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What is branch banking and unit banking?

Updated: 9/15/2023
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Mrsumon

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11y ago

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Under branch banking system, a single bank has many branches spread over a vast geographical area. Here, all branches of a bank uniformly follow the policies formulated by the Head office. Each branch manager manages its business in accordance with the local requirements within the overall policies and guidelines of the Head office. For instance, a deposit oriented branch would remit the surplus to the head office without the need to bother about its effective use. Likewise, advances oriented branches can draw from the head office the required funds.

Branch banking originated in England and is followed in most countries of the world. Australia, India, Canada, South Africa are some of the countries following branch banking system. In India almost all banks follow this type of banking.

Under unit banking system, banks function as monoliths with one office with a few branches spread within a small area of operation. Therefore, a large number of banks operate with a limited area of jurisdiction. The unit banks are linked through a system of correspondent banks. A bank in a small town maintains an account with a bank in a big city. The small banks will seek the help of bigger banks in rendering services, like remittance of funds, etc., to their customers in big cities.

The United States of America is the home of unit banking. It has over 10, 000 commercial banks. The big banks are established under Federal Laws as national banks. Smaller banks are established under the state laws as state banks. The preference of unit banking reflects the economic and political philosophy of the country against the concentration of economic power.

The demerits of branch banking are merits of unit banking. However, it can be seen the advantages of branch banking outweigh, those of unit banking. The disadvantages of branch banking are such as can be overcome by proper planning and adopting good management practices. That is why branch banking is most prevalent system in the world.

M.J. SUBRAMANYAM, XCHANGING CO., BANGALORE

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