Explain the merits and demerits of
Unit banking?
Answers
The unit banking enjoys the following advantages.
No Problem of Mismanagement : Each bank is small scale unit hence there is no problem of management and supervision. A unit bank secures all the advantages of small scale operaions and hence there are less chances of mismanagement or incompetent management.
No delay in Taking Decisions : In unit banking system every bank is an independent unit, hence there will be no delay in taking decisions.
Personal Contact with the Customers : Unit Banking system being a small scale independent unit can maintain good personal contacts with the customers for efficient management of the bank. It is said that in case of unit banking system the manager can maintain good personal contact with the customers and businessmen.
Low Overhead Cost : In case of unit banking system the over head cost will be low than in case of branch banking system.
No Concentration of Monopoly Power : With the help of unit banking system it is possible to create socialistic pattern of society which is a policy of Indian Government.
Promotes Regional Balance : Under unit banking system, there is no transfer of resources from rural and backward areas to the big industrial and commercial centers. This tends to reduce regional imbalance.
Initiative in Bank Business : The bank officers, under the unit banking system, are fully acquainted with the local problems. SO they can take initiative in taking important decisions on the various issues confronting the bank. This makes the banking system more elastic.
Disadvantages or Demerits of Unit Banking System :
Generally speaking the advantages of Branch banking are the disadvantages of Unit Banking. Following are the important disadvantages of Unit Banking System.
Lack of Economies of Large Scale : Unit banking system being operated on small scale, is deprived of economies of large scale operations.
More Case Reserve : When compared to branch banking system, the banks operating under unit banking system must have more case reserve. In unit banking system it is not easy to a unit bank to draw on another unit bank.
High Cost of Operations : In case of Branch banking system the remittance of funds from one place to another is of great ease and at a lower cost than unit bank. It is not easy to adjust the interoffice indebtedness in case of Unit Banking system.
High Risk bearing : In case of unit banking system, the business is highly localized and any adverse conditions in business in the area severely effect the bank. The banks under unit banking system cannot withstand greater shocks or serious crises.
Lack of Mobility of Funds : In case of unit banking system the concentration of funds is at one region. There is no possibility of movement of funds between the regions and localities resulting in different interest rates at different places.