INTRODUCTION

Universal Banking is a multi-purpose and multi-functional financial supermarket (a company offering a wide range of financial services e.g. stock, insurance and real-estate brokerage) providing both banking and financial services through a single window. Definition of Universal Banking: As per the World Bank, "In Universal Banking, large banks operate extensive network of branches, provide many different services, hold several claims on firms(including equity and debt) and participate directly in the Corporate Governance of firms that rely on the banks for funding or as insurance underwriters". In a nutshell, a Universal Banking is a superstore for financial products under one roof. Corporate can get loans and avail of other handy services, while can deposit and borrow. It includes not only services related to savings and loans but also investments. However in practice the term 'universal banking' refers to those banks that offer a wide range of financial services, beyond the commercial banking functions like Mutual Funds, Merchant Banking, Factoring, Credit Cards, Retail loans, Housing Finance, Auto loans, Investment banking, Insurance etc. This is most common in European countries. For example, in Germany commercial banks accept time deposits, lend money, underwrite corporate stocks, and act as investment advisors to large corporations. In Germany, there has never been any separation between commercial banks and investment banks, as there is in the United States.

Since the early 1990s, structural and functional changes of profound magnitude came to be witnessed in global banking systems. Large-scale mergers, a malgamations and acquisitions among banks and financial institutions resulted in the growth in size and competitive strengths of the merged entities. There thus emerged new financial conglomerates that could maximize economies of scale and scope by 'bundling' the production of financial services. This heralded the advent of a new financial service organization, i.e. Universal Banking, bridging the gap between banking and financial-service-providing institutions. Universal Banks entertain, in addition to normal banking functions, other services that are traditionally non-banking in character such as investment-financing, insurance ,mortgage-financing, securitization, etc. Parallel, in contrast to this phenomenon ,non-banking companies too entered upon banking business. Universal banking usually takes one of the three forms i.e. in-house, through separately capitalized subsidiaries, or through a holding company structure. Three well-known countries in which these structures prevail are Sweden and Germany, the UK and the US

HISTORY OF UNIVERSAL BANKING

The History of Banking begins with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities. This began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans and added two important innovations: they accepted deposits and changed money. Archaeology from this period in ancient China and India, also shows evidence of money lending activity. Banking, in the modern sense of the word, can be traced to medieval and early Renaissance Italy, to the rich cities in the north such as Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe.[1] Perhaps the most famous Italian bank was the Medici bank, established by Giovanni Medici in 1397. The development of banking spread from northern Italy through Europe and a number of important innovations took place in Amsterdam during the Dutch Republic in the 16th century, and in London in the 17th century. During the 20th century, developments in telecommunications and computing caused major changes to banks operations and let banks dramatically increase in size and geographic spread. The Late-2000s financial crisis caused many bank failures, including of some of the world's largest banks, and much debate about The history of banking depends on the history of moneyand on grain-money and food cattle-money used from at least 9000 BC, two of the earliest things understood as available to barter (Davies),[3][4] Anatolian obsidian as a raw material for stone-age tools being distributed as early as 12,500 B.C., with organized trade occurring in the 9th millennia.(Cauvin; Chataigner 1998) In Sardinia one of the four main sites for sourcing the material deposits of obsidian within the Mediterranean, trade of this were replaced in the 3rd millennia by trade

in copper and silver. The society adapted from relating from one fixed material as valued deposits available for trade to another.

NEED OF UNIVERSAL BANKING IN INDIA

The phenomenon of universal banking as different from narrow banking is suddenly in the news. With the second NARISHMAN Committee (1998) and the Khan Committee (1998) reports recommending consolidation of the banking industry through mergers and integration of financial activities, the stage seems to be set for a debate on the entire issue. A universal bank is a one-stop supplier for all financial products and activities, like deposits, short-term and long-term loans, insurance, investment etc. The benefits to banks from universal banking are the standard argument given everywhere also by the various Reserve Bank committees and reports in favour of universal banking is that it enables banks to exploit economies of scale and scope. So that a bank can reduce average costs and thereby improve spreads if it expands its scale of operations and diversifies its activities. The bank can diversify its existing expertise in one type of financial service in providing the other types. So, it entails less cost in performing all the functions by one entity instead of separate specialized bodies. A bank has an existing network of branches, which can act as shops for selling products like insurance. This way a big bank can reach the remotest client without having to take recourse to any agent. Many financial services are inter-linked activities, e.g. insurance and lending. A bank can use its instruments in one activity to exploit the other.

The idea of one-stop-shopping saves a lot of transaction costs and increases the speed of economic activity. Another manifestation of universal banking is a bank holding stakes in a firm. In India, too, a lot of opportunities are there to be exploited. Banks, especially the financial institutions, are aware of it. And most of the group shave plans to diversify in a big way. At present, only and arms-length relationship between a bank and an insurance entity has been allowed by the regulatory authority, i.e. the Insurance Regulatory and Development Authority (IRDA). Development financial institutions (DFIs) can turn themselves into banks, but have to adhere to the statutory liquidity ratio and cash reserve requirements meant for banks, which they are lobbying to avoid. All these can be seen as steps towards an ultimate culmination of financial intermediation in India into universal banking.

UNIVERSAL BANKING PROS AND CONS

The solution of Universal Banking was having many factors to deal with, which can be further analyzed by the pros and cons. Advantages of Universal Banking

* 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. Many Committees and reports by Reserve Bank of India are in favour of Universal banking as it enables banks to explit economies of scale and scope .* Profitable Diversions: By diversifying the activities, the bank can use its existing expertise in one type of financial service in providing other types. So, it entails less cost in performing all the functions by one entity instead of separate bodies. * Resource Utilization: A bank possesses the information on the risk characteristics of the clients, which can be used to pursue other activities with the same clients. A data collection about the market trends, risk and returns associated with portfolios of Mutual Funds, diversifiable and non diversifiable risk analysis, etc, is useful for other client sand information seekers. Automatically, a bank will get the benefit of being involved in the researching * Easy Marketing on the Foundation of a Brand Name: A bank's existing branches can act as shops of selling for selling financial products like Insurance, Mutual Funds 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

.* One-stop shopping: 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. * Investor Friendly Activities: Another manifestation of Universal Banking is bank holding stakes in a form : a bank's equity 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.

Disadvantages of Universal Banking Grey Area of Universal Bank. The path of universal banking for DFIs is strewn with obstacles. The biggest one is overcoming the differences in regulatory requirement for a V bank and DFI. Unlike banks, DFIs are not required to keep a portion of their deposits as cash reserves. * No Expertise in Long term lending: In the case of traditional project finance, an area where DFIs tread carefully, becoming a bank may not make a big difference to a DFI. Project finance and Infrastructure finance are generally longgestation projects and would require DFIs to borrow long- term. Therefore, the transformation into a bank may not be of great assistance in lending long-term. * NPA Problem Remained Intact: The most serious problem that the DFIs have had to encounter is bad loans or Non-Performing Assets (NPAs). For the DFIs and Universal Banking or installation of cutting-edge-technology in operations are unlikely to improve the situation concerning NPAs.

THE FUTURE TREND OF UNIVERSAL BANKING IN DIFFERENTCOUNTRIES

Universal banks have long played a leading role in Germany, Switzerland, and other Continental European countries. The principal Financial institutions in these countries typically are universal banks offering the entire array of banking services. Continental European banks are engaged in deposit, real estate and other forms of lending, foreign exchange trading, as well as underwriting, securities trading, and portfolio

management. In the Anglo-Saxon countries and in Japan, by contrast, commercial and investment banking tend to be separated. In recent years, though, most of these countries have lowered the barriers between commercial and investment banking, but they have refrained from adopting the Continental European system of universal banking. In the United States, in particular, the resistance to softening the separation of banking activities, as enshrined in the Glass-Steagall Act, continues to be stiff. In Germany and Switzerland the importance of universal banking has grown since the end of World War II. Will this trend continue so that universal banks could completely overwhelm the specialized institutions in the future? Are the specialized banks doomed to disappear? This question cannot be answered with a simple "yes" or "no". The German and Swiss experiences suggest that three factors will determine future growth of universal banking. First, universal banks no doubt will continue to play an important role. They possess a number of advantages overspecialized institutions. In particular, they are able to exploit economies of scale and scope in banking. These economies are especially important for banks operating on a global scale and catering to customers with a need for highly sophisticated financial services. As we saw in the preceding section, universal banks may also suffer from various shortcomings. However, in

an increasingly competitive environment, these defects will likely carry far less weight than in the past. Second, although universal banks have expanded their sphere of influence, the smaller specialized institutions have not disappeared. In both Germany and Switzerland, they are successfully coexisting and competing with the big banks. In Switzerland, for example, the specialized institutions are

firmly entrenched in such areas as real estate lending, securities trading, and portfolio management. The continued strong performance of many specialized institutions suggests that universal banks do not enjoy a comparative advantage in all areas of banking. Third, universality of banking may be achieved in various ways. No single type of universal banking system exists. The German and Swiss universal banking systems differ substantially in this regard. In Germany, universality has been strengthened without significantly increasing the market shares of the big banks. Instead, the smaller institutions have acquired universality through cooperation. It remains to be seen whether the cooperative approach will survive in an environment of highly competitive and globalized banking

10

UNIVERSAL BANKING: SOLUTION TO FIs PROBLEMS

The financial institutions (FIs) such as ICICI, IDBI are reported to be exploring possibilities of conversion into universal banks as a solution for their problems. This follows the recommendation of the S. H. Khan Working Group. The FIS come into existence, in pursuance of the earlier policy of the State arranging funds for institutions set up for providing long-term finance. In the earlier period, FIS had access to the Long Term Operation Fund (LTO) set up the RBI out of its surpluses. With the initiation of reforms in 1996,the RBI discontinued the LTO. The term lending institutions, which had depended on LTO funds were left without funds. Added to this were the series of adverse developments in the industrial sector in India, partly as a result of opening up the economy. Many corporate become sick, as they were unprepared for strong competitive environment. Thus the FIs had also indulged in a liberal splurge of debt financing, in the optimistic expectation that liberalization would mean an improvement in prospects for industries. Thereafter FIs faced by a surge of NPAs. The problem of easier access to resources has been one of the drivers behind the suggestion to make FIs universal banks. As UBs, FIs will it is expected, be able to access deposits from a wider depositor base. UB is term usually used to cover category of institutions which do various banking businesses including investment banking, securities trading, besides payment and settlement functions and also insurance. The emphasis of the Khan Working Group on UB is however more in the direction of converting the FIs to commercial banks. The RBI has rightly adopted a cautious approach to this problem and its solution. The conversion of FIs to commercial banks is not by itself a panacea. Conversion also implies that the banks will have to be subject to the statutory requirement such as SLR and CRR.RBI may give some relaxation in statutory requirement in case of new entrant FIs/Ubs. One more way is to asset reconstruction device to sell NPAs of

11

the FIs and to generate funds. Asset Reconstruction Committees (ARCs) where recommended for commercial banks by the M. S.

Verma Committee. Is balance sheets are heavily burdened with accumulated NPAs; therefore first they will have to sale these impaired assets through reconstruction cos. Conversion to UB is not a remedy for this fundamental problem. One suggestion is that FIs to be merged with commercial banks. But current level of NPAs of FIs will put additional burden. Therefore solution UB in the sense of converting the FIs to commercial banks may be neither adequate nor free from further trouble.

12

APPROACH TO UNIVERSAL BANKING

The Narasimham Committee II suggested that Development Financial Institutions (DFIs) should convert ultimately into either commercial banks or non-bank finance companies. The Khan Working Group held the view that DFIs should be allowed to become banks at the earliest. The RBI released a 'discussion Paper' (DP) in January 1999 for wider public debate. The feedback on the discussion paper indicated that while the universal banking is desirable from the point of view of efficiency of resource use, there is need for caution in moving towards such a system by banks and DFIs. The principle of "Universal Banking" is a desirable goal and some progress has already been made by permitting banks to diversify into in ve

After converting into a universal bank, an FI will be required to publish its annual balance sheet and profit and loss account in the in the forms set out in the Third Schedule to the B R Act, as prescribed for a banking company under Section29 and Section 30 of the B. R. Act. Managerial remuneration of the Chief Executive Officers On conversion into a universal bank, the appointment and remuneration of the existing Chief Executive Officers may have to be reviewed with the approval of RBI in terms of the provisions of Section 35 B of the B. R. Act. The Sections tipulates fixation of remuneration of the Chairman and Managing Director of a bank by Reserve Bank of India taking into account the profitability, net NPAs and other financial parameters. Under the Section, prior approval of RBI would also be required for appointment of Chairman and Managing Director.

13

Deposit insurance An FI, on conversion into a universal bank, would also be required to comply with the requirement of compulsory deposit insurance from DICGC up to a maximum of Rs.1 lakh per account, as applicable to the banks. Authorized Dealer's License Some of the FIs at present hold restricted AD license from RBI, Exchange Control Department to enable them to undertake transactions necessary for or incidental to their prescribed functions. On conversion into a universal bank, the new bank would normally be eligible for full-fledged authorized dealer license and would also attract the full rigor of the Exchange Control the banks at present, including prohibition on raising resources through external commercial borrowings. Priority sector lending On conversion of an FI to a universal bank, the obligation for lending to "priority sector" up to a prescribed percentage of their 'net bank credit' would also become applicable to it . Prudential norms After conversion of an FI in to a bank, the extant prudential norms of RBI for the all-India financial institutions would no longer be applicable but the norms as applicable to banks would be attracted and will need to be fully complied with.

14

UNIVERSAL BANKING CURRENT POSITION IN INDIA

In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sect oral needs and also providing long-term resources at concessional terms, while the commercial banks in general, by and large, confined themselves to the core banking functions of accepting deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalization and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking. Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri.S.H. Khan to bring about greater clarity in the respective roles of banks and financial institutions for greater harmonization of facilities and obligations. Also report of the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues considered by the Khan Working Group. The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an universal bank. Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy for universal banking including a case-by-case approach towards allowing domestic financial institutions to become universal banks. Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit their

plans for transition to a universal bank for consideration and further discussions. FIs need to formulate a road map for the transition path and strategy for smooth conversion into a universal bank over a specified time frame. The plan should

15

specifically provide for full compliance with prudential norms as applicable to banks over the proposed period. SWOT The solution of Universal Banking was having many factors to deal with which further categorized under Strengths, Weaknesses, Opportunities and Threats. 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. Various Reserve Banks Committees and reports in favor of Universal Banking, is that it enables banks to exploit economies of scale and scope.

16

RBI GUIDELINES FI/s CONVERSION INTO UNIVERSL BANKS

Salient operational and regulatory issues to be addressed by the F/s For the conversion into Universal bank are: Reserve Requirements Compliance with the cash reserve ratio and statutory liquidity ratio requirements (under Section 42 of RBI Act, 1934, and Section 24 of the Banking Regulation Act, 1949, respectively) would be mandatory for an FI after its conversion into a universal bank Permissible activities Any activity of an FI currently undertaken but not permissible for a bank under Section 6(1) of the B. R. Act, 1949, may have to be stopped or divested after its conversion into a universal bank. Disposal of non-banking assets

Any immovable property, howsoever acquired by an FI, would, after its conversion into a universal bank, be required to be disposed of within the maximum period of 7 years from the date of acquisition, in terms of Section 9 of the B. R. Act. Composition of the Board

17

Changing the composition of the Board of Directors might become necessary for some of the FIs after their conversion into a universal bank, to ensure Bank Profile Established in 1994, ICICI Bank is today the second largest bank in India and among the top 150 in the world. In less than a decade, the bank has become a universal bank offering a well diversified portfolio of financial services. It currently has assets of over US$ 79 billion and a market capitalization of US$ 9billion and services over 14 million customers through a network of about 950branches, 3300 ATM's and a 3200 seat call center (as of 2007). The hallmark of this exponential growth is ICICI Banks unwavering focus on technology. Key Business Drivers ICICI Bank was set up when the process of deregulation and liberalization had just begun in India and the Reserve Bank of India (Indias central bank) had paved the way for private players in the banking sector, which at that time was dominated by state-owned and foreign banks. Serving the majority of the countrys popular, state owned banks had a large branch network, with minimal automation and little focus on service. Foreign banks, on the other hand, deployed high-end technology, had innovative product offerings, but had a very small branch network that serviced only corporate's and individuals with high net-worth. Sensing an untapped opportunity, ICICI Bank decided to target Indias burgeoning middleclass and corporate's by offering a high level of customer service and efficiency that rivaled the foreign banks, on a much larger scale, at a lower cost. A crucial aspect of this strategy was the emphasis on technology. ICICI Bank positioned itself as technology-savvy customer friendly bank. To support its technology focused strategy, ICICI Bank needed a robust technology platform that would help it achieve its business goals. After valuation of several global vendors, ICICI Bank identified Infosys as its technology partner the universal banking solution from Infosys, as its core banking platform. An open systems approach and low TCO(Total Cost of Ownership) were

18

some of the key benefits Finale offered the bank. Unlike most banks of that era, ICICI Bank was automated from day one, when its first branch opened in the city of Chennai. Some of the reasons cited by the bank for its decision to select Finale includes Finale sfuture-proof technology, best-of-breed retail and corporate banking features, scalable architecture and proven implementation track record. Solution Overview One of the biggest challenges for Finale was ensuring straight through processing (STP) of most of the financial transactions. With the ICICI group having several companies under its umbrella, Finale needed to seamlessly integrate with multiple applications such as credit cards, mutual funds, brokerage, call center and data warehousing systems. Another key challenge was managing transaction volumes. ICICI Bank underwent a phase of organic and in organic growth, first by acquiring Bank of Madura followed by a reverse merger of the bank with its parent organization, ICICI Limited. The scalable and open systems based architecture, enabled Finale to successfully manage the resultant increase in transaction levels from 400,000 transactions a day in 2000 to nearly 2.1 million by2005 with an associated growth in peak volumes by 5.5 times. With Finale, the bank currently has the ability to process 0.27 million cheques per day and manage 7000 concurrent users. Over the years, the strategic partnership between ICICI Bank and Infosys that started in 1994 has grown stronger and the close collaboration has resulted in many innovations. For instance, in 1997, it was the first bank in India to offer Internet banking with Fin ales e-banking solution and established itself as a leader in the Internet and ecommerce space. The bank followed it up with offering several e-Commerce services like Bill Payments, Funds Transfers and Corporate Banking over the net. The internet is a critical element of ICICI Banks award winning multi-channel strategy that is one of the main engines of growth for the bank. Between 2000 and 2004, the bank has been able to successfully move over 70percent of routine banking transactions from the branch to the other delivery channels, thus increasing overall efficiency. Currently, only 25 percent of all transactions take place through branches and 75

19

percent through other delivery channels. This reduction in routine transactions through the branch has enabled ICICI Bank to aggressively use its branch network as customer acquisition units.

Following services are provided by universal bank:

20

On an average, ICICI Bank adds 300,000 customers a month, which is among the highest in the world. Channels: Share of Transactions March 2000 Share of Transactions March 2004 Branches: 25% 94 % ATMs: 3% 43% Internet &Mobile: 2% 21 % Call Centers: 1% 11 %

21

Reaping The Benefits A powerful, scalable and flexible technology platform is essential for banks to manage growth and compete successfully. And Finale provides just the right platform to ICICI Bank thus fueling its growth. The bank has successfully leveraged the power of Finale and has deployed the solution in the areas of core banking, consumer e-banking, corporate e-banking and CRM. With Finale, ICICI Bank has also gained the flexibility to easily develop new products targeted at specific segments such as ICICI Bank Young Stars- a product targeting children, Women's Account addressing working women and Bank at campus targeting students. ICICI Bank is today recognized as a clear leader in the region and has won numerous accolades worldwide for its technology-driven initiatives. In 2003, the bank received the best multi-channel strategy award from The Banker magazine and this year it was rated as the 2nd best retail bank in Asia by The Asian Banker Journal. The bank has effectively used technology as a strategic differentiator, thus

not only redefining the rules of banking in India, but also showcasing how technology can help in transforming a banks business. As a student of BBI, I had a great opportunity to do a project of Universal Banking which was indeed a wonderful experience and has enhanced my knowledge in banking sector. This study on Universal Banking is important not only to an organization, shareholders and banking sector but also to an Indian economy as a whole. Due to globalization and liberalization our economy is opening its door for reforms. The onset of universal banking will

22

undoubtedly accelerate the pace of structural change within the Indian banking system. The financial institutions as a segment will essentially convert into banks. This can potentially impose a better corporate control structure on the firms, they can be sources of long-term finance, and they can contribute to real sector restructuring. Universal Banking is totally a new concept in Indian Banking system and ICICI Bank is the first financial Institution to go ahead with this concept. Thus Universal banking, in fact, provides for a cafeteria approach or, if one were to vary the metaphor, it would take on the role of a one-stop financial supermarket. Industrial Credit and Investment Corporation of India Ltd. (ICICI), which was setup as a DFI in 1955, underwent significant changes to meet the challenges that it faced due to the banking deregulation act. To exploit the synergies brought by universal banking, it went in for mergers and acquisitions and finally reverse merged with its subsidiary ICICI Bank. ICICI Bank is today the second largest bank in India and among the top 150 in the world.

23

UNIVERSAL BANKING. THE INDIAN PERSPECTIVE

Ever since the financial sector reforms were introduced in early 90s the banking sector saw the emergence of new generation of private sector banks. These banks gained at most popularity as they have technology edge and better business models when compared to public sector banks and the most important thing is they are able to attract more volumes simply because they meet their customers requirements under one roof. If the newer players can do that then why cant the bigger players like the Financial Institutions (FIs) try their hands on it? Here comes the concept of universal banking, its emergence, merits and related issues. The present paper focuses on understanding the concept of universal banking in India and attempts to explain the regulatory role, regulatory requirements, key duration and maturity distinction and lastly the optimal transition path. The paper also gives an overview of the international experience and argues in favor of developing a strong domestic financial system in order to compete in the global market.

24

CONVERSION OF FIs TO UNIVERSAL BANK

Licensing An FI converting into a universal bank would be required to obtain a banking license from RBI under Section 22 of the Banking Regulation Act, for carrying on banking business in India, after complying with the applicable conditions. Branch network An FI, after its conversion into a bank, would also be required to comply with extant branch licensing policy of RBI under which the new banks are required to allot at east 25 per cent of their total number of branches in semi-urban and rural areas. Assets in India An FI after its conversion into a universal bank, will be required to ensure that at the close of business on the last Friday of every quarter, its total assets held in India are not less than 75 per cent of its total demand and time liabilities in India, as required of a bank under Section 25 of the Banking Regulation Act. Format of annual reports After converting into a universal bank, an FI will be required to publish its annual balance sheet and profit and loss account in the in the forms set out in the Third Schedule to the B R Act, as prescribed for a banking company under Section 29 and Section 30 of the Banking Regulation Act

25

Managerial remuneration of the Chief Executive Officers On conversion into a universal bank, the appointment and remuneration of the existing Chief Executive Officers may have to be reviewed with the approval of RBI in terms of the provisions of Section 35 B of the Banking Regulation Act. The Section stipulates fixation of remuneration of the Chairman and Managing Director of a bank by Reserve Bank of India taking into account the profitability, net NPAs and other financial parameters. Under the Section, prior approval of RBI would also be required for appointment of Chairman and Managing Director. Deposit insurance An FI, on conversion into a universal bank, would also be required to comply with the requirement of compulsory deposit insurance from DICGC up to a maximum of Rs.1 lakh per account, as applicable to the banks.

26

CONCLUSION
As a student of BBI, I had a great opportunity to do a project of Universal Banking which was indeed a wonderful experience and has enhanced my knowledge in banking sector. This study on Universal Banking is important not only to an organization, shareholders and banking sector but also to an Indian economy as a whole. Due to globalization and liberalization our economy is opening its door for reforms. The onset of universal banking will undoubtedly accelerate the pace of structural change within the Indian banking system. The financial institutions as a segment will essentially convert into banks. This can potentially impose a better corporate control structure on the firms, they can be sources of long-term finance, and they can contribute to real sector restructuring. Universal Banking is totally a new concept in Indian Banking system and ICICI Bank is the first financial Institution to go ahead with this concept. Thus Universal banking, in fact, provides for a cafeteria approach or, if one were to vary the metaphor, it would take on the role of a one-stop financial supermarket. Industrial Credit and Investment Corporation of India Ltd. (ICICI), which was setup as a DFI in 1955, underwent significant changes to meet the challenges that it faced due to the banking deregulation act. To exploit the synergies brought by universal banking, it went in for mergers and acquisitions and finally reverse merged with its subsidiary ICICI Bank. ICICI Bank is today the second largest bank in India and among the top 150 in the world. In less than a decade, the bank

27

suggestion
I suggest that the Universal banks hold stakes (equity shares) of many companies. These companies can easily get other investors to invest in their business. This is because other investors have full confidence and faith in the Universal banks. They know that the Universal banks will closely. Universal banking results in economic efficiency. That is, it results in lower costs, higher output and better products and services. Universal banks use their client's resources as per the client's ability to take a risk. If the client has a high risk taking capacity then the universal bank will advise him to make risky investments and not safe investments. Similarly, clients with a low risk taking capacity are advised to make safe investments. Today, universal banks invest their client's money in different types of Mutual funds and also directly into the share market. They also do equity research. So, they can also manage their client's portfolios (different investments) profitably. universal banks diversify their activities. So, they can use the same financial experts to provide different financial services. This saves cost for the universal bank. Even the day-to-day expenses will be saved because all financial services are provided under one roof The universal banks can easily market (sell) all their financial products and services through their many branches. They can ask their existing clients to buy their other products and services. This requires less marketing efforts because of their well-established brand name.

28

Universal banking offers all financial products and services under one roof. One-stop shopping saves a lot of time and transaction costs. It also increases the speed or flow of work. So, one-stop shopping gives benefits to both banks and their clients.

29

BIBLIOGRAPHY
BOOKS Harmonizing the Role and operations of development Financial Institutions And banks-a discussion paper of R.B.I., Mumbai. Universal Banking- International comparisons & Theoretical perspectives by Jordi Canals. MAGAZINES Annual Report of ICICI bank Indian Institute Journal WEBSITES www.scribed.com www.icicibank.com www.banknetindia.com www.google.com www.indiatimes.com www.icfaipress.org www.financialexpress.com www.allahabadbank.com www.economictimes.com

Has become a universal bank offering a well diversified portfolio of financial services. It currently has assets of over US$ 79 billion and a market capitalization

30

of US$ 9 billion and services over 14 million customers through a network of about 950 branches, 3300 ATM's and a 3200 seat call center (as of 2007). The hallmark of this exponential growth is ICICI Banks unwavering focus on technology. United Bank for Africa PLC (UBA) is the product of a merger of two of Nigerias top five banks, UBA and Standard Trust Bank Plc (STB). Today, consolidated UBA is largest financial services institution in sub- Saharan Africa(excluding South Africa) with a balance sheet size in excess of 400 billion naira

31