TABLE OF CONTENT

SR.N TOPIC PAGE

O NO
1 INTRODUCTION 3-3
2 4-5
HISTORY
3 DEFINITION AND CONCEPTS 6-10
4 11-
ADVANTAGES & LIMITATIONS
13
5 UNIVERSAL BANKING IN INDIA 14-19
6 NEED OF UNIVERSAL BANKING IN INDIA 20-22
7 UNIVERSAL BANKING: SOLUTION TO FIS 23-24
PROBLEMS
8 APPROACH TO UNIVERSAL BANKING 25-32
9 UNIVERSAL BANKING - CURRENT POSITION IN 33-34
INDIA
10 35-42
SWOT

11 43-45
THE FUTURE TREND OF UNIVERSAL BANKING
IN DIFFERENT COUNTRIES
12 ISSUES & CHALLENGES IN UNIVERSAL 46-48
BANKING
13 49-52
CURRENT ISSUES
14 UNIVERSAL BANKING: AN OVERVIEW 53-55
15 56-64
COMMENTS/VIEWS OF EXPERTS CASE STUDY
20 CONCLUSION & BIBLIOGRAPHY 64-67
INTRODUCTION TO UNIVERSAL BANKING

1
 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.

2
 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, hire-purchase 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

3
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.

4
 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

5
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 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.

6
UNIVERSAL BANKING MODEL

7%

37%
57%

WEALTH MANAGEMENT.
RETAIL
CORPORATE

7
 9%
6%

59% 27%

TREASURY
WEALTH MANAGEMENT.
CORPORATE
RETAIL

8
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

ADVANTAGES

9
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 compared to specialized banks.
Specialized firms are also subject to substantial risks of failure.

10
 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.

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

11
services. The critics of universal banks blame universal banking for
fostering cartels and enhancing the power of large non-banking firms.

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.

12
 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

13
 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 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

14
 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

SOME CONCEPTS

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.

Harmonization Of Role Of Banks And DFIs

15
 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.

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 are less dominant presently. Some of them may
even diversify into insurance and other related areas.

Requirement Of Cost Considerations In Universalisation

16
 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.

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.

The Committee Which Recommended Universal Banking &

What It

Suggested

17
 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 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.

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.

The Apprehensions Of Universalisation

18
 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.

19
 NEED OF UNIVERSAL BANKING IN INDIA

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.

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 reportsin 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.

20
 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 groups have plans to diversify in a big way.

21
 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).

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: SOLUTION TO FIs

PROBLEMS

22
 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

23
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 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.

APPROACH TO UNIVERSAL BANKING

24
 The Narsimham 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 investments and long-term 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

25
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.

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:

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

26
 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

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 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

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

27
undertaking or any property of the company unless duly certified by
RBI as required under the Section.

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.

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.
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

28
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.

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.

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

29
total demand and time liabilities in India, as required of a bank under
Section 25 of the B R 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 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 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

30
 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 Regulations applicable to
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

31
be applicable but the norms as applicable to banks would be attracted
and will need to be fully complied with.

32
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

33
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
specifically provide for full compliance with prudential norms as
applicable to banks over the proposed period.

34
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.

35
 * 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 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

36
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.

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

37
 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 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

38
 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 companies) as the asset base
sans capital of most of the top 10 banks in the world are much more

39
 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

40
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.

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

41
 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.

42
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

43
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 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

44
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.

45
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

46
structure and transactions, increased risk resulting from asymmetrical
information sharing between banks and regulators among others.

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:

47
 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.

48
 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

49
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.

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

50
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.

3. Future of universal banks in Asia

Universal institutions such as HSBC, Citigroup, Standard

Chartered, ABN AMRO, BNP and Barclays are increasingly

51
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.

52
 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.

53
 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: -

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)

54
 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.

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.

55
 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.

56
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.

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 e-banking, 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.

57
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 e-banking 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 multi-country rollout, and the
deployment extended to the US, UK & other countries where UBA
has a presence.

58
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

59
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.

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-of-breed retail and corporate

60
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 7000 concurrent users.

61
 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 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 70 percent of routine
banking transactions from the branch to the other delivery channels,
thus increasing overall efficiency. Currently, only 25 percent of all

62
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. 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 March 2004

Branches 94 % 25 %

ATM's 3% 43 %

Internet &
2% 21 %
Mobile

Call Centers 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

63
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.

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.

64
 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.

65
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 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

66
teeming clientele, UBA opted for universal banking solution,
comprising core banking, corporate e-banking, alerts, CRM and
treasury solutions in October 2005.

67
 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.rbi.org.in

www.icicibank.com

www.banknetindia.com

www.barclays.com

www.indiatimes.com

www.icfaipress.org

68
 www.financialexpress.com

www.allahabadbank.com

www.economictimes.com

69