Definition

Correspondent Banking System

The unique feature of unit banking system is the correspondent banking system. This is an arrangement with which banks carry account with banks in the neighboring cities and these banks in turn have accounts with the large cities like New York. Banks in New York have correspondent bank relation with many branches throughout the country. The small bank in the small community, which holds deposits for the small bank is the correspondent bank.

The major service of the correspondent bank is clearing of cheques and movement of funds from one place to another. Another valuable service rendered by the bank is strengthening the financial resources of banks during tight money periods. It also acts as source of information and helps in various operations.

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