors and shaking Public
Confidence. Provisions have to be made in BS for existing and
anticipated losses & Capital has to be provided accordingly.
18. Profit Margin Profit margins are high compared to the
extent of money deployed
Profit margins in Banking Companies are low compared to the
extent of money deployed

4. SN PARAMETER MANUFACTURING COMPANY BANKING COMPANY
19. Impact of
External
Factors
Impact of External factors is limited to the
industry in which the Mfg. company is
operating.
Since Banks have exposure to wide range of Industries and Sectors
and Countries any change in External Factor or Policy or Price
fluctuation impacts the Banking quickly.
20. Employee
Skills
Limited range of Employee skills Lot of judgement in decision making for Loans is involved
Wide range of Employee skills including specialized skills are
required which have to be updated. HR Risk is high. Attrition rates
are higher and constant recruitment and training have to be
ensured.
21. Capital
Requirements
Limited capital requirements based on the
size of business. If production is scaled up
the capital requirements are not
proportionately to be increased.
Banks are capital intensive and without capital growth of business
is not possible. For increase in advances and off-balance sheet
business proportionate capital is required. Hence capital is required
to be raised on an ongoing basis.
22. Loss Losses arise due to pricing, inability to
market at competitive rates, quality etc
Loss due to frauds is limited in number
and amount
Losses arise due to bad debts (NPA), Trading / Inv losses, etc.
Frauds in Banks are frequent and across all products and services
and can emanate from any branch or business unit. 100% provision
has to be made for frauds and bad debts (loss assets)
23. Competition Competition is not as fierce as for Banks
since number of competitors are limited in
number.
Competition is fierce. Banks have to compete with PSBs, Pvt Sector
Banks, Small finance bank, Co-operative Banks, Chit Funds, and
Co-operative Credit Societies etc.
Capital Market Instruments such as equity, MF, Debentures,
Corporate Fixed Deposits, NBFCs, Housing Finance Companies,
Informal Sector Money Lenders, State Financial Institutions,
24. Data Intensity Manufacturing business is not as data
Intensive as banking business
Banking Business is highly data intensive with voluminous daily
addition to data which is dynamic in nature and wide ranging
covering various types of transactions.
25. Conflict of
Interest
Conflicts of Interest is limited Conflicts of interest is wide ranging across the organization and
across all processes.

5. SN PARAMETER MANUFACTURING COMPANY BANKING COMPANY
26. Economic
aspect
They form the real economy producing
goods and services
They support the economy by providing money – oil that lubricates
and enables manufacturing companies to run
27. Funding Banks fund the fixed assets and working
capital
Capital, Long term borrowing and Deposits constitute the major
source of funding for a bank
28. Mergers and
acquisitions
Manufacturing companies are generally
product specific and hence mergers take
place in the same line such as vehicles,
pharmaceuticals etc.
Groups like TATA can have different
products under the same overall Group
management.
Banking companies can cater to specific areas such as Regional
Rural banks, Investment banks, Commercial banks, Cooperative
Banks, Development banks, NBFCs, Housing Finance companies,
Small Finance banks, PACS – Primary Agricultural Cooperative
societies, Urban Cooperative banks.
29. Product range Generally limited to limited product range
under one specific segment with different
models such as cars
Banks undertake various types of business and provide wide range
of products and services such as deposits, loans, BG, LC,
Derivatives, Lockers, Demat services, as well as third party cross-
selling such as MF, Insurance, Share trading, etc
30. Business
restriction
No restrictions on holding level by
promoters or fit and proper criteria for
promoting a manufacturing company.
Promoter holding levels are restricted by RBI along with voting
power of promoters. Promoters / Promoter Group should have a
past record of sound credentials and integrity as a part of ‘Fit and
Proper’ criteria
Risk Management is required and essential in Banks because of the following reasons:
1. Range of risks are wide, high, frequent, dynamic and remains over long periods of time both for on-balance sheet and off-
balance sheet items as well as intangible items such as HR.
2. Being Capital intensive, Capital optimization is possible only with proper Risk management.
3. External and Internal Factors impact banks including frauds.
4. Public money has to be protected
5. Technology changes are frequent and products and services have to be delivered through Technology.