The local bank you walk into every day for your financial service needs is either a branch bank or unit bank in nature. On many key points, the branch banking and unit banking system differ from each other. Banking systems encourage small, independent banks or theoretically independent banks but are owned by a bank holding company.
Why Branch Banking and Unit Banking are different?
The unit banking of a particular locality utilizes its resources to develop its locality and does not transfer them to other localities like branch banking. Branch banking refers to a single bank that operates through various branches in a city or different locations or out of the cities.
The main difference between branch banking and unit banking is that a branch bank operates through branches, and a unit bank is a single branch small bank. There is some distinct difference between the branch and unit banking system. These are as follows:-
| Point of Differences | Branch Banking | Unit Banking |
|---|---|---|
| Operational freedom | Less Operational freedom. | More Operational freedom. |
| Loans and advances | Loans and advances are based on merit, irrespective of status. | Loans and advances can be influenced by authority and power. |
| Financial resources | Larger financial resources in each branch. | Larger financial resources in one branch |
| Decision-making | Delay in Decision-making as they have to depend on the head office. | Time is saved as Decision-making is in the same branch. |
| Funds | Funds are transferred from one branch to another. | Funds are allocated in one branch, and no support from other branches. |
| Cost of supervision | High | Less |
| Mismanagement | It exists as improper use of power, and authority exist | Proper checks are taken up. No misuse of Mismanagement |
| Differences | Branch Banking | Unit Banking |
| Specialization | Division of labor is possible, and hence specialization is possible | Specialization is not possible due to a lack of trained staff and knowledge |
| Competition | High competition with the branches | Less competition within the bank |
| Locality, Resources, Funds, Profits | Shared by the bank with its branches | Used for the development of the bank |
| Deposits and assets | Deposits and assets are diversified, scattered, and hence the risk is spread at various places. | Deposits and assets are not diversified and are in one place; hence the risk is not spread. |
