QS Study

Unit banking refers to a bank that is a solitary, generally small bank that provides financial services to its local area. Branch banking is a banking process where a bank operates in more than one place to present banking services to customers, through its branches.

Differentiate between Branch Banking and Unit Banking –

(a) Operational Freedom

  • Branch Banking – Less operational freedom
  • Unit Banking – More Operational freedom

(b) Loans and advances

  • Branch Banking – Loans and advances are based on merit, irrespective of the status
  • Unit Banking – Loans and advances can be influenced by authority and power.

(c) Financial Resources –

  • Branch Banking – Larger financial resources in each branch.
  • Unit Banking – Larger financial resources in one branch.

(d) Decision-making –

  • Branch Banking – Delay in Decision-making as they have to depend on the head office.
  • Unit Banking – Time is saved as Decision-making is in the same branch.

(e) Funds –

  • Branch Banking – Funds are transferred from one branch to another. Underutilization of funds by a branch would lead to regional imbalances.
  • Unit Banking – Funds are allocated in one branch and no support of other branches. During the financial crisis, the unit bank has to close down. hence lead to regional imbalances or no balance growth.

(f) Cost of Supervision –

  • Branch Banking – High
  • Unit Banking – Less.

(g) A concentration of power in the hand of few people –

  • Branch Banking – Yes
  • Unit Banking – No

(h) Specialization –

  • Branch Banking – Division of labor is possible and hence specialization possible.
  • Unit Banking – Specialization not possible due to lack of trained staff and knowledge.

(i) Competition –

  • Branch Banking – High competition with the branches.
  • Unit Banking – Less competition within the bank.

(j) Profits

  • Branch Banking – Shared by the bank with its branches
  • Unit Banking – Used for the development of the bank

(k) Specialized knowledge of the local borrowers –

  • Branch Banking – Not possible and hence bad debts are high.
  • Unit Banking – Possible and less risk of bad debts.

(l) Distribution of Capital –

  • Branch Banking – Proper distribution of capital and power.
  • Unit Banking – No proper distribution of capital and power.

(m) The rate of Interest –

  • Branch Banking – Rate of interest is uninformed and specified by the head office or based on instructions from RBI.
  • Unit Banking – Rate of interest is not uninformed as the bank has own policies and rates.

(n) Deposits and assets –

  • Branch Banking – Deposits and assets are diversified, scattered and hence risk is spread at various places.
  • Unit Banking – Deposits and assets are not diversified and are at one place, hence risk is not spread.
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