Branch banking refers to that banking system in which two or more banking offices are operated under single ownership and management as a single institution. Thus, the business is operated by the head office through a network of branches spread in different parts of the world. In this system, every bank has legal entity with one group of share holdersand one group of Board of Directors. Banking system in India and England fall in this
category.
In Indiaa all commercial banks (like the State Bank of India, Bank of India, etc.) indulge in branch banking operations. In England, major banking business is done by the “Big Five” i.e., the Midland, the Westminster, Barclays, Lloyds and the National Provincial. These five banks have over 12,000 branches and control over 75% of the banking business in the ‘ country.
Advantages of Branch Banking
1 Mobilisation sf savings: Funds can be easily mobilised from the branches having surplus funds to the branches suffering from deficit of funds.
2) Efficiency in management: Branch banking provides greater scope for efficient management. In view of its size. experts and skilled personnel can be employed.
3) Large scale economies: Branch banking enjoys the internal and external economies ofscale in terms of operations like division of labour. utilisation of expert services, technological innovations, computeiisation. etc.
4) Diversification of deposits and advances: Branch banking provides a wider scope for the selection of diverse deposits and varied advances.
5) Economy in reserves: Each branch can maintain low cash rsserves beduse funds can be moved from one branch to another.
6) Remittance facilities: Remittance of money from one place to another is more convenient and less costly.
7) Uniform interest rates: Branch hnking facilitates mobility of capital and brings about uniformity in the rates of interest over a wider area.
8) Flexibility in operations: As branches operate in different parts of the country, it is therefore possible for branch banking to make necessary adjustments according to variations in local socio-economic conditions of different regions.
9) Effective control by central bank: The nyrnkr of banks in the country we less in caseof branch banking system. Hence the central bank of the country can easily and effectively control the commercial banking sector of tlle economy.
10) Withstands depression: Branch banking system is able to withstand adverse business conditions like depression.
Disadvantages of Branch Banking
1) Difficulty in management: In view of its size of operations and spread of branches in different geographical areas, effective management becomes difficult in branch I banking. Undue expansion results in mismanagement, incompetency, etc.
2) Red tapism: Branch banking is blamed for red tapism and abnormal delays in the disposal of urgent matters.
3) Weaker branches: Weler and unhealthy br<ulches can also survive in branch banking system. They offset the profits earned by other branches.
4) Cut-throat competition: Under branch banking a number of branches are opened in the same region by various banks. This results in the evils of cut-throat competition.
5) Less personal contacts and familiarity with local conditions: Due to their frequent ‘ transfers branch managers do not get the opporh~nity to develop personal contacts with customers and get fully conversant with local conditions.
6) Utilisation of funds: Local utilisation of funds may be less in branch banking in view of the easy availability of the facility for transfer of funds.
7) Monopoly of power: Branch banking creates some sort of monopoly power in a few hands which is detrimental to the country. For example, the five big banks in England control 75% of banking business and in India 93% of banking business is controlled by the public sector banks
