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Universal Banking

A system of banking where banks are

allowed to provide a variety of services to

their customers. 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. Universal
banking is less common in the United States
than in Europe
Universal Banking : An
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 one end universal
banking is the other. This is most common in
European countries.
Advantages &
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. However larger the banks, the greater
the effects of their failure on the system. Also
there is 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. Also combining commercial and
investment banking can gives rise to conflict of
Objectives of Universal Banking

The main objectives of such a model are an

increased participation in investment strategies,
securing clients through saving and loan
schemes, development of private sectors and
cutting costs for financial services

Participation in Investments
Savings and Loans
Development of Private Sector
Cutting the Costs
Participation in Investments
Universal banking focuses on performance of private firms by directly
investing into such entities. By participating on the investment market,
such banks can directly exercise decision-making power in the
governance of corporations. This objective of universal banking aims to
secure the financial interests of companies that have received direct
investment and to protect the future development of such institutions.
For example, Swiss economist Georg Rich indicates that by aiming to
directly participate on the investment market, universal banks in
Switzerland want to ensure that the companies that have received
investment funds would deal with them properly and will not undertake
unreasonable financial decisions

Savings and Loans

By delivering multiple financial services, universal banking aims to
deliver immediate benefits for their clients. This makes such entities
quite attractive for people who want to take care of their all financial
needs at one place -- they can both apply for an investment scheme
and require credit for business development. By providing their clients
with saving and loan options, universal banks aim to diversify their
range of services and have larger influence on the financial markets.
German economist Ralf Elsas from Frankfurt University emphasizes on
the fact that by aiming to promote saving and loan programs, universal
banks can benefit from different types of clients and obtain more
Development of Private Sector
Among the main objectives of universal banking is the development of the
private sector. As such, banking institutions are highly unlikely to cooperate
with governmental funds because of their urgent need to invest money,
universal banks target the private sector as a main source of clients. But to
have such clients, universal banks need to develop the sector and ensure
its stable run and economic growth. This has been revealed by economist
Gary Gorton who states that universal banks in Germany are the main
contributors for the rapidly expanding private sector in the country.

Cutting the Costs

Since many of the European continental banks are adopting the universal
banking approach, it is essential for them to be more competitive on the
global market where American and Asian banks offer better prices for
providing financial services. The idea of the universal banks is to reduce the
costs of their financial services by enlargement -- being able to expand
their areas of expertise would empower European banks to engage in more
serious price reduction strategies. The European Central Bank has already
partially achieved this objective by providing low interest loans to European
Union economies.
Universal banking 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 harmonisation of facilities and obligations . Also report of
the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing
on the issues considered by the Khan Working Group.

The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI
to discuss the time frame and possible options for transforming itself into an universal bank.
Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its
proposed policy for universal banking, including a case-by-case approach towards allowing
domestic financial institutions to become universal banks.

Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit
their plans for transition to a universal bank for consideration and further discussions. FIs need
to formulate a road map for the transition path and strategy for smooth conversion into an
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.
Expanded commercial banks or universal banks constitute twelve (12)
financial institutions, considered as one-stop commercial banks
performing com-banking functions and non-related banking activities.

Is universal banking is also know as commercial banking?

Yes, Universal banking is commercial banking itself. However,

Universal bank does more than a commercial bank. Universal Bank are
what we call the "expanded commercial bank" (EK). Commercial banks
are limited to allied banking only whereas a universal bank does allied
and non-allied banking transactions.
What Is the Difference Between Universal Banking and Merchant Banking?

Universal Banking Products and Services

Universal banks offer a wide range of consumer
financial products and services. The core of all
consumer banking activity is deposits and lending--
every universal bank offers checking and savings
accounts along with mortgages and even auto loans.
Universal banks also offer consumer investment
products such as mutual funds and annuities. For
high-net-worth individuals, many universal banks
offer their clients private banking services
Private Banking
Private bankers offer individuals and families the highest level of service
a bank can offer. Private bankers typically offer financial planning
services along with sophisticated wealth management solutions. The
financial planning services often include retirement and estate planning

Merchant Banking Products and Services

Merchant banks focus on providing solutions and financial products to
midsized and large private and public companies. Merchant bankers not
only handle corporate deposits and treasury services but also commercial
lending and equipment finance. Investment banking services are typically
also offered by merchant banks to allow their clients access to new

Investment Banking
Investment banking is the division of merchant banks that handles all
mergers and acquisitions and all securities issuance. Mergers and
acquisition advice is expensive, and the consulting services merchant
banks offer businesses in these areas serves as a profit center for the
bank. Merchant banks help companies raise additional capital by issuing
new securities such as stocks or bonds.
Advantages of Universal
Economies of Scale. The main advantage of Universal Banking is that it
results in greater economic efficiency in the form of lower cost, higher output
and better products. Many Committees and reports by Reserve Bank of India
are in favour of Universal banking as it enables banks to explit economies of
scale and scope.

Profitable Diversions. By diversifying the activities, the bank can use its
existing expertise in one type of financial service in providing other types. So,
it entails less cost in performing all the functions by one entity instead of
separate bodies.

Resource Utilization. A bank possesses the information on the risk

characteristics of the clients, which can be used to pursue other activities with
the same clients. A data collection about the market trends, risk and returns
associated with portfolios of Mutual Funds, diversifiable and non diversifiable
risk analysis, etc, is useful for other clients and information seekers.
Automatically, a bank will get the benefit of being involved in the researching
Disadvantages of Universal Banking
Grey Area of Universal Bank. The path of universal banking
for DFIs is strewn with obstacles. The biggest one is overcoming
the differences in regulatory requirement for a bank and DFI.
Unlike banks, DFIs are not required to keep a portion of their
deposits as cash reserves

. No Expertise in Long term lending. In the case of traditional

project finance, an area where DFIs tread carefully, becoming a
bank may not make a big difference to a DFI. Project finance and
Infrastructure finance are generally 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 that

the DFIs have had to encounter is bad loans or Non-Performing
Assets (NPAs). For the DFIs and Universal Banking or installation
of cutting-edge-technology in operations are unlikely to improve
the situation concerning NPAs.
This will present
opportunities to banks to
explore territories in the field
of credit/debit cards,
mortgage financing,
infrastructure lending, asset
securitization, leasing and
Are the specialized banks
doomed to disappear?
This question cannot be
answered with a simple
"yes" or "no".
First,universal banks no
doubt will continue to play
an important role as they
possess a number of
advantages over
specialized institutions.
universal banks have
expanded their sphere of
influence, the smaller
specialized institutions
have not disappeared.
Third,universality of
banking may be achieved
in various ways. No single
type of universal banking
system exists.
RBI guidelines on Universal Banking

As per RBI guidelines of April 2001, FIs have an option to transform into a
bank provided they ensure compliance with the following: Reserve
requirements (CRR/SLR)

- Compliance with the cash reserve ratio and statutory liquidity ratio
requirements would be mandatory for an FI after its conversion into a
universal bank. Permissible activities

- Any activity of an FI currently undertaken but not permissible for a bank

under Section 6(1) of the B. R. Act, 1949, may have to be stopped or
divested after its conversion into a universal bank. Disposal of non-banking

- 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

- Composition of the Board of Directors 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.
"A Reply From CEO of J.P. Morgan To A Pretty Girl Seeking A Rich
Husband".. !
A young 'n pretty lady posted this on a popular forum:
... ----------------------------------------------------
Title: What Should I do to Marry A Rich Guy?
I'm going to be honest of what I'm going to say here. I'm 25 this year. I'm
very pretty, have style 'n good taste. I wish to marry a guy with $500k
annual salary or above.

You might say that I'm greedy, but an annual salary of $1M is considered
only as middle class in New York.

My requirement is not high. Is there anyone in this forum who has an

income of $500k annual salary? Are you all married?

I wanted to ask: what should I do to marry rich persons like you?

Among those I've dated, the richest is $250k annual income,'n it seems
that this is my upper limit.
someone is going to move into high cost residential area on the west of
New York City Garden(?), $250k annual income is not enough.

I'm here humbly to ask a few questions:

1) Where do most rich bachelors hang out? (Please list down the names 'n
addresses of bars, restaurant, gym)
2) Which age group should I target?
3) Why most wives of the riches are only average-looking? I've met a few
girls who don't have looks 'n are not interesting, but they are able to marry
rich guys.
4) How do you decide who can be your wife, 'n who can only be your
girlfriend? (my target now is to get married)

Ms. Pretty

A Philosophical reply from CEO of J.P. Morgan:

Dear Ms. Pretty,

I have read your post with great interest. Guess there are lots of girls out
there who have similar questions like yours. Please allow me to analyse
your situation as a professional investor.
My annual income is more than $500k, which meets your requirement, so
I hope
everyone believes that I'm not wasting time here.

From the standpoint of a business person, it is a bad decision to marry

you. The answer is very simple, so let me explain.

Put the details aside, what you're trying to do is an exchange of "beauty"

'n "money" : Person A provides beauty,'n Person B pays for it, fair 'n

However, there's a deadly problem here, your beauty will fade, but my
money will not be gone without any good reason. The fact is, my income
might increase from year to year, but you can't be prettier year after

Hence from the viewpoint of economics, I am an appreciation asset, 'n

you are a depreciation asset. It's not just normal depreciation, but
exponential depreciation. If that is your only asset, your value will be
much worse 10 years later.
By the terms we use in Wall Street, every trading has a position,
dating with you is also a "trading position".
If the trade value dropped we will sell it 'n it is not a good idea to keep
it for long term - same goes with the marriage that you wanted. It
might be cruel to say this, but in order to make a wiser decision any
assets with great depreciation value will be sold or "leased".

Anyone with over $500k annual income is not a fool; we would only
date you, but will not marry you. I would advice that you forget
looking for any clues to marry a rich guy. 'n by the way, you could
make yourself to become a rich person with $500k annual income.
This has better chance than finding a rich fool.

Hope this reply helps. If you are interested in "leasing" services, do

contact me.

J.P. Morgan CEO...
The intended reverse merger
of ICICI with ICICI Bank is
The top management of ICICI

`enbloc' will form the top

corporate management of the