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2 December 2023

Difference Between Unit Banking and Branch Banking

Unit banking is a single branch in a small bank, on the other hand, a branch bank operates through branches. This is the main difference between Unit banking and branch banking. So let us check out the difference between unit banking and branch banking, their function, meaning, Funds, financial resources, examples, and more.

What is Branch banking?

Branch banking refers to a banking system in which a financial institution offers banking to its clients across the nation and even globally through its vast network of branches. For the convenience of clients, branch banking is the operation of storefront sites apart from the institution's main office. A more integrated and competitive financial services industry has resulted in significant changes to branch banking in the United States since the 1980s. The ability to offer banking services insurance and investment goods all under one roof since 1999 is one of the biggest improvements. Every branch has a manager who oversees the administration of the branch over which they have control, by the guidelines and directives that are periodically established.

What is Unit Banking?

Unit banking refers to a type of banking where all banking activities are handled by a single office that is located in a designated area. It is run by the members of the board or by its own governing body. Since it is not governed by a bank, corporation or other entity, it operates independently.

A unit bank uses its correspondent banking system to provide services relating to fund collection and remittance. It does not have any physical branches. A financial institution that signs a deal with another bank to provide services to its clients on behalf of the latter is known as a corporate bank.

Difference between Unit Banking and Branch Banking

  • Unit banking is a small company providing a single outlet for banking services, Branch banking is a relatively larger company owning multiple branches that provides banking services.
  • A unit bank has more independence of operation as compared to a branch bank.
  • When it comes to supervision cost, it is higher in the case of a unit bank than a branch bank.
  • Unit banking is less competition within the bank, on the other hand, Branch banking is higher competition with the branches.
  • Unit banking is used for the development of the bank, but branch banking is shared by the bank with its branches.
  • Unit banking is lower accessibility and network distribution, On the other hand, Branch banking is higher accessibility and network distribution.
  • Unit banking is less expensive by a larger margin, Whereas Branch banking has higher expenses.
  • In a unit banking system the financial resources are limited to the particular unit only, a branch bank has a large pool of financial resources, at its disposal.
  • In a unit banking system, Specialization is not possible due to a lack of trained staff and knowledge. As against, the branch banking division of labor is possible and hence specialization possible.
  • No proper distribution of capital and power in the unit banking system, on the contrary branch banking system proper distribution of capital and power.
  • Unit banking has less division due to a limited area, on the other hand, branch banking has higher division due to a widespread area.
  • In unit banking, the rate of interest is not fixed as the unit bank has its own policies and guidelines, Whereas in branch banking the interest rate is decided by the head office, as per the direction of the central bank.
  • A unit bank saves time through quick decision-making, In contrast in a branch banking system, the decision-making is time-consuming, as it has to rely on the head office.
  • In the unit banking system, the Deposits and assets are not diversified and are in one place, and risk is not spread in unit banking, On the other hand Branch banking system deposits and assets are diversified, and scattered, and hence risk is spread at various places. 
Thanks for reading the article. Still, if you have any questions or queries in your mind on the Difference Between Unit Banking and Branch Banking then please ask us in the comment section below.

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