Universal Banking

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Universal
Banking

BY :

1. SUSHANT NAIDU - 31

2. SHEETAL NAIR - 32

3. KARTIK NAIR - 33

4. VISHAKHA PARMAR - 34

5. PAULIN MARY - 35

6. RAHUL RAJGOPALAN - 36

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UNIVERSAL BANKING

Universal banks are generally large banks with extensive network of branches that provide many different financial services and are principally engaged in commercial banking, investment banking, securities and even insurance. They invest in the equity and debt of the corporates and many even participate directly in the corporate governance of the firms that rely on the banks as sources of funding or securities underwriters.

Universal banks with some variations in structures, have been functioning in the United States, Europe, and Japan. India can also boast of joining the bandwagon as SBI, ICICI Bank and IDBI may now be termed as universal banks.

Financial economists observe that universal banks have evolved over a period of time and seemingly different functions like commercial banking, investment banking and securities trading have been consolidated to create a superstructure of financial services. Insurance business is a late entry in this convergence effort. In creating the mega universal banks, bankers felt that there could be economies of scale and scope, efficiency in risk management, improvement in operating efficiencies, improved financial stability through diversification of revenue streams, etc. They also felt that these mega structures, aided by technology could become formidable and very competitive. Further, universal banks could be perceived as ‘Too-big-to-fail’ (TBTF) institutions and may enjoy the attendant advantages like being the regulator or the government bailing them out of a crisis situation. The critics of universal banking point out that there could be cost diseconomies when major players from different streams of financial sectors merge to form universal banks. They also argue that creation of TBTF institutions is not desirable and universal banks with diverse functions could cause complexities for the regulators. Also, there could be issues like conflict of interest and non-availability of efficient top management team to govern a mega bank.

Universal banking models differ in various economies in terms of structure, integration of financial services, regulatory oversight, etc. UNIVERSAL BANKING IN INDIA

Universal banks in the form of ICICI Bank and IDBI (post merger) have essentially come into being because of the inability of development financial institutions like ICICI and IDBI to function efficiently for a variety of reasons, in a liberalized and deregulated economic environment in the post banking reforms period. State Bank of India, which has been in existence for the past 200 years, is a universal bank as it has been undertaking different financial functions for historic reasons. It has recently entered insurance business also.

INDIA’S UNIVERSAL BANKS :
ICICI BANK
( CASE STUDY )

Following the merger during March 2002, ICICI Bank has become the largest private sector bank and the second largest bank in India. The merger has indeed ushered in an era of universal banking in India. As a universal bank, ICICI...
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