What are the advantages of Group Banking?

Group Banking is the system in which two or more independently incorporated banks are brought under the control of a holding company. The holding company may or may not be a banking company. Under group banking, the individual banks may be unit banks, or banks operating branches or a combination of the two.

Participating banks retain their own boards of directors which are responsible to the supervising and regulatory authority and depositors for the proper operation of the bank. That is, each bank in the group has got a separate entity.

This system has developed in United States in 1900. It was popular and extensively developed in 1920’s.

Advantages of Group Banking

The following are the advantages of the Group Banking System:

(i) Centralized Administration:

The participating banks enjoy the benefits of centralized administration.

(ii) Enhancement of operational efficiency:

Because of Group banking system, the opera­tional efficiency of participant banks is enhanced through shared knowledge and experience.

(iii) Broader market:

Group Banking offers broader market to the small banks for their excess resources. Thus, their earning capacity and network improved.

(iv) -Mobility and transfer of resources:

In the case of crisis, the funds are transferred among participating banks. This helps them to face the financial crisis if any, more effectively

(v) Large scale operation:

Group banking paves the way for large scale operation. The member banks can get the economies of large scale operation.

(vi) Other Benefits:

The holding company offers the following services to the participat­ing banks:

(i) Guidance of experts

(ii) Auditing

(iii) Investment counseling

(iv) Combined Purchase of stationery and office equipments

(v)Insurance cover on deposits

(vi) Advertising and publicity

(vii) Tax guidance

(viii) Other advisory services.

Disadvantages

The disadvantages of the Group Banking System are as follows:

(i) Lack of effective management and control:

Under Group banking system the control and management is not effective because the control is indirect and more flexible. It cannot offer specialised management.

(ii) Inefficiency of member banks protected:

The inefficiency of one participating bank affects the other participating banks.

(iii) Less facilities:

This system cannot provide all the facilities offered by branch banking.

(iv) Cannot mobilize funds:

Group banking does not have the capacity to mobilise funds as in the case with branch banking.

Hence, it cannot offer the same economy of operations as are offered by branch banking.