Unit Banking: It is a system of banking where an independent bank undertakes banking function in a particular area. The operation of a unit bank is limited to a particular area and hence this system is also known as “localized banking. A unit bank has just one office with no branches. This banking system was originated and developed in the USA.
Advantages of Unit Banking:
1. Easy management and control: The management and control of unit banks is much easier due to single office and is small size.
2. Quick decision: Decision making process is quick because there is no necessity of any consultation with external authorities.
3. Local Development: Unit banking is limited to a particular area. Funds of the bank are utilized locally and are not significance to other areas.
4. Prevention of monopoly: Unit banks are generally of small size. Thus, there is no possibility of monopoly in unit banking system.
Disadvantages of Unit Banking:
1. No distribution of risks: There is no possibility of distribution of risks because the banking operations are highly localized.
2. Less ability to face risks: The chance of failure of unit bank is more because of its limited resources, limited area of operations and lack of diversification of risks.
3. Local pressure: Since unit banks are highly localized in their business, local pressure and interferences generally disrupt their normal functioning.
4. Difference in Interest rate: Different banks charges different rate of interest depending on demand and supply of Funds in the area of operation.
Branch Banking: It is system of banking where large commercial bank undertakes banking activities with a network of branches.
Branch Banking: Branch banking refers to a system where a large commercial bank operates through a network of branches across different regions. This system is also called “delocalized banking” and originated in England.
Advantages of Branch Banking:
1. Benefits of large Scale Production: Due to large scale production, the cost per unit of operation is very low in case of this system.
2. Distribution of Risks: There is a distribution of risks because the losses incurred by one branch are made up by the profits earned by other branches.
3. Effective Central Bank control: Due to presence of few big banks in the banking system, the RBI can effectively and easily regulate the activities of banks.
4. Public Confidence: Branch banking system gains greater public confidence because of its large scale operations and huge financial resources.
5. Easy transfer of funds: Since the branches of bank under branch banking are spread all over the country, it is easier and cheaper, for it to transfer funds from one place to another.
Disadvantages of branch banking:
1. Problems of Management: The effective management and control of bank under branch banking system is difficult due to large network of branches.
2. Delay in Decision Making: Decision making is delayed because the branch manager has to consult with the head office before taking decision.
3. Ignorance of local heads: Branches follows the policies framed by the head office. The head office and the branch may not be aware of the local conditions.
4. Monopolistic tendencies: Branch banking encourages monopolistic tendencies. A few big banks can dominate and control the whole banking system.
5. Regional imbalances: Under branch banking system the financial resources collected in smaller and backward regions are transferred to the bigger industrial centre. This encourages regional imbalances in the country.
