Difference between Branch Banking and Unit Banking

The key difference between branch banking and unit banking is that while branch bank operates through branches; unit Bank is generally a single branch small bank, which provides financial services to the local community. 

In Branch Banking, the Branches in India are set up under Section 23 of Banking Regulations Act, 1949. A branch should cater to all banking services and include a specialised branch,  a satellite office, an extension counter, an ATM, administrative office, service branch and a credit card centre for the purpose of branch authorisation policy. It helps in better management, more inclusion and risk diversification.

On the other hand, Unit banking is a limited way of banking where banks operate only from a single branch (or a few branches in the same area) taking care of local community.  Unit system of banking originated in the united States. In Unit system, the size of banks is small as compared to branch banking. Due to small scale of operations and quick decisions, the work is more efficient. These banks are involved in developmental works in the areas of operations. The management enjoys more autonomy and thus more discretionary powers. However, due to single units, the risk is not distributed or diversified. It may however encourage outside local influences.

The following table differentiates between Branch and Unit Banking.

Branch BankingUnit Banking
Bank operates through branches connected to each other. Each branch provides usual banking services but the control is done by the head office or central office.Unit Bank is generally a single branch small bank, which provides financial services to the local community in which it operates. There are no branches or small branches in a limited locality only.
Branch Banking is more stable and resilient to ups and downs in the local economy because of backing by other branches and head office.Unit banks are vulnerable to failure and are subject to heavy risk in case of failure of local economy.
Branch Banking has less operational freedom.Unit Banking has more operational freedom.
Branch banking has more financial resources at its disposal.The financial resources in unit banking are concentrated only in one unit.
Since decision making is controlled by the head office, the process is slow in branch banking. Further, Branch banking involves higher costs of supervision.Decision making is fast due to all decision to be made in one unit. Unit banking involves lower cost of supervision.
Branch banking goes hand in hand with the division of labour. Some branches may offer specialized services.Since there is one unit, there is no division of labour and no specialization in service.
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  • Mrinmoy

    thanks for that