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Universak Banking
Universak Banking
Universak Banking
INTRODUCTION
The commercial banks in India had been performing the traditional banking services of accepting deposits and distributing short term loans and working capital finance to individuals, industry, and trade and agriculture along with providing some ancillary services. But due to the implementation of financial sector reforms and in the globalization era banks are provided with multifarious products and services for their customers less than one roof. The Universal Banking is one of the latest functional forms of banking. Its aim is to get ma imum profit by way of earning from interest! fees based income and commission received through various diversified financial services. Universal Banking refers to those banks which offer a wide range of financial services in addition to traditional banking of accepting deposits and providing loans and advances. The additional services covered are mutual fund, insurance, leasing, advisory services and a number of investment products available under universal banking. It seeks to provide the entire gamut of financial products under one roof and reflects the global convergence between commercial banks, investment banks and insurance companies. This is an attempt by banks to fulfill the lifelong needs of the customers by following the cradle"to"grave concept. The principle of #Universal Banking# is a desirable goal for all the countries and some progress has already been made by permitting banks to diversify into investments and long"term financing and the $%Is to lend for working capital etc. &owever, banks have certain special characteristics and working culture and as such any dilution of 'BI(s prudential and supervisory norms for conduct of banking business would be inadvisable at this stage. %urther, any conglomerate, in which a bank is partner, should be sub)ect to a consolidated approach to supervision and regulations imposed by 'eserve Bank of India
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RESEARCH METHODOLOGY
The study is carried out to make -ualitative and comprehensive evaluation of emerging and most preferred Universal Banking +UB, concept in India. %or the purpose descriptive research design +observational method . case" study method, has been adopted which is based on the secondary data and the secondary sources of data were the various websites, published annual reports and literatures of the banking companies, 'BI annual report, I/% annual . periodical reports and academic )ournals.
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Economies of Scale. The main advantage of Universal Banking is that it results in greater economic efficiency in the form of lower cost, higher output and better products. /any 0ommittees and reports by 'eserve Bank of India are in favor of Universal banking as it enables banks to e ploit economies of scale and scope. Profitable Diversions. By diversifying the activities, the bank can use its e isting e pertise in one type of financial service in providing other types. 1o, it entails less cost in performing all the functions by one entity instead of separate bodies. Resource Utilization. 2 bank possesses the information on the risk characteristics of the clients, which can be used to pursue other activities with the same clients. 2 data collection about the market trends, risk and returns associated with portfolios of /utual %unds, diversifiable and non diversifiable risk analysis, etc, is useful for other clients and information seekers. 2utomatically, a bank will get the benefit of being involved in the researching Easy Marketing on the Foundation of a rand !ame. 2 bank(s e isting branches can act as shops of selling for selling financial products like Insurance, /utual %unds without spending much efforts on marketing, as the branch will act here as a parent company or source. In this way, a bank can reach the client even in the remotest area without having to take resource to an agent. "ne#sto$ sho$$ing. The idea of (one"stop shopping( saves a lot of transaction costs and increases the speed of economic activities. It is beneficial for the bank as well as its customers. %nvestor Friendly &ctivities# 2nother manifestation of Universal Banking is bank holding stakes in a form ; a bank(s e-uity holding in a borrower firm, acts as a signal for other investor on to the health of the firm since the lending bank is in a better position to monitor the firm(s activities.
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obstacles. The biggest one is overcoming the differences in regulatory re-uirement for a bank and $%I. Unlike banks, $%Is are not re-uired to keep a portion of their deposits as cash reserves. !o E($ertise in )ong term lending. In the case of traditional pro)ect finance, an area where $%Is tread carefully, becoming a bank may not make a big difference to a $%I. ?ro)ect finance and Infrastructure finance are generally long" gestation pro)ects and would re-uire $%Is to borrow long" term. Therefore, the transformation into a bank may not be of great assistance in lending long"term. !P& Problem Remained %ntact. The most serious problem that the $%Is have had to encounter is bad loans or 7on"?erforming 2ssets +7?2s,. %or the $%Is and Universal Banking or installation of cutting"edge"technology in operations are unlikely to improve the situation concerning 7?2s Di!!eren" R(les an& Reg(la"i#ns ; Universal banking offers all financial products and services under one roof. &owever, all these products and services have to follow different rules and regulations. This creates many problems. %or e.g. /utual %unds, Insurance, &ome >oans, etc. have to follow different sets of rules and regulations, but they are provided by the same bank. E!!e)" #! !ail(re #n Banking S*s"e+ ; Universal banking is done by very large banks. If these huge banks fail, then it will have a very big and bad effect on the banking system and the confidence of the public. %or e.g. 'ecently, >ehman Brothers a very large universal bank failed. It had very bad effects in the U12, =urope and even in India. M#n#,#l* ; Universal banks are very large. 1o, they can easily get monopoly power in the market. This will have many harmful effects on the other banks and the public. This is also harmful to economic development of the country. C#n!li)" #! In"eres" ; 0ombining commercial and investment banking can result in conflict of interest. That is, 0ommercial banking versus Investment banking. 1ome
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Source$ %he &nduring 'arriage of Investment and !ommercial Banking (ug )*th (+,)+
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/oving to universal banking may also create some pressure on the asset and liability side of balance sheets. Fn the liability side "" sources of funds +at least for banks, "" there will be increasing competition from investment alternatives such as /%s where schemes with similar li-uidity but a better return are available. Fn the asset side "" deployment of funds "" the growth of capital markets, new players and efficient investment banking have enabled corporate to raise funds directly from the market. 1/2 T.e en"r* #! ne5 /ankers 0 The shift from specialized to universal banks is not restricted to %Is only and 1BI and >I0 also can be considered universal banks. 1BI deals with /%s and investment banking, and its insurance initiative with 0ardiff 12 brings it closer to the universal bank ob)ective. 2nd >I0(s move to ac-uire a stake in 0orporation Bank makes it a serious candidate. I0I0I, which will have to raise something like 's 9:,::: crores for reserve compliance, has decided to )oin the few universal banks in India.
ICICI 5ill /ene!i" ICICI CAR 162 Ne" N$As 162 4I.J K.9 ICICI Bank 44.KC 9.45
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-EA%NESSES0
Reg(la"#r* O/s"a)les0 The road of UB is not smooth but has many regulatory obstacles which are the real hurdles and will hamper its growth. The different regulatory re-uirement of Banks and $%Is, distinction between maturity and duration, their conversion period, funds can be kept as cash reserves by %$Is etc., needed careful e amination.
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N$A a ,er,e"(al $r#/le+0 The most serious problem to all banking and financial institution is controlling the bad loans or non performing assets +7?2,. 3enerally most of the 7?2s come out of commodity sector loans and advances, such as te tile, steel and chemicals etc. Using technology cannot solve the problem but it re-uired proper appraisal and overall analyses by $%Is and banks before and after lending and proper use of funds and efficient working capital control by the fund users. Universal banking will add fuel in 7?2 growth due to its e pansion and diversification in activities without skilled and efficient manpower.
O$$ORTUNITIES 0
I+,r#vise $r#!i)ien)* an& ,r#&()"ivi"*0 >iberalization and globalization has led banks to cross the political boundary and become universal. The main focus will be ultimate profit rather than size of balance sheet. To increase the profit margin banks will prefer more of fee based opportunities than mobilizing deposits which will also save cost and paying interest on deposit. Being part of free economy and to survive with surplus banks have to improve their
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THREATS 0
%ing #! Finan)ial Ring0 Universal banking is presentation of banking system in modified and different form. It is legitimate marriage of $evelopment %inancial Institutions +$%Is, and commercial banks which in relation transformed into universal banking. /ergers and ac-uisitions play
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Salien" O,era"i#nal an& Reg(la"#r* Iss(es !#r FIs "# C#nver" in"# a Universal Bank
Mini+(+ Reserve Re:(ire+en"s0 In order to convert into universal banking it is mandatory under 1ection I9 of 'BI 2ct, 45@I, and 1ection 9I of the banking regulation 2ct, 45I5, respectively for %Is to comply with the cash reserve ratio and statuary li-uidity ratio re-uirements. $er+issi/le O,era"i#nal A)"ivi"ies0
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%in& #! S(/si&iaries0 1ection 45 of the 2ct permits a bank to have subsidiaries as permitted under the 1ection J+4, of B.'. 2ct. Thus, if any e isting subsidiaries of %Is are indulged in any activity which are not permitted under the 2ct, then it would become necessary for the %Is to delink itself from such subsidiaries or activities if want to convert itself into universal bank. S"a"(ar* Inves"+en" Li+i"0
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Asse"s in In&ia0 Under the section 9K of the B.'. 2ct an %I after its conversion into a universal bank mandatorily re-uire to ensure that at the close of its business on the last %riday of every -uarter its total assets
$r(&en"ial N#r+s;
M.Com. Part I(SEM-II) Pag 29
CONCLUSION %inance and society are two side of a survival coin. Under the growing commercialization, universalization and globalization numerous financial products and services have emerged and developed perpetual relation in all sphere of life. <ith fast moving economies and growing economic appetite it became paramount for banks to adopt matching pace in order to fulfill the global social and economical needs. It has been found that in many developed economies universal banking have proved their importance and responded efficiently to the customer demand and played vital role in economic development and served as an importance source of e ternal fiancL for enterprises. Indian financial sector is orthodo and very much influenced by the British rules and is relatively banking oriented and are been the primary supplier of financial services. But now banking scenario in India has changed due to
M.Com. Part I(SEM-II) Pag 30
BIBLIOGRA$HY
www.google.com
www.wikipedia.com
www.bloomberg.com www.indiainfoline.com
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