Advantages and Disadvantages of Unit Banking system | Banking Law

What is Unit banking -

       The United States of America (U.S.A) is the birthplace of Unit Bank system. In this type of banking system Independent, isolated units perform banking system. It operates in the Limited area and does not open any branches in other places. There are several advantages and disadvantages of the unit banking system.

Advantages of unit banking -

Advantages of the unit banking system are as follows -

1) Easier and effective Management -

               In unit Bank System, the management and supervision of Unit Bank is much easier and effective.

2)  Utility for the local development-

   In Unit Banking,  the funds of the locality are utilized for the local development and are not transferred to other areas.

3) Tackle the local problems-

     Unit banking can tackle the local problems as they are in the position to take initiative to tackle as they have full knowledge of the local problems.

4) fewer chances of fraud-

     There are fewer chances of fraud and regularities in the financial management of the unit banks.

5) No inefficient Banks-

     There will be no inefficient Banks as weak and inefficient banks are automatically eliminated.

Disadvantages of unit banking -

Disadvantages of unit banking are as follows-

1) Lacks benefit of specialization and division of labor - 

      The unit banking system lacks the benefit of specialization and division of labor.

2) Destructive competition -

      In this type of system, there will be destructive competition as they are independently run by different management.

3) Limited resources -

     Limited sources of the unit Bank restrict their ability to face financial crisis.

4)  No banking development in backward areas -

       In this type of system, there will be no banking development in backward areas as banking activity is uneconomical and no bank is opened.

5) Expensive transfer of Funds -

        In the unit banking system, the transfer of fund is very expensive because unit banks have no branches at other places.

6) Different interest rates - 

      In such a system, the interest rate may vary at different places because there is no movement of funds from place to place.

7)  Local pressure -

       There will be highly local pressure and interference which disrupt their normal functioning.

8) Diversification of risk - 


       In this type of system,  there is little possibility of diversification of risk under the localizable unit banking system.


See also...

Classification of Commercial Banks

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