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. For instance, Citibank started operations in 1812 in New York, and today it has a network of 4,000 branches in 42 countries. Customers from different countries can utilize its services through branch offices, even if they aren’t staying in New York.
- 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
Let’s take a look at a scenario.
Sam is an account holder of Moneywise Bank. He usually visits the Townsville branch for making deposits and withdrawals. For some reason, he needs to visit his hometown in Somerset. Luckily Moneywise Bank has a branch office in Somerset. Sam no longer needs to carry extra cash on his trip. He can withdraw money as and when he desires from the Somerset branch office.
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.
Wells Fargo, Bank of America, Standard Chartered, Citibank, JPMorgan Chase, and many other banks operate through branch offices across different states. For instance, Bank of America is amongst the top largest banks in the United States. It was founded in 1998 in North Carolina. The bank was a result of many acquisitionsAcquisitionsAn acquisition is defined as the act of taking over or gaining control of all or most of another entity's stocks by purchasing at least fifty percent of the target company's stock and other corporate assets. , and as such, the history can be traced back to centuries.
By 2019, Bank of America had about 4,300 branches, delivering services even outside of the United States. In 2019, as per a Reuters’ report, it was the second bank after JPMorgan Chase & Co in terms of assets.
Likewise, Standard Chartered has its headquarters in London, UK. Formed in 1969, it has over 150-year-old history. As per, The Guardian, in 2o12 itself, despite being placed in London, Standard Chartered functioned in over 1,700 branches in Asia, Africa and the Middle East. The income from these regions amounted to more than 90%.
Unit Banking vs Branch Banking
- 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.
- 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 crisisFinancial CrisisThe term "financial crisis" refers to a situation in which the market's key financial assets experience a sharp decline in market value over a relatively short period of time, or when leading businesses are unable to pay their enormous debt, or when financing institutions face a liquidity crunch and are unable to return money to depositors, all of which cause panic in the capital markets and among investors., the bank has no support from external sources. In branches, any shortage of funds can be handled by the main branch.
- In unit banking, the decision-making authority is the bank’s management, while in branches, decision-making is done by the head office.
- 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.
- 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.
This has been a guide to what is branch banking and its meaning. Here we discuss top functions, examples, and the difference between unit and branch banking, along with key takeaways. You may learn more about financing from the following articles –