Merits and demerits of mixed and pure banking?

Answer 1

Advantages

Mixed Banking has the following advantages:

(i) Credit requirements are fully satisfied.

(ii) Banking resources are utilized for industrial development.

(iii) Industries can mobilize greater finance resources through these banks.

(iv) Investment guidance to general public.

(v) Expert guidance and advice to industries.

(vi) Direct contact with industries.

(vii) Promote rapid industrial development through investment banking.

Disadvantages

(i) Threat to stability of Banks- the stability of the bank may be affected if the prices of Securities in which banks have invested depreciate.

(ii) Liquidity of banks may be affected, if the securities are not traded in the market.

(iii) Possibility of engaging in speculative business

(iv) Scope for over lending.

After the Second World War, underdeveloped countries began to show much interest on mixed banking. In recent years, there has been a favourable trend towards mixed bank­ing in India because of the following reasons:

(a) Increase in the volume of deposits.

(b) Increase in time deposits than demand deposits.

(c) RBI initiative to strengthen the banking system.

(d) After nationalisation, the Government encouraged the public sector banks to grant long-term loans to small scale industries and entrepreneurs. It, is made on the grounds of rapid industrialisation in the country.

(e) A realisation that overall growth depends upon development of capital market also.