Universal Banking - Pregnant Advantages Disadvantages

Universal Banking - Meaning

Universal banking is a combination of Commercial banking, Investment banking, Development banking, Insurance too many other fiscal activities. It is a identify where all fiscal products are available nether i roof. So, a universal banking concern is a banking concern which offers commercial banking concern functions summation other functions such every bit Merchant Banking, Mutual Funds, Factoring, Credit cards, Housing Finance, Auto loans, Retail loans, Insurance, etc.

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Universal banking is done yesteryear really large banks. These banks render a lot of finance to many companies. So, they own got constituent inward the Corporate Governance (management) of these companies. These banks own got a large network of branches all over the soil too all over the world. They render many unlike fiscal services to their clients.

ln India, 2 reports inward 1998 mentioned the concept of universal banking. They are, the Narasimham Committee Report too the S.H. Khan Committee Report. Both these reports advised to consolidate (bring together) the banking manufacture through mergers too integration of fiscal activities. That is, they advised a combination of all banking too fiscal activities. That is, they suggested a Universal banking.

In 2000, ICICI asked permission from RBI to larn a universal bank. RBI wants roughly large domestic fiscal institutions to larn universal banks.

Advantages of Universal Banking

The benefits or advantages of universal banking are:-

1. Investors' Trust : Universal banks concord stakes (equity shares) of many companies. These companies tin flame easily larn other investors to invest inward their business. This is because other investors own got sum confidence too organized faith inward the Universal banks. They know that the Universal banks volition closely spotter all the activities of the companies inward which they concord a stake.
2. Economics of Scale : Universal banking results inward economical efficiency. That is, it results inward lower costs, higher output too ameliorate products too services. In India, RBI is inward favour of universal banking because it results inward economies of scale.
3. Resource Utilisation : Universal banks utilization their client's resources every bit per the client's mightiness to own got a risk. If the customer has a high lead chances taking capacity too hence the universal banking concern volition advise him to construct risky investments too non prophylactic investments. Similarly, clients alongside a depression lead chances taking capacity are advised to construct prophylactic investments. Today, universal banks invest their client's coin inward unlike types of Mutual funds too besides direct into the part market. They besides create equity research. So, they tin flame besides create out their client's portfolios (different investments) profitably.
4. Profitable Diversification : Universal banks diversify their activities. So, they tin flame utilization the same fiscal experts to render unlike fiscal services. This saves toll for the universal bank. Even the day-to-day expenses volition hold upwards saved because all fiscal services are provided nether i roof, i.e. inward the same office.
5. Easy Marketing : The universal banks tin flame easily marketplace position (sell) all their fiscal products too services through their many branches. They tin flame inquire their existing clients to purchase their other products too services. This requires less marketing efforts because of their well-established construct name. For e.g. ICICI may inquire their existing banking concern employment organization human relationship holders inward all their branches, to own got identify loans, insurance, to purchase their Mutual funds, etc. This is done really easily because they utilization i construct yell (ICICI) for all their fiscal products too services.
6. One-stop Shopping : Universal banking offers all fiscal products too services nether i roof. One-stop shopping saves a lot of fourth dimension too transaction costs. It besides increases the speed or menstruum of work. So, one-stop shopping gives benefits to both banks too their clients.

Disadvantages of Universal Banking

The limitations or disadvantages of universal banking are:-

1. Different Rules too Regulations : Universal banking offers all fiscal products too services nether i roof. However, all these products too services own got to follow unlike rules too regulations. This creates many problems. For e.g. Mutual Funds, Insurance, Home Loans, etc. own got to follow unlike sets of rules too regulations, simply they are provided yesteryear the same bank.
2. Effect of failure on Banking System : Universal banking is done yesteryear really large banks. If these huge banks fail, too hence it volition own got a really large too bad number on the banking arrangement too the confidence of the public. For e.g. Recently, Lehman Brothers a really large universal banking concern failed. It had really bad effects inward the USA, Europe too fifty-fifty inward India.
3. Monopoly : Universal banks are really large. So, they tin flame easily larn monopoly mightiness inward the market. This volition own got many harmful effects on the other banks too the public. This is besides harmful to economical evolution of the country.
4. Conflict of Interest : Combining commercial too investment banking tin flame resultant inward conflict of interest. That is, Commercial banking versus Investment banking. Some banks may hit to a greater extent than importance to i type of banking too hit less importance to the other type of banking. However, this does non construct commercial sense.