BCom 3rd Year Organisation Commercial Money Financial Banks Study Material notes in Hindi

BCom 3rd Year Organisation Commercial Money Financial Banks Study Material notes in Hindi: Organisation of Commercial banks Branch Banking System Unit Banking System Mixed banking Differences Between Branch Banking System and Unit Banking System Exercise Questions Long answer Questions Short Answer Questions ( Most Important For BCom 3rd Year Students )

BCom 3rd Year Nature Importance Financial Money Study Material notes in hindi

ORGANISATION OF COMMERCIAL BANKS

ORGANISATION OF COMMERCIAL BANKS

Different countries of the world have witnessed the rise of banking in different phases of time. So, there is a lack of uniformity in the organisation of banks across the globe. But most of the countries have either of the following two banking organisations :

Organisation of Commercial Banks

Branch Banking System                                                                             Unit Banking System

(A) Branch Banking System

Branch Banking System refers to the system of banking in which banks perform their work through branches. In this system, banks have their head offices in big cities and branches in different parts of the country. India also has the branch banking system. Some banks having this system establish their branches outside the country also. Though the branch banking system is present in England, France, Australia, Germany, Canada, India etc. England is supposed to be the pioneer in this regard.

Merits of Branch Banking System : The main merits of branch banking system are as follows:

(1) Large Scale Business and Division of Labour: Banks adopting the branch banking system are undoubtedly having a big organisation. It has vast economic human power. Due to strong and consolidated economic strength, their business increase and due to strong human force, the work gets performed quickly accordingly to the speciality and vision of labour. The job is offered according to the speciality of a person. This way the banks get the benefit of division of labour and achieve excellence.

(2) Facility in Transferring Money : In the Branch Banking System, a bank has its branches all over the country or in a large part of it. So the transferring of money from one place to anothr is made possible in the least time and at a minimum expense.

(3) Geographical Division of Risk: Like other businesses, banking also involves risk. Bank invests the deposits in different areas. It is possible that the investment of a branch may incurr some loss. In this condition this risk attains the geographical levels because banks have their branches in different regions Gain at one place and loss at some other, reduces the risk.

(4) Expansion of Banking Services: When the banks feel encourage due to their success, they have a raised level of confidence. As a result i branches of banks are opened in non-banking areas also. This leads to the expansion of banking services.

(5) Proper Utilisation of Capital : Banking System is much better with the view of proper utilisation of capital. If a branch of bank has some surplug money and there is no better alternative of investment, it sends that surplus money to such a branch which has better options of investments.

(6) Similarity in the Rates of Interest: It is possible that the demand of money increases at a time. In such a condition, the rate of interest also goes up It is also a merit of Branch Banking System that if the demand of money increases at a place, it is fulfilled by transferring it there from some other branch. This way there is similarity in the interest rates all branches throughout the country.

(7) Training of the Staff : The works of banks get expanded through Branch Banking System. As a result the staff is trained to do different kinds of jobs.

(8) Economy of Cash Reserves : It is another merit of Branch Banking System that banks keep a small portion of deposits with them and invest the remaining amount. As banks have their branches at other places also, so cash can be obtained from other branches in case the need arises.

(9) Knowledge about the Economic Position of the Country: Banks have their branches all over the country, so Branch Banking System helps in gaining the knowlege of economic status of the country. This helps banks in deciding about their investment options.

(10) Facility for the Government: The Government finds it easy to control and regulate banks through Branch Banking System.

Demerits of Branch Banking System: Branch banking system has some demerits too. Some of these are as follows:

(1) Difficulties of Management: Banks have large number of branches in Branch Banking System. This poses difficulties in control, management and supervision of every branch. Due to being under the control of head office, branches have to remain dependent on it even for simple matters.

(2) Expensive System : Banks have many branches in Branch Banking System. There is a need to establish coordination among various branches. This leads to high expenditure. Besides, many branches are very small. Even in this case, minimum expenditure has to be met. This way this system becomes highly expensive.

(3) Encouragement of Monopoly: Though banks have branches spread over a large area, these are controlled by the head office. The whole economic system is ruled by a few people at the head office. This gives rise to monopoly. Such a monopoly is obstructive to the social progress.

(4) Lack of Initiative : In this system, the work is performed at branch level but the orders are issued by the head office. Branches may face some difficulties on special occasion and circumstances, but they are not free to take decision. They have to depend on the decision of the head office. This leads to lack of initiative among employees.

(5) Unnecessary Competition among Banks: It is a major fault of Branch Banking System that many branches are opened at the same place. This gives rise to unnecessary competition. Such a competition disturbs the process of healthy competitive development.

(6) Protection to Weak Branches: There is no uniformity in functions of all branches. Some branches are weak and unprofitable. These get protection from branches running in profit. It means, the weak branches survive with the support of profit-earning branches.

(7) Difficulties in Foreign Countries: There are differences in the banking laws, monetary policies and credit system of different countries. If a bank wants to open a branch in a foreign country, it has to face many problems.

(8) Neglect of Small Businessmen : Banks feel that big businessmen provide them the strength of managing and earning profit. So, they neglect small businessmen. Granting loans to big businessmen are supposed to be safe investment.

Organisation Commercial Money Financial

(B) UNIT BANKING SYSTEM Unit

Banking System is a system in which a bank has only one office. Except under some special circumstances, the bank can’t open a branch. A bank usually performs its functions only in limited areas. According to Prof. Sayers, “In this system the bank’s operations are confined in general to a single office, though a few banks are allowed to have branches within a strictly limited area.” This system is much popular in the USA. Thousands of banks operate in the USA under this system. Such banks are established by local people.

Merits of Unit Banking System: The main merits of unit banking system are as follows:

(1) Facilitates in Management: The size of banks in the unit banking system is small, so their management is easy. At the same time the cost of management is also small.

(2) Liquidation of Weaker Banks : The weak and non-profitable banks get eliminated naturally in this system and they get liquidated. Thus banks try very hard to evade liquidation.

(3) No Formation of Monopolies : There is no centralisation of the economic strength as the offices of banks are at different places. Thus there is no formation of monopoly.

(4) Increase in Efficiency: Every bank is complete in itself in this system. There is no need to wait for orders from the head office to perform a task. Every big and small job has to be solved at its own level. So, the jobs are performed at the earliest and there is an increase in the work-efficiency of workers.

(5) Full Knowledge of Local Condition : The banks established in an area under the unit banking system have the full knowledge of the economic and social conditions of that area. In this condition, banks plan and perform their task according to the local needs.

(6) Free Enterprise : The atmosphere of free enterprise starts in banking. With the freedom in work there is an increased progress and satisfaction.

(7) Quick Disposal of Banking Works : No decision is kept pending in this banking system.All banking works are performed quickly. This brings customer satisfaction.

Demerits of Unit Banking System : The main demerits of unit banking system are as follows:

(1) No Possibility of Geographical Distribution: There is localisation of a bank at one place in unit banking system. If there is an apprehension of economic depression, there is no chance of the geographical distribution of risk and there is a threat of the closure of the bank.

(2) Difficulty in Facing Economic Crisis: As the banks are small in this! system, they have very little economic strength. Consequently banks can’t face crisis. A big evidence of this is the economic depression of 1929. Hundreds of American banks collapsed in this worldwide depression.

(3) Inconvenience in Remittance of Money: Banks have no branches in the unit banking system, so there is difficulty in remittance of money. There is more expenditure in remittance of money.

(4) Difference between Rates of Interest: There is no easy and economical system of remittance of money, so different areas have different rates of interest The developed regions have low interest rates but undeveloped and developing regions have high interest rates.

(5) Lack of Division of Labour and Specialisation : Due to small size and area there is very little division of labour and specialisation. Particularly. because of the lack of specialisation, there is a reduced profit.

(6) Lack of Resources : Due to limited economic and human strength there is a limitation of resources. As a result there is no proper development.

(7) Difficulty in Extension of Branches : Even a successful bank is not allowed to open its branch in the unit banking system. A bank is established in a big place initially, but later on if it tries to open branches in smaller areas; it is not allowed to do due to the banking laws.

Organisation Commercial Money Financial

Differences between Branch Banking System and Unit Banking System

The main differences between the Branch Banking System and Unit Banking System are as follows:

Conclusion: After making a study of merits and demerits of branch banking system and unit banking system, it is evident that both systems have merits and demerits. So, it is difficult to tell which one is better. But on the basis of keen observation and practical experiments it can be said that today branch banking system is more popular and convenient. The popularity of branch banking system in most countries of the world is increasing. However, the USA still has Unit Banking System in common operations, the Branch Banking System is making a place there too. Thus, Branch Banking System is comparatively better.

MIXED BANKING

We know that generally short-term loans are granted by commercial banks and long-term loans are given by development banks. But when commercial banks grant both short-term and long-term loans, this system is called mixed banking. Though, the system of granting long-term loans by commercial banks started after the First World War. There was a state of worldwide economic depression after the First World War. The business class stopped taking loans and advances from commercial banks and those who had taken it were not in position to repay. Consequently, the business of banks declined. Commercial banks started granting long-term loans to tackle this condition, so that there should be development of the trading world once again and banks could also get their short-term loans repaid. Since then, India, the USA, England, France, Germany etc. have adopted the Mixed Banking System.

EXERCISE QUESTIONS

Long Answer Type Questions

1 What do you understand by Branch Banking System and Unit Banking System? Explain its Merits and Demerits

2. Distinguish between Branch Banking System and Unit Banking System. Which system is adopted in India ?

3. Write a note on Mixed Banking.

Organisation Commercial Money Financial

Short Answer Type Questions

1 What is geographical division of risk?

2. Branch Banking System is an expensive system. How?

3. Write a note on Unit Banking System.

III. Objective Type Questions

Choose the correct option

1 Which banking system is more popular in India ?

(a) Branch Banking System

(b) Unit Banking System

(c) Both of these

(d) None of these

2. It is called ‘Mixed Banking System’when……..

(a) All the banks merge together

(b) All the branches of a bank merge together

(c) The commercial banks start granting long-terms loans along with short-term loans

(d) The commercial banks accept deposit through Savings Bank Account as well as Fixed Deposit Bank Accounts.

3. Unit Banking System is most popular in…

(a) India

(b) The USA

(c) England

(d) Germany

4. The Mixed Banking System originated. (a) Before the First World War

(b) After the First World War (c) After Second World War

(d) None of these

[Ans. 1. (a), 2.(c), 3. (b), 4. (b)].

State whether the following statements are True or False :

1 Unit banking system is most popular in India.

2. India has the branch banking system.

3. Unit banking system has a limited working area.

4. Every bank has a number of branches in branch banking system.

(Ans. : 1. False, 2. True, 3. True, 4. True.]

Organisation Commercial Money Financial