What Are The Disadvantages Of Branch Banking?
i) Difficulty in management, supervision and control: If the expansion of the branches go beyond a limit, the administration of branches, supervision of the activities of the branches become difficult. Under expansion results in inefficient management. This also creates red tape, undue delay in decision and in action. For each and everything the branch managers seek direction from the superior officers. Ultimately, the board of management is troubled with not only decision-taking but also its day-to-day administration. ii) Possibility of monopoly: Under branch banking, there is always the possibility of large banks to become monopolies. Emergence of monopoly in banks proves detrimental to the larger interest of the country. iii) Unnecessary competition: The branches of competing banks tempt customers by offering special services and some concession. This naturally increases the expenditure of banks. Unhealthy competition may also result in the lowering of profitability. iv) Expensiveness: Branch banking is highly expensive. Maintenance of branches with several officers and supervisors for control is very expensive. They also nave spend considerable sums of money for advertisement. All these lead more expenses. The cost of control also becomes prohibitive. v) Continuance of non-profitable branches: The branches in many business places may work profitably, but the branches in residential localities and rural places may not get sufficient profitable business. As a result, the head office of the bank has to run non-profitable branches forcibly. vi) Savings of rural places are transferred to urban places for investments: Normally, the excess of deposits mobilized in rural branches are transferred to branches in big cities for investment. Investment opportunities are denied in the rural areas. Banks consider that investment of funds in bigger cities and towns are more profitable than in smaller places and backward areas. This hinders economic development of backward areas.
