BANKING SYSTEMS

 Depending on the nature of organisation and system of

operations, banking systems are classified on the
following ways:
 Branch Banking
 Unit banking
 Group banking
 Chain banking
 Universal Banking
 Branch Banking Systems
 A single institution operates through a network of
branches which are established throughout the country
and sometimes outside the country.
 The policy making and planning authorities will be at the
H.O.
 Branches are linked to the H.O. Through proper
communication systems.
Advantages of Branch Banking
 Economies of large scale operations.
 Improved efficiency and skills.
 Public Confidence
 Spread of Risk
 Economic use of cash reserves
 Cheap Remittance facility
 Diversified Investments.
 Uniform Interest Rates.
Advantages of Branch Banking
 Effective control by the Central Government.
 Global Experiences and Knowledge.
 More Savings can be Mobilised.
 Balanced Regional Development.
 Good & Quality services are offered.
 Human Resource Development.
Limitations of Branch Banking
 Difficult to manage and supervise.
 Delay in Decisions.
 Creates monopoly Power.
 No personal contacts with customer.
 Less Involvement by the employees.
 Existence of less viable branches.
 Unnecessary expenditures.
 Savings of one area are invested in other areas.
 Unhealthy Competitions.
 Problems with foreign branches.
 Unit Banking Systems
 Unit Banking is a system of banking wherein a bank
operates in a limited area, does not open any branches
in other places and is more responsive to local needs.
 They thus have to raise their capital and deposits
locally. They are more efficient as they have a limited
scale and lack of any gap between decision-makers
and executives.
Advantages of Unit Banking
 Advantages of small scale operations.
 Efficient Management.
 Coordination.
 Quick Decision Making
 Inefficient banks are eliminated
 Flexible System
 Local Development
 Involvement of the staff.
 Personal touch with the customers
 Less administrative expenses
 Healthy Interpersonal Relations.
Demerits of Unit Banking
 Limited Resources
 Maintain additional Cash Reserve
 Risk cannot be distributed
 Neglect backward areas
 No chance of cheap remittance facility
 Interest differs
 Cannot appoint highly skilled personnel.
 Less exposure
 Central banks have limited control on these banks.
 Local Pressure.
Group Banking System
 It refers to the system of banking in which two or more
banks are controlled by a corporation or a business
trust, called the holding company. Each bank is an
independent entity but its management is in the hands
of a holding company.
 The holding company is the parent company and others
are operating companies.
 Each operating bank is a is a separate entity with its
own name and operations.
 Eg: SBI and its associate banks
Advantages of Group Banking System
 Syndicate of Resources
 Funds and Professional Skills
 More Liquidity
 Autonomy and Centralised Administration
 Reduced Expenditure
 Availability of Experts
 Competition is reduced
 High Quality services
Disadvantages of Group Banking
System
 Absence of Direct Control
 Adverse effect of failure
 Funds are diverted to holding companies
 Corruption or cheating of smaller banks by the
holding co’s.
 Leads to monopolistic tendencies in the
banking sector.
Chain Banking System
 It refers to the system in which two or more banks
are controlled by an individual or a group of
individuals. Chain banking works just like the
group banking system.
 The only difference is that in group banking
central administration and control are exercised by
a holding company, but in chain banking a group
of individuals or institutions have control on other
member banks.
 Chain banking enjoys same advantages as group
banking.
Universal Banking
 Universal banking is a banking system
in which banks provide a wide
variety of financial services, including
commercial and investment services.
Universal banking is common in some
European countries, including
Switzerland. In the United States.