Disadvantages of Branch Banking

Following are the main disadvantages and limitations of branch banking system:

1. Problem of Management:

Under the branch banking system a number of difficulties as regards management,

supervision and control arise:

(a) since the management of the bank gets concentrated at the head office, the managers
can afford to be lax and indulgent in their duties and are often involved in serious
irregularities while using the funds.

(b) Since the branch manager has to seek permission from the head office on each and
every matter, this results in unnecessary delay and red- tapism in the banking business.

2. Lack of Initiative:

Branch managers generally lack initiative on all-important matters; they cannot take
independent decisions and have to wait for. The clearance signal from the head office.

3. Monopolistic Tendencies:

Branch banking encourages monopolistic tendencies in the banking system. A few big
banks dominate and control the whole banking system of the country through their
branches. This can lead to the concentration of resources into a few hands.

4. Regional Imbalances:

Under branch banking system, the financial resources collected in the smaller and
backward regions are transferred to the bigger industrial centres. This encourages
regional imbalances in the country.

5. Adverse Linkage Effect:

Under branch banking system, the losses and weaknesses of some branches also have
their effect on other branches of the bank.

6. Inefficient Branches:

In this system, the weak and unprofitable branches continue to operate under the
protection cover of the large and more profitable branches.

7. Other Defects:

Other defects of branch banking system arc as follows:

(a) Preferential treatment is given to the branches near the head office,

(b) Higher interest rates are charged in the developed area to compensate for the lower
rates charged in the backward areas,

(c) There is concentration and unhealthy competition among the branches of different
banks in big cities,

(d) Many difficulties are faced when a bank opens branches. In foreign countries.

Advantages Of Branch Banking

Wednesday, May 12, 2010

Followings are the main advantages of branch banking

1. Less Costly
Larger banks have the resources and system to deliver low cost, broadly based services.

2. Diversification
A branch banking organization can diversify its sources and uses of funds among various
users. It can direct funds into a market requiring financing.Deposits are received from the
areas where lots of savings and loans are extended in those areas where funds are scarce
and interest rates are high.

3. Greater efficiency
Under branch banking system, the bank with a number of branches processes huge
financial resources and enjoys the benefits of large-scale operations. Highly trained and
experienced staff is appointed which increases the efficiency of the management.

4. More Safer
A large banking system is generally safer. Fewer bank failures have occurred among
large banks.
5. Variety of services and low transaction costs
A greater variety of services and products become available to a broader banking public.
Since the bank branches are spread over the whole country, it is easier and cheaper to
transfer funds from one place to another.

6. Security against the risk of failure

The branch banking is less risky and greater capacity to handle risks. The losses incurred
by some branches may be offset by the profits earned by other branches.

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Blog Archive
• ▼ 2010 (30)
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 Sources Of Demand And Supply For Liquidity Within ...
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 Bank Holding Company Organization
 Disadvantages Of Branch Banking
 Advantages Of Branch Banking
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Showing newest posts for query branch banking. Show older posts
Advantages And Disadvantages Of Bank Holding Company

Friday, May 14, 2010

Advantages Of Bank Holding Company

Followings are the main advantages of bank holding company

1. There is greater liquidity and mobility of resources.In case of crisis, funds can be
transferred other banks
2. Each member banks retains its separate entity and maintains its board of directors. But,
at the same time, grouped banks enjoy the benefits of centralized administration.
3. There is economy of advertisement expenditure. There is also a common purchasing
agency which leads to economy in purchases.
4. Services of experts can be made available to the member banks to manage their
business efficiently.
5. Common standardized account system improves the working of member banks.
6. Large scale banking operations often indulge in corrupt practices.

Disadvantages Of Bank Holding Company

Followings are the main disadvantages of bank holding company

1. The control of member banks under the group banking system is less direct and more
flexible than under branch banking. So, effective supervision is not possible.
2. Efficiency of the member bank is adversely affected by the management of the holding
company which uses the banks as vehicles of manipulation and speculation.
3. The failure of one bank has its adverse effects on other member banks.
4. The common purchasing agencies often indulge in corrupt practice.
Posted by Keshav Poudel at 3:38 AM 0 comments

Disadvantages Of Branch Banking

Wednesday, May 12, 2010

 Followings are the main disadvantages
of branch banking system.

1. Chances of failure
Larger banks are not immune to failure. Although there fewer large bank failures, the
impact of a large bank failure presents great loss in amount and type of banking services.

2. Monopolistic tendencies
Branch banking encourages monopolistic tendencies in banking system. A few big banks
dominate and control the whole banking system of the country through their branches.
This limits competition and leads the monopolistic tendencies.

3. Lack of flexibility and delay in decision-making

Since the branch manager has to seek permission from the head office on each and every
matter, this results in unnecessary delay in the banking.So, the branch managers are
unable to make quick decisions and they may lose profitable opportunities.

4. Difficulty in supervision
Since the branches are spread over the country, so there is difficulty in efficient
supervision and control of the all branches.This reduces the performance of the bank.
Posted by Keshav Poudel at 3:45 AM 0 comments

Advantages Of Branch Banking

Followings are the main advantages of branch banking

1. Less Costly
Larger banks have the resources and system to deliver low cost, broadly based services.

2. Diversification
A branch banking organization can diversify its sources and uses of funds among various
users. It can direct funds into a market requiring financing.Deposits are received from the
areas where lots of savings and loans are extended in those areas where funds are scarce
and interest rates are high.

3. Greater efficiency
Under branch banking system, the bank with a number of branches processes huge
financial resources and enjoys the benefits of large-scale operations. Highly trained and
experienced staff is appointed which increases the efficiency of the management.

4. More Safer
A large banking system is generally safer. Fewer bank failures have occurred among
large banks.

5. Variety of services and low transaction costs

A greater variety of services and products become available to a broader banking public.
Since the bank branches are spread over the whole country, it is easier and cheaper to
transfer funds from one place to another.

6. Security against the risk of failure

The branch banking is less risky and greater capacity to handle risks. The losses incurred
by some branches may be offset by the profits earned by other branches.

Posted by Keshav Poudel at 3:28 AM 0 comments

Branch Banking
Branch banking is a system where full range banking services are o

ffered from several locations, including

a head office and other one or more full-service branch offices. To start with, branch

banking developed in England, later on, it also become popular in other countries like
Canada, India,Australia etc. In England, most of the banking business is in the hands of
five big banks.Now most of the banks are operating in branch banking system.Branch
banking system is very widely spread in the comparison to unit banking system.
Posted by Keshav Poudel at 3:21 AM 0 comments

Disadvantages Of Unit Banking

Followings are the main disadvantages of unit banking

1. Prone to risk and failure

Limited resources of the unit bank restrict their ability to face financial crisis. Unit banks
are not in a position to stand a sudden rush of withdrawals.

2. No risk diversification
Under the unit banking, the bank operations are highly localized.So, there is less
possibility of diversification of risk in various areas.

3. Costly remittance of funds

Unit banking has no branches at other place. Thus, it has to depend upon the
correspondent banks for transfer of funds which is very expensive.

4. Unhealthy competition
Unit banks are independently run by different managements. This results in unhealthy
competition among different unit banks.

5. Local pressure
Since, unit banking are highly localized in their business, local pressure and interferences
generally disrupt their normal functioning.
Posted by Keshav Poudel at 3:09 AM 0 comments

Advantages Of Unit Banking

Following are the main advantages of unit banking system.

1. Easy Management
The management and supervision of unit bank is much easier and more effective than that
under branch banking system.So, there are fewer chances of irregularities and fraud.

2. Less operational costs

Unit banking are generally in small size. Thus, there are fewer costs in the operations.
Unit banking usually enjoy lower operating costs than branch banks of comparable size.

3. Little capital and staffs

Unit banking is small in size; so capital and staff requirement in the bank is also small.

4. Efficiency
Unit banking increases the efficiency of bank because it provides prompt services to
customers due to competition from other unit banks.

5. Local development
Collected deposits from the local areas are utilized for the development of the same
locality.So, unit banking helps in local development.
Posted by Keshav Poudel at 2:58 AM 0 comments

Unit Banking

Banking organization whereby all

services of banks are offered from one office. Such office may have offer facilities such
as, drive-in windows, automated teller machines, retail store point-of-sale terminals that
are linked to the banks' computer system and Internet website. The size and the area of
operation of a unit bank are much smaller than the branch banking system. Unit bank
system originated and grew in the United States Of America. Different unit banks in
America are linked with each other and with other financial centers in the country
through correspondent banks. The main reason for the development of unit banking
system in America is the fear of emergence of monopoly in banking business.
Posted by Keshav Poudel at 2:19 AM 0 comments
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