Difference Between Unit Banking and Branch Banking (With Table)

Unit Banking vs Branch Banking

The difference between Unit banking and Branch banking lies in the fact that unit banking is independent of any other entity and branch can be one of the many branches of the bank.

Unit banking refers to the provision of banking services through a single outlet and typically to a local community.

This unit is independent of any other and as such is not connected to any other bank, branch or financial institution.

Branch banking, on the other hand, entails the provision of banking services through a firm that is interconnected to many other banks or branches.

These 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 Between Unit Banking and Branch Banking (in Tabular Form)

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.

People in the bank branch
People in the bank branch
 

What is Branch Banking?

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

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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.

People in queue outside bank branch
People waiting for their turn outside bank

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.

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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.

 

How to Remember the Difference Between Unit Banking and Branch Banking

Time Needed : 2 minutes

Remembering the differences is very simple, just follow our mind mapping guide given below:

  1. Associate the first word with a thing or item which you see daily

    For e.g.: Middle line in letter H for Horizontal

  2. Associate the second word with a thing or item which you see daily

    For e.g.: The two lines in letter V for Vertical

  3. Recall the two words daily two times

    During morning and evening bring up the two words in front of you and then recall the things that you had associated with each word.

  4. Repeat for 7 days

    Repeating this process for a week will help you remember the difference between words for a long time


 

Frequently Asked Questions (FAQ) About Unit and Bank Banking

  1. Advantages and Disadvantages of Unit Banking and Branch Banking?

    Unit Banking Pros:
    1) It's easy to Manage
    2) Tries to solve the local problems
    3) Lower chances of fraud
    4) Better efficiency

    Unit Banking Cons:
    1) Lack of division of labor
    2) Very limited resources
    3) Difficult to develop in backward areas
    4) It is expensive to transfer funds

    Branch Banking Pros :
    1) Better processes
    2) More cash reserves
    3) Easy to transfer accounts from one branch location to another

    Branch Banking Cons :
    1) Difficult to detect leakages
    2) Decision making takes time
    3) No personal touch for customers

  2. What is a Bank Branch Example?

    The example of the Bank branch is an office of Citibank opened in the state of New York. Note that New York has multiple offices of Citibank which means that there are multiple branches of Citibank in New York.

  3. What is a Branch Code for the Bank?

    The branch code is part of the IFSC code of that branch. The IFSC code can identify a branch and is unique to it.

  4. Unit Banking System Originated in Which Country?

    Unit banking was started in the United States


 

Infographic

Unit Banking vs Branch Banking Infographic

 

Learn More With the Help of Videos

Unit Banking

Branch Banking

 

Conclusion

Well, as you may well have noted, the differences between the unit banking and branch banking are as far wide as the heavens are from the earth.

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These vast differences notwithstanding, they are still great and useful to any economy. Their importance cannot hence be wished away.

Having done our part in pointing out these differences, we now leave it to you to make good use of the information.

You may opt to start a business, share it with others, or find a way of improving these two operational models.

 

Word Cloud for Difference Between Unit Banking and Branch Banking

The following is a collection of the most used terms in this article on Unit Banking and Branch Banking. This should help in recalling related terms as used in this article at a later stage for you.

Word Cloud for Unit and Branch Banking

 

References

  1. https://www.merriam-webster.com/dictionary/unit%20banking
  2. https://www.britannica.com/topic/money-market/The-U-S-money-market#ref27323
  3. https://www.lopol.org/article/the-concept-and-basic-functions-of-branch-banking
  4. https://en.wikipedia.org/wiki/Branch_(banking)

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