TABLE OF CONTENT

SR.NO TOPIC 1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21. 22. EXECUTIVE SUMMARY INTRODUCTION HISTORY DEFINITION AND CONCEPTS UNIVERSAL BANKING MODEL ADVANTAGES & LIMITATIONS UNIVERSAL BANKING IN INDIA KHAN COMMITTEE ON UNIVERSAL BANKING & FIS NEED OF UNIVERSAL BANKING IN INDIA UNIVERSAL BANKING: SOLUTION TO FIS PROBLEMS APPROACH TO UNIVERSAL BANKING RBI GUIDELINES UNIVERSAL BANKING - CURRENT POSITION IN INDIA SWOT THE FUTURE TREND OF UNIVERSAL BANKING IN DIFFERENT COUNTRIES ISSUES & CHALLENGES IN UNIVERSAL BANKING UNIVERSAL BANKING: AN OVERVIEW COMMENTS/VIEWS OF EXPERTS CASE STUDY CONCLUSION BIBLIOGRAPHY
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Executive Summary

The latest mantra is Universal Banking, which is combination of Commercial & Investment Banking. The concept is most relevant in the United Kingdom and the United States, Barclays Bank, Chase Manhattan and Citicorp are some of the examples of it. Where historically there was a distinction drawn between pure investment banks and commercial banks. In the US, this was a result of the Glass-Steagall Act of 1933. In both countries, however, the regulatory barrier to the combination of investment banks and commercial banks has largely been removed, and a number of universal banks have emerged in both jurisdictions. However, at least up until the global financial crisis of 2008, there remained a number of large, pure investment banks. In other countries, the concept is less relevant as there is not regulatory distinction between investment banks and commercial banks. Thus, banks of a very large size tend to operate as universal banks, while smaller firms specialised as commercial banks or as investment banks. This is especially true of countries with a European Continental banking tradition. Notable examples of such universal banks include Deutsche

Bank of Germany, and UBS and Credit Suisse of Switzerland. Universal banking is the solution to FIs problems. A universal bank participates in many kinds of banking activities and is both a Commercial bank and an Investment bank. The merger of ICICI and ICICI bank is probably the largest merger seen in corporate India Industry, which has redefine banking in the highly competitive era of globalization and liberalization. Post merger, the new entity- ICICI Bank is the
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first Universal Bank in India and the second largest commercial bank in the country after SBI. Financial Institutions & Insurance Companies are now merging ahead to capture new business areas and leading towards Universal Banking. The banking sector deregulation that took place in India during the early 1990s posed a threat to the survival of Development Financial Institutions (DFIs). They were cut off from the concessional funding extended by the government and were exposed to intense competition from local and foreign banks. Over a period of time, Industrial Credit and Investment Corporation of India Ltd. (ICICI), which was set up as a DFI in 1955, underwent significant changes to meet these challenges. To exploit the synergies brought by universal banking, it went in for mergers and acquisitions and finally reverse merged with its subsidiary ICICI Bank. The mid-eighties marked the beginning of the shift to a buyers` market in the banking space, and Bank of Baroda, was among the first to grasp this pressing imperative. The bank orchestrated its business strategies around the centrality of the customer. It diversified rapidly into the areas of merchant banking, housing finance, credit cards and mutual funds. The strategy also entailed the sustained development of a string of segment - specific branches entrenching operations in profitable markets, the world over. The drive was to revamp overseas operations and intensify structural changes across geographies to provide services across segments with focus on the Indian Diaspora. The bank sought to take to market a vast array of international banking and services catering to the needs of exporters and importers in India and abroad. UBA is the first successful merger transaction in the history of the Nigerian banking sector and was born out of a desire to lead the sector to a new era of global relevance by championing the creation of the Nigerian consumer finance market
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and leading a private/public sector partnership aimed at accelerating the economic development of Nigeria. The Nigeria banking industry is going through so tremendous flux. The Central Banks mandate of a minimum N25 billion capitalization by December 2005 resulted in the Nigerian market witnessing consolidation activity on a large scale. Though the UBA-STB merger was consummated during the ongoing consolidation era, it was a strategic move by the bank to become a large regional player, with an increased reach and synergies in terms of larger customer base and complementary product portfolio. For the better understanding of my project, I prepared a hypothesis. It is Universal Banking-Next milestone for Banks in the coming years. Relevance of this Hypothesis helped me in the conduct of the project & also gave me a better chance to understand the topic.

INTRODUCTION TO UNIVERSAL BANKING

Since the early 1990s, structural and functional changes of profound magnitude came to be witnessed in global banking systems. Large-scale mergers, amalgamations 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 IN INDIA

Historically, India followed a very compartmentalized financial intermediaries allowed to operate strictly in their own respectively fields. However, in the 1980s banks were allowed to undertake various non-traditional activities through subsidiaries. This trend got momentum in the early 1990s i.e., after initiation of economic reforms with banks allowed undertaking certain activities, such as, hirepurchase and leasing in housing. While this in a way represented a gradual move towards universal banking, the current debate about universal banking in India started with the demand from the DFIs that they should be allowed to undertake banking activity in-house. In the wake of this demand, the Reserve Bank of India constituted in December 1997, a working group under the chairmanship of Shri S.H. Khan, the Chairman & the Managing Director of IDBI (hereafter referred to as Khan Working Group-KWG). The KWG, which submitted its report in May 1998, recommended a progressive move towards universal banking. The Second Narsinham Committee appointed by Government in 1998 also echoed the same sentiment. In January 1999, the Reserve Bank issued a Discussion Paper setting out issues arising out of recommendations of the KWG and the Second Narsinham Committee. Since then a debate has been going on about universal banking in general and conversion of DFIs into universal banks in particular. With the opening up of the insurance sector to the private participation, the debate has gone beyond the narrow concept of universal banking.

DEFINITION AND CONCEPTS

The term universal bank has different meanings, but usually it refers to the combination of commercial banking (collecting deposits & making loans) and investment banking i.e. issuing, underwriting and trading in securities, this is the narrow definition of universal banking. In a very broad sense, the term universal bank refers to those banks that offer a wide range of financial services, such as, commercial banking & investment banking and other activities especially insurance. It is a multi-purpose and multi-functional financial supermarket providing both banking and financial services through a single window. According to World Bank the concept is explained as follows - "In universal banking, large banks operate extensive networks 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." Universal Banking (UB) usually takes one of the three forms, i.e., in-house, through separately capitalized subsidiaries, or through a holding a capital structure. Three well-known countries in which these structures prevail are Sweden and Germany, the UK & US. Universal in its fullest or purest form would allow a banking corporate to engage in-house in any activity associated with banking, insurance, securities, etc. However, there are very few countries, such as, Sweden and Hong Kong, which allow universal banking in its purest form. In Germany, banking and investment activities are combined, but separate subsidiaries are required for certain other activities. Under German banking statutes, all activities could be carried out within the structure of the parent bank except insurance, mortgage banking and mutual funds, which require legally, separate subsidiaries. In the UK, a broad range of financial activities is allowed to be conducted through
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separate subsidiaries of the bank. The third model, which is found in the US, generally requires a holding company structure and separately capitalized subsidiaries.

In certain countries these type of universal banking are successfully functioning. Universal banking is nothing but broad based bank where you can do commercial banking, investment, insurance, and other financial business. It is largely found in different countries in different forms.

UNIVERSAL BANKING MODEL

6.60%

8.80%

6.20%

37.10% 58.80% 57%

26.70%

TREASURY WEALTH MANAGEMENT. RETAIL CORPORATE WEALTH MANAGEMENT. CORPORATE RETAIL

THREE KEY BUSINESS AREAS RETAIL BANKING: consumer loans, credit cards(top 33 US issuer),
mortgages, internet banking, ample range of deposits.

CORPORATE BANKING: a full range of products and financial services for

SMEs and corporates.

WEALTH MANAGEMENT: advise and taylored products to individual

customers, retirement plans and private banking. US$ 8Bn in AUM

ADVANTAGES AND LIMITATIONS OF UNIVERSAL BANKING

y ADVANTAGES 1. Greater economic efficiency The main argument in favour of universal banking is that it results in greater economic efficiency in the form of lower cost, higher output and better products. This logic stems from the reason that when sector participants are free to choose the size and product-mix of their operations, they are likely to configure their activities in a manner that would optimize the use of their resources and circumstances.

2. Economies of scale It means lower average costs, which arise when larger volume of operations are performed for a given level of overhead on investment. Economies of scope arise in multi-product firms because costs of offering various activities by different units are greater than the costs when they are offered together. Economies of scale and scope have been given as the rationale for combining the activities. A larger size and range of operations allow better utilisation of resources/inputs.

3. Easy handling of business cycles Due to various shifts in business cycles, the demand for products also varies at different points of time. It is generally held that universal banks could easily handle such situations by shifting the resources within the organization as

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compared to specialized banks. Specialized firms are also subject to substantial risks of failure. Because their operations are not well diversified. By offering a broader set of financial products than what a specialized bank provides, it has been argued that a universal bank is able to establish long-term relationship with the customers and provide them with a package of financial services through a single window.

y LIMITATIONS 1. Failure Risk System The larger the banks, the greater the effects of their failure on the system. The failure of a larger institution could have serious ramifications for the entire system in that if one universal bank were to collapse, it could lead to a systemic financial crisis. Thus, universal banking could subject the economy to the increased systemic risk.

2. Risk of increase in Monopoly power Historically, an important reason for limiting combinations of activities has been the fear that such institutions, by virtue of their sheer size, would gain monopoly power in the market, which can have significant undesirable consequences for economic efficiency [Borio and Filosa, 1994]. Two kinds of concentration should be distinguished, viz., the dominance of universal banks over non-financial companies and concentration in the market for financial services. The critics of universal banks blame universal banking for fostering cartels and enhancing the power of large non-banking firms.

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3. Bureaucratic and inflexible Some critics have also observed that universal banks tend to be bureaucratic an inflexible and hence they tend to work primarily with large established customers and ignore or discourage smaller and newly established businesses. Universal banks could use such practices as limit pricing or predatory pricing to prevent smaller specialized banks from serving the market. This argument mainly stems from the economies of scale and scope.

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UNIVERSAL BANKING IN INDIA

In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sectoral 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 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 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 the 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

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the transition path and strategy for smooth conversion into an universal bank over a specified time frame.

KHAN COMMITTEE ON UNIVERSAL BANKING & FIS The khan committee on harmonizing the role and operations of development financial institutions and banks submitted its report on April 24, 1998 with following recommendations:              Give banking license to DFIs Merge banks with banks, DFIs Bring down CRR progressively Phase out SLR Redefine priority sector Set up a super regulator to coordinate regulators activities Develop risk-based supervisory framework Usher in legal reforms in debt recovery State level FIs be allowed to go public and come under RBI DFIs be permitted to have wholly-owned banking subsidiaries Remove cap on FIs resources mobilization Grant authorized dealers license to DFIs Set up a standing committee to coordinate lending policies

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SOME CONCEPTS
y Universal Banking Universal banking refers to elimination of the distinction between the development financial institutions and the banks and market segmentation that presently exists between them.

y Harmonization Of Role Of Banks And DFIs Harmonization means the introduction of universal banking in a limited sense, wherein the DFIs could become banks and intermediate in the short-term end of the financial market (say finance for working capital) and commercial banks could enter the long-term end of the financial market (say project financing). In other words, the harmonization allows the DFIs and banks to move freely to the other end than where they are presently placed. y The Main Areas Of Operations Of DFIs And Banks Presently And How Universalisation Will Change That Role In Future. DFIs are specialist institutions catering to different sectors, appraising projects from technical and financial parameters and finance long-term investment requirements. This specialization has given edge to DFIs in terms of project appraisal. On the other hand, the banks meet the short term investment and production requirements and they have developed expertise in providing working capital finance to industry, exports, imports, small industry, agriculture etc. They can take as intermediates in a big way at the other end of their markets where they
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are less dominant presently. Some of them may even diversify into insurance and other related areas. y Requirement Of Cost Considerations In Universalisation Cost of funds differentiates the DFIs from banks, as DFIs incur higher costs for mobilizing long-term finance. Banks do not normally mobilize substantial deposit resources with maturities in excess of 5 years, which limits their capacity to extend long-term loans. This has resulted in participation type of relationship in financing by banks and DFIs. y The Areas Of Conflict arising Between Banks And DFIs There are conflicts relating to securities for the loans sanctioned by the banks and DFIs. While the DFIs have first charge over block assets, the banks have first charge on current assets, which place both the banks and DFIs in different positions. Another area of conflict is extension of refinance by DFIs to banks to supplement banks long-term resources. But due to higher cost of their funds, the DFIs find it a losing proposition. y The Committee Which Recommended Universal Banking & What It Suggested The SH Khan Committee suggested the concept of Universal Banking. It also suggested to give banking licence to DFIs, merging banks with banks or DFIs, bring down CRR progressively, phase out SLR, redefine priority sector, set up a super regulator to coordinate regulators activities, develop risk-based supervisory
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framework, usher in legal reforms in debt recovery, allow State level FIs to go public and come under RBI, permit DFIs to have wholly-owned banking subsidiaries, remove cap on FIs resources mobilization, grant authorized dealers licence to DFIs, set up a standing committee to coordinate lending policies etc. y The Likely Gains From Universalisation The universalisation is expected to result in expansion of banks and diversification into new financial and Para-banking services. The business focus of the banks would emerge on profit lines. This may at the same time result in reluctance on their part to enter the smaller end of retail banking particularly, the small borrowers in rural areas, who may find it difficult to access the banking services, since they do not contribute substantially to Banks Business Volumes Or Profits. y The Apprehensions Of Universalisation The financial services may not become the privilege of elitist. If the reforms with a human face are what we want, the universal banking has to make adjustments and ensure that financial services are available to all at affordable costs.

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NEED OF UNIVERSAL BANKING IN INDIA

y The phenomenon of universal bankingas different from narrow banking is suddenly in the news. With the second Narasimham 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.

y 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.

y The benefits to banks from universal banking are the standard argument given everywhere also by the various Reserve Bank committees and reportsin favour of universal banking is that it enables banks to exploit economies of scale and scope.

y So that a bank can reduce average costs and thereby improve spreads if it expands its scale of operations and diversifies its activities.

y 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.

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y 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.

y 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.

y 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.

y 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 groups have plans to diversify in a big way.

y At present, only an 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).

y 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.

y All these can be seen as steps towards an ultimate culmination of financial intermediation in India into universal banking.
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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
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requirement in case of new entrant FIs/Ubs. One more way is to asset reconstruction device to sell NPAs of 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.

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APPROACH TO UNIVERSAL BANKING

The Narsimham Committee II suggested that Development Financial Institutions (DFIs) should convert ultimately into either commercial banks or nonbank 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 investments and longterm financing and the DFIs to lend for working capital, etc. However, banks have certain special characteristics and as such any dilution of RBI's prudential and supervisory norms for conduct of banking business would be inadvisable. Though the DFIs would continue to have a special role in the Indian financial System, until the debt market demonstrates substantial improvements in terms of liquidity and depth, any DFI, which wishes to do so, should have the option to transform into bank (which it can exercise), provided the prudential norms as applicable to banks are fully satisfied. To this end, a DFI would need to prepare a transition path in order to fully comply with the regulatory requirement of a bank. The DFI concerned may consult RBI for such transition arrangements. Reserve Bank will consider such requests on a case-by-case basis. Financing requirements, which is necessary. In due course, and in the light of evolution of the financial system, Narasimham Committee's recommendation that, ultimately there should be only banks and Restructured NBFCs can be operationalised.
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RBI GUIDELINES FOR EXISTING BANKS/FIs FOR CONVERSION INTO UNIVERSL BANKS.
Salient operational and regulatory issues to be addressed by the FIs For the conversion into Universal bank are:

y 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

y 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.

y 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.

y Composition of the Board

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
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compliance with the provisions of Section 10(A) of the B. R. Act, which requires at least 51% of the total number of directors to have special knowledge and experience

y Prohibition on floating charge of assets

The floating charge, if created by an FI, over its assets, would require, after its conversion into a universal bank, ratification by the Reserve Bank of India under Section 14(A) of the B. R. Act, since a banking company is not allowed to create a floating charge on the undertaking or any property of the company unless duly certified by RBI as required under the Section.

y Nature of subsidiaries
If any of the existing subsidiaries of an FI is engaged in an activity not permitted under Section 6(1) of the B R Act , then on conversion of the FI into a universal bank, delinking of such subsidiary / activity from the operations of the universal bank would become necessary since Section 19 of the Act permits a bank to have subsidiaries only for one or more of the activities permitted under Section 6(1) of B. R. Act.

y Restriction on investments
An FI with equity investment in companies in excess of 30 per cent of the paid up share capital of that company or 30 per cent of its own paid-up share capital and reserves, whichever is less, on its conversion into a universal bank, would need to divest such excess holdings to secure compliance with the provisions of Section 19(2) of the B. R. Act, which prohibits a bank from holding shares in a company in excess of these limits.
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y Connected lending
Section 20 of the B. R. Act prohibits grant of loans and advances by a bank on security of its own shares or grant of loans or advances on behalf of any of its directors or to any firm in which its director/manager or employee or guarantor is interested. The compliance with these provisions would be mandatory after conversion of an FI to a universal bank.

y Licensing
An FI converting into a universal bank would be required to obtain a banking licence from RBI under Section 22 of the B. R. Act, for carrying on banking business in India, after complying with the applicable conditions.

y 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.

y 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 B R Act.

y Format of annual reports

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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 B. R. Act.

y 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 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.

y 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.

y 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 Regulations applicable to

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the banks at present, including prohibition on raising resources through external commercial borrowings.

y 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 .

y 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.

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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
28

strategy for smooth conversion into a universal bank over a specified time frame. The plan should specifically provide for full compliance with prudential norms as applicable to banks over the proposed period.

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SWOT
The solution of Universal Banking was having many factors to deal with which further categorized under Strengths, Weaknesses, Opportunities and Threats.

Strengths:
* 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. It means a bank can reduce average costs and thereby improve spreads if it expands its scale of operations and diversifying activities.

* 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 it can use to pursue other activities with the same client. A data collection about the
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market trends, risk and returns associated with portfolios of Mutual Funds, diversifiable and non diversifiable risk analysis, etc are useful for other clients and information seekers. Automatically, a bank will get the benefit of being involved in Research.

* Easy marketing on the foundation a of Brand name

A bank has an existing network of branches, which can act as shops for selling products like Insurance, Mutual Fund without much efforts on marketing, as the branch will act here as a parent company or source. In this way a bank can reach the remotest client without having to take recourse ton 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 customers.

* Investor friendly activities

Another manifestation of Universal Banking is bank holding stakes in a firm. A bank's equity holding in a borrower firm, acts as a signal for other investors 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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Weaknesses:
* 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 requirements for a 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. Project finance and Infrastructure Finance are generally long gestation 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 of DFIs have had to encounter is bad loans or Non Performing Assets (NPA). For the DFIs and Universal Banking or installation of cutting-edge-technology in operations are unlikely to improve the situation concerning NPAs.

Most of the NPAs came out of loans to commodity sectors, such as steel, chemicals, textiles, etc. the improper use of DFI funds by project promoters, a sharp change in operating environment and poor appraisals by DFIs combined to
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destroy the viability of some projects. So, instead of improving the situation Universal Banking may worsen the situation, due to the expansion in activities banks will fail to make thorough study of the actual need of the party concerned, the prospect of the business, in which it is engaged, its track record, the quality of the management, etc.

ICICI suffered the least in this section, but the IDBI has got worst hit of NPAs, considering the negative developments at Dabhol Power Company (DPC)

Opportunities:
* To increase efficiency and productivity

Liberalization offers opportunities to banks. Now, the focus will be on profits rather than on the size of balance sheet. Fee based incomes will be more attractive than mobilizing deposits, which lead to lower cost funds. To face the increased competition, banks will need to improve their efficiency and productivity, which will lead to new products and better services.

* To get more exposure in the global market

In terms of total asset base and net worth the Indian banks have a very long road to travel when compared to top 10 banks in the world. (SBI is the only Indian bank to appear in the top 100 banks list of 'Fortune 500' based on sales, profits, assets and market value. It also ranks II in the list of Forbes 2000 among all Indian
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companies) as the asset base sans capital of most of the top 10 banks in the world are much more than the asset base and capital of the entire Indian banking sector. In order to enter at least the top 100 segment in the world, the Indian banks need to acquire a lot of mass in their volume of operations.

Pure routine banking operations alone cannot take the Indian banks into the league of the Top 100 banks in the world. Here is the real need of universal banking, as the wide range of financial services in addition to the Commercial banking functions like Mutual Funds, Merchant banking, Factoring, Insurance, credit cards, retail, personal loans, etc. will help in enhancing overall profitability. * To eradicate the 'Financial Apartheid'

A recent study on the informal sector conducted by Scientific Research Association for Economics (SRA), a Chennai based association, has found out that, 'Though having a large number of branch network in rural areas and urban areas, the lowest strata of the society is still out of the purview of banking services. Because the small businesses in the city, 34% of that goes to money lenders for funds. Another 6.5% goes to pawn brokers, etc.

The respondents were businesses engaged in activities such as fruits and vegetables vendors, laundry services, provision stores, petty shops and tea stalls. 97% of them do not depend the banking system for funds. Not because they do not want credit from banking sources, but because banks do not want to lend these entrepreneurs. It is a situation of Financial Apartheid in the informal sector. It means with the help of retail and personal banking services Universal Banking can reach this stratum easily.
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Threats:
* Big Empires Universal Banking is an outcome of the mergers and acquisitions in the banking sector. The Finance Ministry is also empathetic towards it. But there will be big empires which may put the economy in a problem. Universal Banks will be the largest banks, by their asset base, income level and profitability there is a danger of 'Price Distortion'. It might take place by manipulating interests of the bank for the self interest motive instead of social interest. There is a threat to the overall quality of the products of the bank, because of the possibility of turning all the strengths of the Universal Banking into weaknesses. (e.g. - the strength of economies of scale may turn into the degradation of qualities of bank products, due to over expansion.

If the banks are not prudent enough, deposit rates could shoot up and thus affect profits. To increase profits quickly banks may go in for riskier business, which could lead to a full in asset quality. Disintermediation and securitization could further affect the business of banks.

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THE FUTURE TREND OF UNIVERSAL BANKING IN DIFFERENT COUNTRIES

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 over specialized institutions. In particular, they are
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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 globalized banking. and

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ISSUES & CHALLENGES IN UNIVERSAL BANKING

I. Challenges in Universal Banking There are certain challenges, which need to be effectively met by the universal banks. Such challenges need to build effective supervisory infrastructure, volatility of prices in the stock market, comprehending the nature and complexity of new financial instruments, complex financial structures, determining the precise nature of risks associated with the use of particular financial structure and transactions, increased risk resulting from asymmetrical information sharing between banks and regulators among others. Moreover norms stipulated by RBI treat DFIs at par with the existing commercial banks. Thus all Universal banks have to maintain the CRR and the SLR requirement on the same lines as the commercial banks. Also they have to fulfill the priority sector lending norms applicable to the commercial banks. These are the major hurdles as perceived by the institutions, as it is very difficult to fulfill such norms without hurting the bottom-line. There are certain challenges, which need to be effectively met by the universal banks. Such challenges include weak supervisory infrastructure, volatility of prices in the stock market, comprehending the nature and complexity of new financial instruments, complex financial structures, determining the precise nature of risks associated with the use of particular financial structure and transactions, increased risk resulting from asymmetrical information sharing between banks and regulators among others.

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II.

Issues of concern for Universal Banking:

1. Deployment of capital: If a bank were to own a full range of classes of both the firms debt and equity the bank could gain the control necessary to effect reorganization much more economically. The bank will have greater authority to intercede in the management of the firm as dividend and interest payment performance deteriorates. 2. Unhealthy concentration of power: In many countries such a risk prevails in specialized institutions, particularly when they are government sponsored. Indeed public choice theory suggests that because Universal Banks serve diverse interest, they may find it difficult to combine as a political coalition even this is difficult when number of members in a coalition is large. 3. Impartial Investment Advice: There is a lengthy list of problems, involving potential conflicts between the banks commercial and investment banking roles. For example there may be possible conflict between the investment bankers promotional role and commercial bankers obligation to provide disinterested advice. Or where a Universal Banks securities department advises a bank customer to issue new securities to repay its bank loans. But a specialized bank that wants an unprofitable loan repaid also can suggest that the customer issues securities to do so.

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CURRENT ISSUES
UNIVERSAL BANKING- Rising Popularity As competition intensifies banks are likely to morph into financial supermarkets. Leading the pack is Universal banks, which offer a wide gamut of services targeted at a broader customer base. Their services range from commercial banking and investment banking to insurance and mobile banking. The popularity of universal banks has been on the rise. Few years ago, investment banks like JP Morgan, Morgan Stanley, Lehman Brothers and Merrill Lynch were the leaders in managing G-3 currency bond deals. But times have changed. Today, universal banks like Citigroup, Deutsche Bank and Barclays Capital, are dominating the markets. By gobbling up smaller banks, these banks have transformed themselves into universal banks in Asia. This has resulted in higher capital costs for companies in Asia. 1. Relationship Business Banking has always been a relationship business. Universal banking, focuses on fostering better relationships with customers, which is used a retention tool. Universal banks can also give advantage of lower fees to a customer who gets all his banking needs from the same bank, be it purchase of foreign exchange, managing pension funds or underwriting bonds etc. By acting as lender and underwriter, universal banks are in a better position to understand how a secondary stock offering or an acquisition will affect critical ratios and covenants in loan agreements. And, since banks conduct due diligence before making a loan, they can jump in quickly if a corporation wants to have a last-minute junk-bond offering.
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In Asia, bankers do have relationship lending but their approach is based on loan tying. If the bank loses money on its loans, it recoups its capital from other business driven out of the lending process. In contrast, the universals decide, after carefully considering the returns on capital. As long as the required return from the relationship transaction is in line with their projections, universals go in for loan tying. As opposed to this, investment banks consider returns purely on cost basis. They are more interested in synchronizing the costs of a particular department with the fees charged in the deal. So, while universal banks have the leverage to subsidize their fees with relationship loans investment banks stand deprived. 2. Universals' practice in Asia Universals constantly look to lower their fees to grab a deal. They create special purpose entities, which allow them to write off risky assets. These special purpose entities help universals create capital against them. The proceeds from these kinds of activities enable them to charge lesser interest for extended loans. Universals like HSBC and Standard Chartered have dominated the corporate market for over three years. The capital markets have put the emphasis back on lending. Asia's loan volumes have surpassed volumes of equity and equity-linked issuance in 2002, and corporate loan volume is much higher than corporate bond issuance. This has helped universal banks make their presence in the market. Citigroup, HSBC, Standard Chartered, ING, Bank of America and ABN AMRO make wide use of special purpose entities for the simple reason that these entities will help them exploit a regulatory loophole in their funding. These entities allow banks to transfer loans from the balance sheet into a vehicle that transforms them into capital-generating assets. Since the special purpose entities remain in the banks possession, they offset loan costs at below-market rates. This strengthens the banking relationship and also the risk tied to the underlying asset disappears.
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3. Future of universal banks in Asia Universal institutions such as HSBC, Citigroup, Standard Chartered, ABN AMRO, BNP and Barclays are increasingly dominating loan markets. The specialized investment banks don't have access to a commercial bank's varied deposits to lend from. These banks tend concentrate at their returns on equity. However, investment banks like UBS, which have massive balance sheets, have become very selective about their lending in Asia. Even universal banks like Deutsche Bank are scaling down due to pressure in its home. Universal banks tend to bond their relationship lending with successful companies. The investment banks are under increasing pressure to lend money the way the universals do. A three-year collapse of equity markets of Asia is making its impact on corporate capital structures. The regulatory considerations also affect the functioning of the business.

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UNIVERSAL BANKING: AN OVERVIEW

Universal Banking includes not only services related to savings and loans but also investments. However in practice the term universal banks refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc. Universal banking is a combination of commercial banking, investment banking and various other activities including insurance. If specialized banking is the other. This is most co in European countries. Scenario in India has also changed after the Narasimham Committee(1998) and the Khan Committee (1998) reports recommended consolidation of the banking industry through mergers, and integration of financial activities. Today, the shining example is ICICI Bank, second largest bank (in India) in terms of the size of assets, which has consolidated all the services after the merger of ICICI Ltd with ICICI Bank. There are rumors of merger of IDBI with IDBI Bank. With the launch of retail banking, Kotak Mahindra has also embarked on the path of Universal banking.

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COMMENTS/VIEWS OF EXPERTS
 GEORGE BENSTON-THE PROFESSOR OF FINANCE AND ECONOMICS IS A VISITING FACULTY AT UNIVERSITY OF LONDON HAS EXAMINED CERTAIN FUNDAMENTAL ISSUES IN DETAIL IN HIS STUDIES, WHICH ARE STATED BELOW: -

y Universal bank raises the risk of financial instability Universal Banks tend to grow so large that failure of one can cause economic distress and that narrow, specialized banks may be better. However, the lessons from savings and loans societies scandal do not support this. In fact, neither theory nor experience seems to validate the assumption that limitations on banking like the separation of commercial and investment banking either were or more likely to be effective in reducing risk-taking. Incidentally, most of the activities in which universal banks deal are no more risky than the ordinary commercial bank activities. A study of the combined effect of commercial and investment banking on risk reveals that while the returns would be considerably higher, the risks would only be strictly higher. The residual risks regarding a depository institution should be addressed by high capital adequacy, replacing the economic capital before it falls below zero etc., (as against book capital)

y Universal Banks deploy capital as efficiently as the stock market While there is some merit in this, the evidence in support is quite weak. It has been observed that the Universal banks have certain advantages in restructuring firms. The transaction costs of takeovers and mergers are high in stock market system and night well is lower with a universal bank.
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y Universal Banks Create Unhealthy A Concentrate Of Power In fact, we have seen in many countries, such a risk prevails in specialized institutions, particularly when they are government sponsored. Indeed, public choice theory suggests that UB serve diverse interest, they find it difficult to combine as a political coalition-even this is difficult when the number of members in coalition is large.

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Case Study

Bank Profile 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 (approx. US$ 3 bn), and over two million active customer accounts. With over 400 retail distribution outlets across Nigeria, UBA also has a presence in New York, Grand Cayman Island and aspires to expand within Sub-Saharan Africa.

Key Business Drivers UBA is the first successful merger transaction in the history of the Nigerian banking sector and was born out of a desire to lead the sector to a new era of global relevance by championing the creation of the Nigerian consumer finance market and leading a private/public sector partnership aimed at accelerating the economic development of Nigeria.

The Nigeria banking industry is going through so tremendous flux. The Central Banks mandate of a minimum N25 billion capitalization by December 2005 resulted in the Nigerian market witnessing consolidation activity on a large scale. Though the UBA-STB merger was consummated during the ongoing consolidation era, it was a strategic move by the bank to become a large regional player, with an increased reach and synergies in terms of larger customer base and complementary product portfolio.

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Solution Overview In its determination to continue to leverage on a robust IT infrastructure designed to achieve excellent service delivery to its teeming clientele, UBA opted for Finacle universal banking solution, comprising core banking, corporate ebanking, alerts, CRM and treasury solutions from Infosys in October 2005. The relationship between Finacle and UBA dates back to 5 years ago when STB changed from its existing Globus system to Finacle. Finacle core banking solution helped power STBs rapid growth at the turn of the millennium and its emergence as one of Nigerias leading new generation banks. In addition STB is credited to have spearheaded the deployment of ATM's and internet banking in the Nigeria market riding on Finacle.

Reaping the Benefits To power ahead in the dynamic post-consolidation banking landscape of Nigeria, UBA requires a technology partnership that transcended a typical customer-vendor relationship. From the STB experience, what emerged was the impeccable delivery track record of the Infosys implementation team. Recall that the bank (STB) completed a 65-branch roll out in quick time, less than 6 months, and a far cry from the 18-24 month implementation cycles prevalent in the country then. UBA also needs to capitalize on an integrated channel strategy that incorporated ebanking and CRM, among others.

Finacle will be deployed at UBA in a phased manner. In the first phase, core banking, treasury & e-banking solutions will be implemented. Finacle CRM solution would be deployed in the subsequent phase. It is expected to be a multicountry rollout, and the deployment extended to the US, UK & other countries where UBA has a presence.

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Case Study 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$ 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.

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 populace, state owned banks had a large branch network, with minimal or no 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 middle class 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.
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To support its technology focused strategy, ICICI Bank needed a robust technology platform that would help it achieve its business goals. After an intense evaluation of several global vendors, ICICI Bank identified Infosys as its technology partner and selected Finacle, the universal banking solution from Infosys, as its core banking platform. An open systems approach and low TCO (Total Cost of Ownership) were some of the key benefits Finacle 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 Finacle includes Finales future-proof technology, best-ofbreed retail and corporate banking features, scalable architecture and proven implementation track record.

Solution Overview
One of the biggest challenges for Finacle was ensuring straight through processing (STP) of most of the financial transactions. With the ICICI group having several companies under its umbrella, Finacle 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 inorganic 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 Finacle to successfully manage the resultant increase in transaction levels from 400,000 transactions a day in 2000 to nearly 2.1 million by 2005 with an associated growth in peak volumes by 5.5 times. With Finacle, the bank currently has the ability to process 0.27 million cheques per day and manage
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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 Finacles e-banking solution and established itself as a leader in the Internet and ecommerce space. The bank followed it up with offering several eCommerce 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 70 percent 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 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.

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On an average, ICICI Bank adds 300,000 customers a month, which is among the highest in the world. Share of Transactions Share of Transactions

Channels

March 2000 94 % 3% &

March 2004 25 % 43 %

Branches ATM's Internet Mobile Call Centers

2%

21 %

1%

11 %

Reaping The Benefits

A powerful, scalable and flexible technology platform is essential for banks to manage growth and compete successfully. And Finacle provides just the right platform to ICICI Bank thus fueling its growth.

The bank has successfully leveraged the power of Finacle and has deployed the solution in the areas of core banking, consumer e-banking, corporate e-banking and CRM. With Finacle, 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.
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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.

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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 set up 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
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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$ 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 (approx. US$ 3 bn), and over two million active customer accounts. With over 400 retail distribution outlets across Nigeria, UBA also has a presence in New York, Grand Cayman Island and aspires to expand within Sub-Saharan Africa. In its determination to continue to leverage on a robust IT infrastructure designed to achieve excellent service delivery to its teeming clientele, UBA opted for universal banking solution, comprising core banking, corporate e-banking, alerts, CRM and treasury solutions in October 2005.

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Bibliography

y 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.

y MAGAZINES  Annual Report of ICICI bank  Indian Institute Journal

y WEBSITES  www.rbi.org.in  www.icicibank.com  www.banknetindia.com  www.barclays.com  www.indiatimes.com  www.icfaipress.org  www.financialexpress.com  www.allahabadbank.com  www.economictimes.com
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