oliveboard

FREE eBooks

DIFFERENT
TYPES OF BANKING

BANKING AND
GOVERNMENT EXAMS
Different Types of Banking - Brief Overview Free static e-book

Different Types of Banking is a very important topic when it comes to Banking and
Government Exams especially RBI Grade B, RBI Assistant, SEBI, NABARD, SIDBI, SBI PO
IBPS PO etc. Here we provide you all the definitions and brief overview of different types of
Banking. Read about the different types of Banking that the Banks undertake and learn to
differentiate among them.

Sample Questions
Q1. Which type of 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?
(1) Unit Banking
(2) Branch Banking
(3) Shadow Banking
(4) Para-Banking
Correct Answer: (2)

Q2. What is mixed banking?

(1) It is the system in which banks undertake activities of commercial and investment banking
together.
(2) It is a type of Banking in which all the operations are performed from a single branch
(3) It is a type of banking where banking transactions are held directly with customers.
(4) It is a banking system wherein the Banking operations are performed online.
Correct Answer: (1)

So here we bring to you all the definitions and brief overview of different types of Banking.
Go through these thoroughly so that you don’t miss out on any marks in upcoming Bank and
Government Exams.
Different Types of Banking - Overview Free static e-book

VARIOUS TYPES OF BANKING

There are several different types of Banking, all serving different types of needs of the
customers. In this eBook, we will learn about various types of Banking and relevance of each
type.

1. 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.

2. 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.

3. 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.
Different Types of Banking - Overview Free static e-book

• 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.

4. 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.

5. 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.

6. Universal Banking:
• 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 investor-
confidence. However, if these kinds of banks fail, it costs huge losses as well as
causes a huge dip in consumer confidence.
• The concept of Universal Banking was conceptualized by R.H. Khan in India.

7. Relationship Banking:
• In Relationship Banking, the customer needs are understood by the banks and
then appropriate banking services are offered to the customers according to
their needs.
Different Types of Banking - Overview Free static e-book

• This type of Banking helps banks to gather important information about the
borrowers which in turn helps them to determine the creditworthiness of the
customers.

8. 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.

9. 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.

10. 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.

11. Social Banking:

• Social Banking refers to the system of Banking wherein Banking Services are
oriented towards the public welfare and financial inclusion of the unbanked
population, poor and vulnerable section of the society.
Different Types of Banking - Overview Free static e-book

• The Central Bank of India on the directions of the Government of India has
taken some commendable initiatives for the financial inclusion of the
unbanked populace living in the remotest areas of the country.

12. Narrow Banking:

• The system of narrow banking involves mobilizing the funds towards risk-free
investments mostly government securities.
• It can be considered the opposite of Universal Banking.

13. Islamic Banking:

• Islamic Banking also known as non-interest Banking is a banking system purely
based on the principles of Islam (Sharia Law) and is guided by Islamic law.
• Two fundamental principles of Islamic banking are the sharing of profit and
loss and the prohibition of the collection and payment of interest by lenders
and investors. Islamic law prohibits collecting interest.

14. Shadow Banking:

• Shadow Banking is a system of Banking wherein Non-Banking Financial
Entities provide banking services like those of commercial Banks.
• These Banking Institutions carry out regular banking functions but do so
outside the traditional system of regulated depository institutions.

15. Para-Banking:
• In this system of Banking, Banks perform banking activities different from the
regular banking activities (deposit and withdrawal of money).
• Banks under Para-Banking can take up activities by setting up subsidiaries.
 FREE Ebooks Current Affairs
Download Now Explore Now

FREE MOCK TESTS + TOPIC TESTS + SECTIONAL TESTS

For Banking, Insurance, SSC & Railways Exams

Web APP

BLOG FORUM

Your one-stop destination Interact with peers & experts,

for all exam related exchange scores
information & preparation & improve your preparation.
resources.

Explore Now Explore Now

www.OliveBoard.in