Disadvantages of Branch Banking

Following are the main disadvantages and limitations of branch banking system:

1. Problem of Management:

Under the branch banking system a number of difficulties as regards management, supervision and control arise:


(a) since the management of the bank gets concentrated at the head office, the managers can afford to be lax and indulgent in their duties and are often involved in serious irregularities while using the funds.

(b) Since the branch manager has to seek permission from the head office on each and every matter, this results in unnecessary delay and red- tapism in the banking business.

2. Lack of Initiative:

Branch managers generally lack initiative on all-important matters; they cannot take independent decisions and have to wait for. The clearance signal from the head office.


3. Monopolistic Tendencies:

Branch banking encourages monopolistic tendencies in the banking system. A few big banks dominate and control the whole banking system of the country through their branches. This can lead to the concentration of resources into a few hands.

4. Regional Imbalances:

Under branch banking system, the financial resources collected in the smaller and backward regions are transferred to the bigger industrial centres. This encourages regional imbalances in the country.


5. Adverse Linkage Effect:

Under branch banking system, the losses and weaknesses of some branches also have their effect on other branches of the bank.

6. Inefficient Branches:

In this system, the weak and unprofitable branches continue to operate under the protection cover of the large and more profitable branches.


7. Other Defects:

Other defects of branch banking system arc as follows:

(a) Preferential treatment is given to the branches near the head office,

(b) Higher interest rates are charged in the developed area to compensate for the lower rates charged in the backward areas,


(c) There is concentration and unhealthy competition among the branches of different banks in big cities,

(d) Many difficulties are faced when a bank opens branches. In foreign countries.