Various Types of Banking

Banking is defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to conduct economic activities such as making profit or simply covering operating expenses. There are several different types of Banking, all serving different types of needs of the
customers, given following:

Branch Banking:

  • Branch banking is engaging in banking activities such as accepting deposits or extending loans at facilities or locations away from a bank’s home office or headquarter.
  • Branch banking allows a financial institution to expand its services to an area outside of the home location, functioning as an extension of the home location. It can be a more cost-effective approach because not all the locations are required to offer the same levels of services as the home location, allowing smaller offices to provide key services while larger locations provide additional services.
  • The advantage of branch banking is that it helps in better management, more inclusion and risk diversification.
  • The disadvantage of branch banking is that it might encourage outside local influences.

Unit Banking:

  • In unit banking, all the operations are performed from a single branch.
  • It is a limited way of banking where banks operate only from a single branch or a few branches in the same area taking care of the local population of that area.
  • The size of the unit banks is small as compared to branch banking.
  • Due to the small size of the Unit Banks, decision making is very fast as the management enjoys more autonomy and discretionary powers at their disposal.
  • Due to the single unit of the Bank, the risks are not diversified.
  • A customer having an account in a specified branch must undergo all banking activities through that branch

Mixed Banking:

  • Mixed Banking is the system in which banks undertake activities of commercial and investment banking together.
  • It can also be described as the dual functioning of investment banking and commercial banking.
  • These banks give short-term and long-term loans to industrial concerns. Industries don’t have to run to different places for differential financial needs. Mixed Banking thus promote rapid industrialization.
  • Mixed Banking may however pose a grave threat to liquidity of a bank and lead to bad debts.

Wholesale Banking:

  • Wholesale banking involves banking services for high net-worth clients like corporate, commercial banks, mid-size companies etc.
  • It is provided by banks to organisations like Corporate Clients, Institutional Customers (such as pension funds & government agencies), International Trade Finance Businesses, Medium Scale Companies, Mortgage Brokers, Real Estate Developers and Investors and services offered to other banks or financial institutions.

Retail Banking:

  • Retail banking means where banking transactions are held directly with customers. The Bank provides all kinds of personal banking services like savings accounts, current accounts, transactional accounts, mortgages, personal loans, debit and credit cards etc. to the customers directly.
  • Retail banking is the type of banking that is visible to general public.

Universal Banking:

  • The concept of Universal Banking was conceptualized by R.H. Khan in India.
  • Universal banking is a system of banking under which big banks undertake a variety of banking services like commercial banking, insurance, investment banking, merchant banking, mutual funds etc.
  • It involves providing all the above services to the customers under one roof by financial experts who can handle multiple financial products.
  • This makes the banking operations economical and boosts investorconfidence. However, if these kinds of banks fail, it costs huge losses as well as causes a huge dip in consumer confidence.

Virtual Banking:

  • Virtual Banking refers to a banking system wherein the Banking operations are performed online.
  • One of the biggest advantages of Virtual Banking is that Banking operations become very cost effective as banks don’t need to have physical offices.
  • Low Banking operations costs are passed on to the customers by the Banks in the form of waiver of fee or offering higher rate of interests on accounts.
  • The Indian markets still have fears instilled in them with respect to virtual banking and they consider branch banking more suitable as they can visit the branch and be assured of their transactions.

Chain Banking:

  • Chain banking system refers to the type of banking wherein a group of persons come together to own and control three or more independently chartered banks.
  • Despite of common control and ownership, each of the banks can maintain their individual existence and operations.
  • The banks in the chain are assigned different functions so that there is no overlapping of interests and no loss in profits of the respective banks.

Correspondent Banking:

  • Correspondent Banking is considered the most profitable way of doing business as the Banks do not have any physical presence or any limited permissions in respect to Banking operations.
  • Correspondent banks thus act as banking agent for a home bank and provides various banking services to customers where otherwise the home bank does not operate.
  • It helps Banks’ customers perform banking operations and transactions at any place with ease without the physical presence of their Bank branches there.