Meaning: Universal banking is a multipurpose and multi functional financial

superstore providing both banking and financial services. A universal bank may
undertake multifarious services under one roof, which includes:
a) Receiving money on current or deposit accounts and lending of money for
trade, industries, exports, agriculture etc.
b) Mortgage financing; project financing infrastructure lending, asset
securitisation, leasing, factory etc.
c) Remittance of funds, custodial services, credit/debit cards, collection of
cheque/bills etc.
d) Corporate advisory services, insurance depository service, merchant
banking (brokerage, underwriting new debt and equity shares) foreign exchange
operations.
Therefore in universal banking under one roof, corporate can get loans and
avail, other financial services, while individuals can bank and borrow.
The few objectives of universal banking are as follows:
 To help in bringing harmony in the role of financial institutions and banks.
 To offer world-class financial services to the clients by using information
technology and cross selling.
 To reduce per customer cost.
 To increase per customer revenue.
 To take benefit of economies of scale.
 To compete with international banks by expanding business beyond the
national boundaries.
RBI Guidelines:
According to RBI guidelines of April 2001, financial institutions have an option
to convert into a bank provided they ensure compliance with following
provisions.
Reserve provisions (CRR/SLR): A financial institution will have to comply
with CRR and SLR provisions after its conversion into a universal banking.
Permissible activities: In case an activity, which is not permissible for a bank
under section 6(1) of B.R.Act 1949, is presently undertaken by financial
institution, such activity will have to be stopped after its conversion into a
universal banking.
Composition of board: The section 10(A) of B.R. Act 1949 requires that at least
51% of that total number of directors should have special knowledge and
experience. This provision has to be complied with constituting the board after
transformation from financial institution to a bank.
Benefits of universal banking
The benefits of universal banking are as follows:
Benefits

To Organization To Customers To Shareholders

1. To the organization: When a bank diversifies its activities as a universal bank

it can use 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 possesses information on the risk
characteristics of its clients, which it can use to pursue other activities with the
same clients.
 A bank has an existing network of branches, which can acts as shops for
selling products like insurance. This way a big bank can reach the remotest client
without having to recourse to an agent. Many financial services are interlinked
activities, e.g. insurance and lending. A bank can use its instruments in one
activity to exploit the other, e.g. in case of project lending to the same firm which
has purchased insurance from the bank.
2. To the customers: Universal banking being a one-stop shops for all varied
services, some a lot of transaction costs and increases the speed of economic
activity. The wide range of financial products and services offered by universal
banks are preferred by the customers than the specialized banks due to
comprehensive service provided by these banks.
3. To the shareholders: One manifestation of universal banking is a bank
holding stakes in a firm. When a lender has a stake in the firm he is in a better
position to monitor the firm to safeguard his interest, which sends a good signal
about the financial health the firm to the investors. This situation is beneficial
from investor’s point of view.
All these benefits have to be weighed out against the problems. The main
drawbacks are that:
a. Universal banking leads to a loss in economies of specialization.
b. Problem of the bank indulging in too many risky activities. To account for
this, appropriate regulation can be devised, which will ultimately benefit all the
participants in the market, including the banks themselves.
In spite of these problems, there is a lot of interest expressed by banks and
financial institutions in universal banking. In India, too a lot of opportunities are
there to be exploited. Banks mainly the financial institutions are aware of it, and
most of the groups have plans to diversify in big way. Even though there might
not be profits forthcoming in the short run due to the switching costs incurred in
moving to a new business.
Introduction: offshore banking refers to the banking business related to
borrowing and lending funds abroad and meeting the special needs of international
investors. An offshore bank is a bank located outside the resident country of the
depositor. These banks are not subject to domestic monetary and fiscal regulations.
Moreover offshore banks are also exempted from the regulations, which govern the
branches of foreign banks. Rather they are situated in a low tax jurisdiction that
provides, financial and legal advantages. These advantages may include strong
privacy, low or no taxation protection against local political or financial instability.
Services/functions
The important functions or financial services, which offshore banking units
can provide, are:
 Deposit taking
 Project financing
 Syndication of loans
 Issuing short-term instruments like negotiable certificates to deposits.
 Carry merchant banking activities in foreign currency denominated bonds.
 Electronic funds transfer
 Foreign exchange
 Letter of credit and trade finance
 Investment management and investment custody
 Trustee services
 Corporate administration
Although every bank does not provide each service. Banks try to polarize
between retail services (which are low cost) and private banking (which tries to
bring personalized suite of services to the client).
Benefits/advantages
The main advantages of offshore banking are:

Advantages

Economic Tax
And Benefits
Political
Stability

Payment of Special Development

Higher Banking Of nation/
Interest Services Remote areas
Rates

 Economic and political stability: Offshore banking provides economically

politically stable jurisdictions especially for those resident in areas where there is a
risk of political turmoil, and who fear their assets may be seized or disappear.
Although, developed economies with regulated banking system offer same
advantages in terms of stability.
 Payment of higher interest rates: Some of these banks which function at a
lower cost base provide higher interest rates than the legal rates prevailing in their
home countries due to lack of government intervention and lower overheads.
 Tax benefits: Generally the interest paid by offshore banks is without tax
deduction. This acts as a benefit for individuals who do not pay tax on worldwide
income, or who do not pay tax until the tax return is agreed.
 Special banking services: Certain offshore banks offer special banking services
not offered else where such as anonymous bank accounts, higher or lower rate loans
based on risk and investment opportunities.
 Development of remote areas/nation: offshore banking helps even
geographically remote nations to generate investment and create growth in their
economies.
Disadvantages
There are some limitations of offshore banking are as follows:

Disadvantages

Involved in Encourages Difficult Financial


Crime Tax evasion Physical access Disturbance

 Involved in crime: Off shore banking has been found associated with the
underground economy and organized crime through money lending. After
September 11,2001 these banks have been accused of helping various organized
crime gangs, terrorist groups.
 Encourages tax evasion: Offshore banks encourages tax evasion by giving
people seeking tax evasion an attractive place to deposit their hidden income.
 Difficult physical access: As offshore banks are often remotely situated
therefore the physical access is difficult. Access to information can be difficult,
however in a global tele communication networks this does not seen to be a big
problem as information can be set up on line, by phone or by mail.
 Developing countries may face financial disturbance: sometimes developing
countries may face problem due to speed at which money can be transferred in and
out of their economy. This “hot money” coming from offshore accounts can be
definitely increase problems of financial and economic disturbance in developing
countries.

Introduction: The coming up of middle class with substantial purchasing power in

India during the last decade has given rise to its desire to spend according to the
changing life style. This has offered the Indian banking system, a ready market, for
mobilization and development of their funds. Given the rising purchasing power of
this class, there is huge untapped potential for business.
Meaning: Retail banking is activity devised in past few years and now used
extensively. It represents any banking, which is not wholesale based. It includes any
business that is conducted through branch network, which is mainly focused
towards personal sector. It encompasses all institutions that provide a related range
of banking services—money deposit, credit services and some form of financial
advice. Retail banking today is characterized by three areas:
 Multiple products (deposits, credit cards, insurance, investment)
 Multiple channels of distribution (call center, branch internet)
 Multiple customer groups (consumer, small business)

Need for retail banking

 Economic prosperity and the consequent increase in the purchasing power of
consumer.
 Technological factors also added to the requirement convenience of using credit
cards, internet and phone banking anywhere and any time banking has also flood
customers into banking.
 Decline in interest rates have also contributed to increase retail banking.
 With the large corporate borrowers having diversified the sources to fund their
financial requirements, frequent reduction in cash reserve ratio resulting in pumping
in of liquidity, declining bank rate leading to decline in spreads un- attractive yields
on government securities etc. have all forced banks to be in search of alternative
opportunity to deploy their funds.
Segments in retail banking:
There are three segments in retail banking which included:
a. Deposit products (convenient deposit schemes such as flexi deposits)
b. Loan products (such as housing loans, education loans, conveyance loans,
personal loans for diverse purposes such as medical expenses, travel abroad)
Oth