What is Universal banking ??

Universal banking is a system in which banks provide a wide variety of comprehensive financial services,
including those tailored to retail, commercial, and investment services. Universal banking is common in some
European countries, including Switzerland

Universal banks are one-stop shops for all your financial needs.

Universal banking is categorised into three types.

It encompasses investment banking services for private investors and organisations.

It also involves wholesale banking services designed for large-scale companies.

Retail banking is another aspect of universal banking that includes everyday banking services.

Investment banking services

Several public and private sector banks in India have started offering investment banking services. Such banks
typically focus on providing services to various private investors and organisations. Also known as merchant
banking, these banks generally offer their clients assistance with asset management, investment advisory
services, raising capital, mergers and acquisitions, securities underwriting and securities trading, among other
facilities. As is apparent, these functions of universal banking do not apply to everyday banking services.

Wholesale banking services

Wholesale Banking Services are typically designed for businesses and corporate organisations, as opposed to
individual bank customers. These services usually involve lending and borrowing funds on a large scale,
compared to retail banking services that deal with comparatively smaller loan amounts for individual
customers. Each transaction in wholesale banking is typically in the tunes of crores of rupees and multiple
accounts. For instance, a customer of a wholesale bank may need pension fund accounts for its employees.
Government organisations and multinational companies are typically customers who obtain wholesale banking
services.

Retail Banking Services

Retail banking is the most common type of universal banking service available globally. It is the type of banking
that general bank customers and account holders are provided. Retail banking encapsulates the general
banking facilities that include a wide variety of home, auto and personal loans and mortgage services. It also
includes offering different types of bank accounts – Salary, Current, Savings Accounts, and more. Banks provide
safe deposit lockers, fixed and recurring deposits, credit and debit cards, and other such everyday banking
services under retail banking.
Final Note

With growing competition in the banking sector, most Indian banks are adopting a universal banking model to
cater to the needs of their various clients. Universal banking enables banks to broaden their customer base. As
a bank customer, you can enjoy an array of facilities under one umbrella, thanks to universal banking services.

Core Banking Solution

Core Banking is an umbrella term that refers to the services rendered by a range of networked bank branches.
It is a back-end system through which banking transactions related to deposit, loans, and credit can be
processed daily across different bank branches, and updates are recorded and reflected immediately. Core
banking is a business carried out by the bank with its retail and small business customers.

The word ‘core‘ in the core banking system, expands to a Centralized Online Real-time Environment, which
implies that applications are accessed by bank branches from centralized data centers.

So, this is a service that banks provide to their branches, by way of the network that facilitates customers to
access their bank accounts remotely and carry out basic transactions. The service is provided by the bank
through various channels like ATM, mobile banking and internet banking, etc. With the emergence of this
system, the customer need not visit his/her own branch in which he has opened the account, rather he can go
to the nearest bank branch to avail the service.

CBS system is the networking of different bank branches, with the help of which a customer can operate their
accounts from any part of the world and avail banking services from any branch of the CBS network. This relies
on the notion that the customer is not the customer of the branch, but of the bank. It is that platform where
information and communication technology meets to suit the core needs of banking is called core banking
solutions.

Core Banking Solutions facilitated banks to offer better customer service. It is based on banking software
applications, which work on a platform. It handles various banking functions such as recording of transactions,
updation of balances in the accounts, depending on the transaction type, calculation of interest and its
application, charges, etc.

FUNCTIONS OF RBI

1)Monetary Management/Authority

One of the most important functions of RBI is the formulation and execution of Monetary Policy and securing
monetary stability in India It functions the currency and credit system to its advantage.

2) Supervision and Regulation of Banking and Non-Banking Financial Institutions

RBI functions to protect the Interest of depositors through an effective regulatory framework. Keeping a keen
eye over the conduct of banking operations and solvency of the banks along with maintaining the overall
financial stability through various policy measures.

These powers of RBI come from RBI ACt 1934 and Banking Regulation Act 1949.

This regulatory and supervisory function of the RBI extends to Indian Banking System as well as Non-Banking
Financial Institutions.

3) Regulation of Foreign Exchange Market, Government Securities Market, and Money Market

Foreign Exchange Market: The Foreign Exchange Management Act 1999 came into light after the liberalization
measures introduced in 1991. FEMA 1991 replaced the FERA 1973 and came into effect in June 2022.

So now, the RBI is responsible to oversee the foreign exchange market in India. RBI supervises and regulates
the Foreign Exchange Market through the provision of the FEMA Act 1999.

Government Securities Market: RBI regulates the trade securities issued by the Central and State governments.
For regulation of this, RBI derives its power from the RBI Act of 1934.

Money Market: Short-term and highly liquid debt securities are also regulated by RBI and for this RBI derives its
powers from the RBI Act 1934.

4) Foreign Exchange Reserve Management

Foreign exchange reserve includes-

Foreign Currency Assets (FRAs)

Special Drawing Rights (SDRs)

Gold

RBI is the custodian of India’s foreign exchange reserves. The legal provision regarding the management of
foreign exchange reserves is mentioned in RBI Act 1934.
The RBI Act of 1934 permits the RBI to invest these foreign exchange reserves in the following instruments-

Deposit with Banks for International Settlement

Deposit with foreign Commercial Banks

Debt Instruments

Other instruments with approval of the Central Banks of RBI

5) Bankers to Central and State Government

RBI acts as a banker to the government. RBI is the responsible agency for receiving and paying money on behalf
of the various government departments.

RBI is also authorized to appoint other banks to act as its agent and undertake banking business on the behalf
of the government.

RBI maintains Central and State Government funds like Consolidated Funds, Contingency Funds, and Public
Account.

RBI also provides loans to the central/State/UT Government as a banker to the government.

6) Advisor to the Government

RBI acts as an advisor to the government when called upon to do so on financial and banking-related matters.

7) Central and State Government’s Debt Manager

The debt management policy mainly aims at minimizing the cost of borrowing and smoothening the maturity
structure of debt. RBI manages the public debt and also issue new loans on behalf of central and state
government.

8) Banker to Banks

Banks open their current account with RBI to maintain SLR and CRR.
RBI is a common banker for the different banks that enables the settlement of interbank transfers of funds.

For special purposes or in need, RBI provides short-term loans and advances to banks

9) RBI- Lender of last resort

That means RBI comes to rescue the banks that are solvent (facing temporary liquid problems) but have not
gone bankrupt. RBI provides this facility to protect the interest of depositors and to prevent the possible failure
of the bank.

10) RBI- Issuer of Currency

The RBI and the government are in charge of the creation, manufacturing, and overall administration of the
national currency with the aim of releasing a sufficient quantity of authentic and clean notes.

The Reserve Bank of India has given some bank branches permission to set up currency chests in order to
simplify the circulation of rupee notes and coins around the nation (A currency chest is a storehouse where
currency notes and rupee coins are stocked on behalf of RBI)

11) Developmental Role

RBI’s developmental role includes creating institutions to build financial infrastructure, ensuring credit to the
productive sector of the economy, and expanding access to affordable financial systems.

Non Banking Financial Companies(NBFC)