Branch Banking Vs Unit Banking

Branch banking system has many advantages over the Unit banking system. The main advantages of the branch banking system over the Unit banking system are the following:

1. Scale of Operation: Since Branch banking involves larger number of branches; operational cost under this system tends to be lower. The per unit cost of product as well as administrative cost are lower because staff members can be utilized more effectively. Larger resources help the banks in arriving at the advantages of scale of operation.  

2. Risk Diversification: Under branch banking system the risks of business can be diversified. Since branches are located in different localities/regions doing different kinds of business, risk or loss of one branch can be compensated by the other.

3. More Coverage: Branch banking can offer more services to a greater number of clients. Qualified and component staff members can meet various needs of customers located at various places through branches at their door-steps.

4. Utilization of Fund: Funds can be better utilized under Branch banking system. One branch having excess liquidity can remit the fund to another branch having shortage eliminating thus the incidence of idle fund.

5. Area Development: Credit needs of the areas where branches are located can be effectively met through Branch banking system. As result, area development is facilitated.

Branch banking, however, has some disadvantages as well. The disadvantages as pointed out by the followers of Unit banking system may be summarized as follows:

1. Control Problems: Larger banks having many branches located at different places suffer many times from the problems of controls. With the growth in number of branches, complexities in the areas like manpower, business and systems and procedures also develop which at times may go beyond control.

2. Delayed Decision: A bank following the branch banking system many times suffer from the problem of delayed decisions because of limited powers of the branches. Delay takes place due to time taken for processing and many other factors.

3. Centralized Economic Power: Larger banks mobilize larger amount of deposits which are deployable. Hence the management of those banks enjoys huge economic power. Many times they use these resources to further their interest at the cost of others.

4. Diversion of Fund: Banks following branch banking system can divert mobilized funds from one place to another ignoring the interest and needs of the people located at the command area of a particular branch. Thus funds of rural areas may be diverted to the urban areas at the cost of the rural people.

5. Uneconomic Expansion: Branch banking system may also lead the banks to open branches at unprofitable locations because of political and other pressures.  Thus they may be burdened with unprofitable branches/offices causing erosion in their profitability.

In conclusion, it may be said that the advantages of Branch banking are in reality the disadvantages of Unit banking. On the other hand, disadvantages of Branch banking often turn out to be the advantages of Unit banking. Considering this aspect of the issue, no separate discussion on advantages and disadvantages of Unit banking has been made here.