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A system of banking where banks are allowed to
provide a variety of services to
their customers(world wide).
In universal banking, banks are not limited to
just loans, checking and savings accounts, and
other similar activities, but are allowed to offer
investment services as well which helps to
grow protocol between the nations.
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Aman Bhattacharya 03/07/10 12
Weakness
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.
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.
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 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.
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.
The Need of Universal Banking:- To make pace with the present need of corporates.Now a day,
there is a large market of General Insurance and Project Financing. As only a bank is not able to
fund it properly, due to insufficient asset base and net worth. So, to overcome this, they form a
consortium of lenders, for funding the Greenfield and Brownfield projects. (In the month June a
consortium of 20 lenders led by SBI has committed a 14 year project finance term loan for a special
purpose company promoted BPCL, which is starting a Greenfield project in Madhya Pradesh) The
point of consideration here is the consortium partner – Bank of Baroda, Bank of Maharashtra,
Central Bank of India, LIC, Indian Overseas Bank. Most of the partners are nationalized banks.