Economics: Types of Banking

What is Branch Banking?

Branch banking is engaging in banking activities such as accepting deposits or making loans at facilities away from a bank’s home office. Branch banking has gone through significant changes since the 1980s in response to a more competitive nationwide financial services market. Financial innovation such as internet banking will greatly influence the future of branch banking by potentially reducing the need to maintain extensive branch networks to service consumers.

Self-service options include, but are not limited to, the use of ATMs, mobile check deposit, automated balance inquiries processed over the phone.

As internet banking has increased, certain banks have closed many branch facilities, estimated at 1,487 closures within the year 2014. Certain banks assert that additional branches are underperforming, likely due to the increase in online banking options, but will likely remain.

Unit Banking

Unit banking refers to a bank that is a single, usually small bank that provides financial services to its local community. 
A unit bank is independent and does not have any connecting banks — branches — in other areas. It is a single, usually small bank that provides financial services to its local community. And it does not have other bank branches elsewhere. 

Mixed Banking

Certain banks undertake both commercial and industrial banking. This system knows as mixed banking. The feature of mixed banking is to attract deposits and raise capital and loans from the public and make them available to industries for both short and long periods.

In mixed banking, the commercial banks promote the industrialization of their country and come forward to provide the initial capital to the newly started industries. Alongside the task of providing capital to industries, mixed banks also perform the functions of deposit banks. 

Chain Banking

Conceptually a form of bank governance that occurs when a small group of people control at least three banks that are independently chartered. Usually, the controlling parties are majority shareholders or the heads of interlocking directorates. 

Retail banking

Retail banking, also known as consumer banking, is the provision of services by a bank to individual consumers, rather than to companies, corporations or other banks. Services offered include savings and transactional accounts, mortgages, personal loans, debit cards, and credit cards.

Wholesale Banking

Wholesale banking is the provision of services by banks to organizations such as Mortgage Brokers, large corporate clients, mid-sized companies, real estate developers and investors, international trade finance businesses, institutional customers (such as pension funds and government entities/agencies), and services. 

Relationship Banking

Relationship banking is a strategy used by banks to enhance their profitability. They accomplish this by cross-selling financial products and services to strengthen their relationships with customers and increase customer loyalty. 

Correspondent Banking

A correspondent bank is a financial institution that provides services on behalf of another, equal or unequal, financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits and gather documents on behalf of another financial institution. 

Universal Banking

A universal bank participates in many kinds of banking activities and is both a commercial bank and an investment bank as well as providing other financial services such as insurance. 

Social Banking

Social banking is used to refer to sustainable banking. The expression has evolved and nowadays also covers banking activities conducted through social networking channels or social ending such as peer-to-peer (P2P) lending.

Connectivity to banking services is major factor impacting sustainable and inclusive growth. Banking sector needs to function with a social conscious apart from business point of view if the economy has to come out of poverty and inequalities.

The Reserve Bank of India in collaboration with specialized financial institutions like NABARD has designed and implemented specialized efforts to enhance financial deepening and widening. The numerical targets set have been achieved to a large extent by banking sector in this regards. But the effectiveness of the task done and sufficiency of the efforts taken In India, since independence, social banking has evolved through various stages and undergone many versions. The Social Banking era in India can said to be originated from nationalization of banks. Fourteen commercial banks were nationalized on 19th July 1969 with the main objectives of allocating funds to the deprived so as to enhance social welfare, eliminating the monopoly control of private business houses and corporate families on banks, extend banking across the country, reducing regional imbalances etc  still needs to be deliberated.

A properly designed and developed banking system, with adequate social orientation, will definitely bring in comprehensive and uniform financial inclusion, which will accelerate inclusive growth of India. 

Virtual Bank

A financial institution that handles all transactions via the Web, e-mail, mobile check deposit and ATM machines. By not having the overhead of physical branches, people expect a virtual bank to offer higher interest rates on their accounts.

Narrow Banking

Narrow banking is a proposed type of bank called a narrow bank also called a safe bank. Narrow banking would restrict banks to holding liquid and safe government bonds. Loans would be made by other financial intermediaries.

Islamic Banking

Banking or banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economics.

Shadow Banking

A shadow banking system refers to the financial intermediaries involved in facilitating the creation of credit across the global financial system but whose members are not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions. Examples of intermediaries not subject to regulation include hedge funds, unlisted derivatives and other unlisted instruments, while examples of unregulated activities by regulated institutions include credit default swaps.

The shadow banking system has escaped regulation primarily because it does not accept traditional bank deposits. As a result, many of the institutions and instruments have been able to employ higher market, credit and liquidity risks, and do not have capital requirements commensurate with those risks.

Shadow banking is a blanket term to describe financial activities that take place among nonbank financial institutions outside the scope of federal regulators. These include investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds and payday lenders, all of which are a significant and growing source of credit in the economy.