Question

State the merits and demerits of branch banking

Answer 1

$\huge \sf\underline\color{blue}{Asked}\dag$

State the merits and demerits of branch banking.

$\huge \sf\underline\color{blue}{Solution}\dag$

Advantages of Branch Banks

The advantages of branch banks are as follows:

• Large Size: As it is big in size, it gets all the advantages of large type of institution.
• Adequacy of capital: its capital is adequate because it’s big.
• Adequacy of Deposits: it deals its business in countrywide or in abroad, so it can collect adequate deposit.
• Large Scale credit: A branch bank can grand a large scale credit to its clients.
• Adequate investment: From adequate capital and deposited money it can invest its potential portfolio.
• Efficient management: As it is run by a company, the management is very efficient.
• Distribution of Risk: It can share the risks with all other branches easily.
• Money transfer: By branch banking, money can be transferred easily.
• Employment: A huge amount of employment is created by this type of bank.
• Public confidence: Through offering better services it can hold greater public confidence.
• Balance of development: By establishing branches at every place it develops the economy of the country equally.
• Acquiring goodwill: By its high quality of services it acquires goodwill.
• More liquidity: It can keep sufficient amount of money in its volt as liquidity.

So, considering all the points it can be said that branch banking is gaining popularity all over the country as well as outside the country.

Disadvantages of Branch Bankp

Although a branch bank has advantages, it has some disadvantages also. The disadvantages are as follows-

• Complex management: Its management is too complex.
• More expenditure: Because of its big size, its expenditure is more.
• Delay in decision making: A bank following branch banking system may suffer from delayed decision because of limited powers of the branches..
• Monopolistic influence: Such type of bank influence monopolistic economy which hamper the socio-economic development.
• Banker Client Relation: Here relation between bank and client is not developed.
• Corruption and Nepotism: The workers or employees are being corrupted.
• Local influence: Every branch may be influenced by local administration.
• Political influence: Political parties try to influence on branch bank.
• Nationalization: Some times branch bank falls down the trap of nationalization.
• Disqualification of Manager: Cause of disqualified manager a branch may face huge losses.
• Uneconomic expansion: Branch banking system also leads banks to open branches at unprofitable areas because of political and other pressures.

Generally it may be said that the disadvantages of branch banking can be sorted out since these are not non-rectifiable. Framing of proper policies in the areas of deposit mobilization, lending and delegation of power may solve many of the problems of branch banking.