Meaning, Features, Advantages and Disadvantages of Branch Banking System
Meaning:
Branch banking refers to that system of
banking in which a bank establishes its head office in some big city and
operates the various branches all over the country. Some of its branches may be
in foreign countries. Thus, in branch banking, a bank has a large network of
branches scattered all over the country. Branch banking is popular in India,
Britain, Canada, France, Germany etc.
According to Edward. W. Reed, “Branch
banking exists when a single bank conduct banking operations at two or more
places.”
Features of Branch Banking:
a.
A
bank renders its banking activities at two or more places.
b.
The
head office of the bank and all its branches are under single ownership and
management.
c.
Head
office has the overall control over the working of various branches.
d.
Branches
can be opened in the same city, state or the country, even in the foreign
country also.
Advantages of Branch Banking:
1. In
Branch Banking, the banks have large scale operations. The resources are also
fairly large.
2.
Branch
banking provides banking services all over the country. Thus it becomes
possible to reach the banking facilities in small, remote and backward areas.
3.
Under
branch banking system remittance of money from one place to another is easily
done with minimum cost.
4.
Under
this system the cash reserves can be moved from one branch to another in times
of necessity.
5. With
its network of branches all over the country, a branch bank can transfer
capital from areas which have a surplus to those regions which require capital.
Thus it ensures productive use of funds.
Disadvantages of Branch Banking:
1. There is delay in decision making. The local
branch manager has to seek approval of the main office for sanctioning loans
and advances which may be time consuming.
2. Supervision and control of the head office over
the branches may become difficult and costly because of distances.
3. Branch banking encourages regional imbalances,
the financial resources of economically backward areas tend to get transferred
to industrial and business centers.
4. Under Bank Banking System, even weak,
inefficient and unprofitable branches may continue to grow under the umbrella
of large and profitable branches.
5. It is an expansive system of banking.
Unit Banking:-
Meaning:
A unit bank usually has no branch and
acts with a single office as a separate and independent unit. The area of
operation of a unit bank is localized and is far more limited as compared to
branch banking. It has its own management. The scale of operation is small.
Unit banking originated in the U.S.A.
According to Edward. W. Reed, “A unit
bank operates with a single office or place of business, it has its own board
of directors and stock holders, it is not controlled by any other bank or
individual that controls another bank.”
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Advantages of Unit Banking:-
1.
It
can be efficiently managed and controlled with minimum managerial cost.
2.
It
is oriented towards the fulfillment of local needs.
3.
In
this system, any inefficient banking unit would fail to function and would be
eliminated automatically.
4.
Since
all decision making is done at the local level itself, so there is no element
of delay.
5.
Unit
banks will ensure a balanced growth of economy. It will not drain out the
financial resources of villages and small towns to big industrial centers.
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Disadvantages of Unit Banking:-
1.
Unit
Banks are small scale banks with limited scope. These banks lack division of
labour and specialization.
2.
These
banks do not have branches and so depend upon some representative bank for the
transfer of credit. The representative banks charge their commission which
increases the cost of credit – transfer from one place to the other.
3.
Unit
banks fail to diversify the risks because of highly localized operations.