Difference Between Unit Banking and Branch Banking

Unit and branch banking are the two popular types of banks.


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Unit Banking vs Branch Banking

Unit banking is a system where each bank branch operates independently, with separate management and operations. In contrast, branch banking is a system where multiple branches operate under a single banking institution, with a centralized management system. Unit banking is typically found in smaller, rural communities, while branch banking is more common in larger urban areas.

Unit Banking vs Branch Banking

Unit banking is independent of any other entity and branch can be one of the many branches of the bank. This unit is independent of any other and as such is not connected to any other bank, branch or financial institution.

In branch banking, branches or banks are often located outside the area of their customer’s domains. They are controlled and supervised by a larger parent company.

Comparison Table

Parameter of ComparisonBranch BankingUnit Banking
Geographical CoverageBanks operate in many places and reach out to clients through a network of branches.Services are geared to the local community through a single outlet.
Independence of ServiceEach brand is answerable to a parent company for resources and directions.Everything happens at the outlet level with no larger company to oversee operations.
Operational StabilityStable and more resilient to any economic downturns.Are highly susceptible to the shocks and downturns which affect the area of operations.
Resource BaseDerives its financial resources from numerous sources.Its economic mainstay is the local unit. It has a narrower base as such.
Decision MakingSlower decision making because of the need to consult the head officeFaster and more reliable decision making as this does not involve any consultation.
Skill and Expertise LevelsHighly skilled labor and expertise. This stems from the complex operations and the huge resource base.Less skilled labor and expertise. The units lack the resource base to hire specialized staff.
Interest RatesFixed at the head office level and with the directions of the central bankThe unit bank has the leeway to determine its own rate of choice.

What is Unit Banking?

As explained above, unit banking is the provision of banking and financial services through a single branch or outlet.

In this instance, the services are confined to a narrow geographical area only. Similarly, each bank contains its own shareholders as well as a board of management.

Unit Banking

What is Branch Banking?

Branch banking, on the other hand, refers to the provision of standard banking services through a branch or a network of banks.

These are scattered far and wide and transcend various geographical boundaries at a time. All these branches are held together by a central command or head office.

Branch Banking

Main Differences Between Unit Banking and Branch Banking

1) Management

Unit banks are easier and more effective to manage than branch banking. This stems from their autonomy which gives them the leeway to make far-reaching decisions single-handedly.

2) Geographical Scope

By its nature, the unit bank is intended to impact only the local geographical locale.

The branch banks, however, reach out to a wider scope of potential customers who have spread abroad.

3) Decision-making

Given their autonomy, the unit banks are capable of making swift and far-reaching decisions with ease.

The branch banks have to consult with the head office and wait for quite some time to arrive at any decision.

4) Competition and Dominance

Unit banks are generally smaller in size. They are as such unlikely to develop any monopolistic tendencies. The exact opposite, however, applies to the branch banking approach.

5) Resource Transfer and Distribution

Given their limited reach and meager resource base, unit banks can make almost no contribution to the distribution of resources.

The branch banks do this so well courtesy of their larger operational reach.

6) Operational Flexibility

By all accounts, unit banks are more flexible. They can easily adjust their operations to mirror the needs of the client base.

In the case of branch banks, you have to go through a very tedious bureaucracy to have your way through.

7) Diseconomies of Scale

Any large firm confronts some unique problems which arise from its sheer large size. These are called diseconomies of scale.

Unit banks suffer less from these problems when compared to the branch banks.

8) Risk Distribution

Closely related to the above is the issue of risk distribution. Unit banks are affected by external risks in ways that are worse than the branch banks.

That is because they have nowhere else to operate.

9) Sphere of Influence

Unit banks have a comparatively limited sphere of influence. These are mostly concentrated in urban areas and local communities.

The branch banks, on the other hand, have a wider and deeper reach.

10) Interest Rates

Interest rates tend to fluctuate and vary widely from one unit bank to another. There is no central command to vary these rates.

As for branch banks, the rates are uniform regardless of the area of operations.

11) Competition

Given that unit banks are run by and are independent of each other, they tend to compete undesirably with one another. Branch banks are unique though even when they belong to different parent companies.

They are hence less likely to pose any unhealthy competition among each other.

Difference Between Unit Banking and Branch Banking


  1. https://www.sciencedirect.com/science/article/pii/0304393284900175
  2. https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/branch-banking-and-the-availability-of-banking-services-in-metropolitan-areas/6026C8AAAF143B2EF50F76D85AA9E430
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