System of banking :
What is unit banking meaning?
Unit banking refers to banking practice in which allg activities are handled by a single branch that is
located in a specific area. It is run by either the board members or a dedicated regulatory body. Since
no other person, bank, or corporate body has power over it, it has a separate status.
A unit bank uses the corresponding banking system instead of having any physical branches. It is to
provide services relating to money transfers and fund collections. A financial institution is referred to
as a “correspondent bank” if it engages in a contract with another bank. It is to provide services to its
clients on behalf of that bank.
What is the example of unit banking?
The Reserve Bank of India is a prime example of India’s unit banking system. In contrast to banking
services, which transfer funding to other areas, unit banking only uses its assets to improve the region
in question.
What is the importance of unit banking?
Unit banking is a sort of banking system used in many nations where there is just one tiny,
autonomous bank serving a specific area.
a. Unit banks are unaffected by fluctuations in the regional economy.
b. A unit bank is more autonomous in its activities than a branch bank.
c. A unit bank will spend more money when related to supervision costs.
d. The sources of funding of a unit banking system are exclusive to that one unit.
e. The interest rate is not set in the unit banking system because each unit bank has its own set of
rules and regulations.
f. In a unit banking system, the bank’s profits are put to use either for internal growth or to fulfil
the requirements of the neighbourhood.
g. A unit bank can make crucial choices on its own because it is an independent institution.
Meaning of Branch Banking
Branch Banking refers to a system in which a bank provides banking services through a wide network
of branch offices. If a bank has ten branches in a city, account-holders can choose a nearby branch to
make deposits, withdrawals and avail of other services.
➢ It makes banking convenient as it helps in reducing geographical barriers.
➢ Branch banking is a system of providing banking services through different offices of a bank
that acts as the head branch. The idea is to expand the bank’s business to cater to different
locations and provide services to all its customers.
➢ The branch office will offer all the services that are offered by the main branch. The main
branch controls the operations of the branch office.
➢ Each branch has a manager who is responsible for managing all the activities of that branch.
Functions of Branch Banking
It is important to note that a branch office essentially expands a bank’s business to cater to different
locations and provide services to all its customers. An absence of a branch office poses a
geographical barrier to customers. They will not be able to avail its services if they do not reside in the
same city in which the bank is located. To ensure smooth functioning without any lapses, branch
offices conduct their day-to-day operations as per the policies of the head office.
Branch offices offer the following services:
1 – Account Opening
A bank branch consists of a staff who can guide you in choosing the account type that suits your
needs. You will need to fill an account opening form with your details. For opening a current or savings
account, you will usually need to deposit some money into the account.
2 – Accepting Deposits
Another important function of branches is to accept deposits from the public, safeguard those
deposits and provide interest on them. The different kinds of deposits are:
Term deposits refer to deposits made for a fixed period. The account holder won’t be allowed to
withdraw his money till the date of maturity. The interest rate on a term deposit is slightly higher than
the interest rate on a savings account.
A recurring deposit allows us to invest a certain sum of money every month. We are free to choose
the deposit’s tenure and the monthly deposit amount based on our convenience. This account type is
tailor-made for salaried individuals.
3 – Lending
An important branch banking job involves offering loans to customers based on their needs. It
provides loans to customers up to a certain limit with some interest charged on it. The customer has
to repay the loan amount along with interest in the form of monthly instalments. Banks also lend
money to businesses in the form of short-term loans and long-term loans.
4 – Fund Transfer
A fund transfer is the movement of funds from one person to another through the banking system.
Apart from the electronic transfer of funds, you can also transfer money from one account to another
by check.
5 – Keeping Your Money Safe
Safeguarding public wealth is another important function that a bank performs. Banks also provide a
safe deposit locker facility. Customers can use them to store their valuables, gold, documents, and
other things.
6– Demat Services
Opening and maintaining a Demat account (dematerialization account) is also a function of branches.
The purpose of the account is to hold the shares and securities in an electronic format. A Demat
account allows you to buy shares and keep track of your investments online.
Difference between unit and branch banking
a) Unit banking, in general, means a bank that does not have any branches. It is typically small in
size and provides services to only a specific area in which it operates. No main branch controls
its functioning. On the other hand, branch banking is fully controlled by the main branch. It
usually operates through a wide network of branches spread across locations covering a large
geographical area.
b) Funds for unit banking have to be managed by the bank itself as there is no provision for getting
extra funds from other sources. In case of a financial crisis, the bank has no support from
external sources. In branches, any shortage of funds can be handled by the main branch.
c) In unit banking, the decision-making authority is the bank’s management, while in branches,
decision-making is done by the head office.
d) In unit banking, the rate of interest is decided by the bank itself, while the branches operate
with the rate of interest set by the central bank.
e) In unit banking, loans are granted based on the power and authority of the local people. In
branch banks, loans are granted based on customer credit score.
. Chain banking:
Chain banking refers to the system where one or few individuals control two or
more banking companies or by the same group of persons through purchase of shares
of such banks.The main difference between the two systems is that in case of group banking, the
affairs of the group are controlled by the holding company, whereas in case of chain banking
systemhas more or less the same advantages and disadvantages of the group banking system.4.
Group Banking:
Group banking is a system where a group of banks are brought under the control of aholding company.
The holding company controls the affairs of all units in the group. Buteach bank in the group maintains
its separate identity. The purpose of group banking is tounify the management of banks, to
achieve economies of large-scale operation and to grabmore power.The chief advantage of this
system is that each bank need not carry large cash reserve; suchcash reserves are concentrated in
one or few member banks of the group. In times of needthe bigger banks will help the smaller banks.
Secondly, economies of large-scale productioncan be achieved by cutting down operating cost, by
purchasing supplies in bulk andimproving the efficiency of management.Under group banking system,
both banking and non-banking companies are referred toasaffiliated bank
