UNIVERSAL BANKING

A project submitted to
University of Mumbai for partial completion of the degree of
Bachelor of commerce (Banking and Insurance)
Under the Faculty of Commerce

Submitted By

OZA DIXIT BHAWERLAL HEENA

Roll no: 3019

Under the Guidance of

PROF. PANKAJ JAIN

PRAHLADRAI DALMIA LIONS COLLEGE

OF COMMERCE & ECONOMICS

SUNDAR NAGAR, S.V.ROAD, MALAD (WEST)

MUMBAI 400 064

May 2020
 Prahladrai Dalmia Lions College of Commerce &
Economics
Sunder Nagar, Malad (West), Mumbai, 400 064
ISO 9001:2015 Certified

CERTIFICATE

This is to certify that Mr. OZA DIXIT BHAWERLAL HEENA has

worked and duly completed his Project Work for the degree of Bachelor
of Commerce (Banking and Insurance) under the Faculty of Commerce
and his project is entitled, “UNIVERSAL BANKING” under my
supervision. I further certify that the entire work has been done by the
learner under the guidance and that no part of it has been submitted
previously for any Degree or Diploma of any University.

It is his own work and facts reported by his personal finding and
investigations.

Signature

PROF. PANKAJ JAIN

Date of Submission:
 DECLARATION

I the undersigned OZA DIXIT BHAWERLAL HEENA here by,

declare that the work embodied in this project work titled
“UNIVERSAL BANKING”, forms my own contribution to the
research work carried out under the guidance of PROF. PANKAJ
JAIN is a result of my own research work and his not been
previously submitted to my other University for any other
Degree/Diploma to this or any other University.

Wherever reference has been made to previous works of other, it has

been clearly indicated as such and included in the bibliography.

I, here by further declare that all information of this document has

been obtained and presented in accordance with academic rules and
ethical conduct.

Signature
DIXIT OZA
( Roll no. 3019)

Certified by

PROF. PANKAJ JAIN

 ACKNOWLEDGEMENT

To list to who all helped me is difficult because they are so numerous and
the depth is so enormous.

I would like to acknowledge the following as being idealistic channel and

fresh dimension and completion of project.

I take this opportunity to thank the University of Mumbai for giving me

chance to do this project.

I would like to thank my Principal, Dr. N.N. Pandey and our Vice-
Principal Prof. Subhashini Naikar for providing the necessary facilities
required for completion of this project.

I take this opportunity to thank our Coordinator prof. Durgesh Kenkre

and Project guide Prof. Pankaj Jain for his moral support and
guidance.

I would like to thank my college library for having provided various

reference books and magazines related to my project.

Lastly I would like to thank each and every person directly or indirectly
helped me in the completion of the project, especially my Parents and
my peers who supported me through out of my project.

OZA DIXIT BHAWERLAL HEENA

 INDEX

Chapter Title Page no.

No.

1 INTRODUCTION OF UNIVERSAL BANKING 1

2 RESEARCH METHODOLOGY 28

3 REVIEW OF LITERATURE 37

4 DATA INTERPRETATION 41

5 CONCLUSION AND SUGGESTION 51

6 BIBLIOGRAPHY 53
PRAHLADRAI DALMIA LIONS COLLRGR OF COMMERCE AND ECONOMICS

CHAPTER- 1

INTRODUCTION OF

BANK

A bank is a financial institution that accepts deposits and recurring accounts from the
people and creates Demand Deposit. Lending activities can be performed either
directly or indirectly through capital markets. Due to their importance in the financial
stability of a country, banks are highly regulated in most countries. Most nations have
institutionalized a system known as fractional reserve banking under which banks
hold liquid assets equal to only a portion of their current liabilities. In addition to
other regulations intended to ensure liquidity, banks are generally subject to
minimum capital requirements based on an international set of capital standards,
known as the Basel Accords.

Banking in its modern sense evolved in the fourteenth century in the prosperous cities
of Renaissance Italy but in many ways was a continuation of ideas and concepts of
credit and lending that had their roots in the ancient world. In the history of banking, a
number of banking dynasties – notably, the medicis, the Fuggers, the Welsers, the
Berenbergs, and the Rothschilds – have played a central role over many centuries.
The oldest existing retail bank is Banca Monte dei Paschi di Siena, while the oldest
existing merchant bank is Berenberg Bank.

Definition of Bank:

Different Authors and Economists have given some structural and functional
definitions on Bank from different angles:

“ Bank is a financial intermediary institution which deals in loans and advances”---

Cairn Cross.

“ Bankis an institution which collects idle money temporarily from the public and
lends to other people as per need.”- - -R.P. Kent.

“ Bank provides service to its clients and in turn receives perquisites in different
forms.”- -P.A. Samuelson.

UNIVERSAL BANKING 1|Page

PRAHLADRAI DALMIA LIONS COLLRGR OF COMMERCE AND ECONOMICS

“ Bank is such an institution which creates money by money only.”-----W. Hock.“

UNIVERSAL BANKING 2|Page

Bank is such a financial institution which collects money in current, savings or
fixed deposit account; collects cheques as deposits and pays money from the
depositors‟ account through cheques.” Sir John Pagette.

Indian Company Law 1936 defines Bank as “ a banking company which receives
deposits through current account or any other forms and allows withdrawal through
cheques or promissory notes.”

HISTORY OF BANK

The concept of banking may have begun in ancient Assyria and Babylonia, with
merchants offering loans of grain as collateral within a barter system. Lenders in
ancient Greece and during the Roman Empire added two important innovations: they
accepted deposits and changed money. Archaeology from this period in ancient China
and India also shows evidence of money lending.

The present era of banking can be traced to medieval and early Renaissance Italy, to
the rich cities in the centre and north like Florence, Lucca, Siena, Venice and Genoa.
The Bardi and Peruzzi families dominated banking in 14th-century Florence,
establishing branches in many other parts of Europe. One of the most famous Italian
banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397. The
earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was
founded in 1407 at Genoa, Italy.

Fractional reserve banking and the issue of banknotes emerged in the 17th and 18th
centuries. Merchants started to store their gold with the goldsmiths of London, who
possessed private vaults, and charged a fee for that service. In exchange for each
deposit of precious metal, the goldsmiths issued receipts certifying the quantity and
purity of the metal they held as a bailee; these receipts could not be assigned, only the
original depositor could collect the stored goods.
Meaning and Origin of Bank:
The word „Bank‟ is widely and extensively used and circulated. The „Bank‟ in
English carries the same meaning in Bengali. The origin of English word „Bank‟
came into being (when, where and how) which could not be specifically identified.
The history regarding the origin of „Bank‟, even after the twelfth century, is not also
clear which has been based on guesses. According to some writer the word „Bank‟
was derived from „Banco‟, „Bancus‟, „Banque‟ or „Banc‟ all of which mean a
bench upon which the mediaeval European Money-lenders and Money –
Changers used to display their coins. Anyhow this word has been in use from the
middle ages in connection of a bank. In the words of German writer W. Frankace, a
long stool or bench was said to be replaced by Bank, Bangke etc. in the
Scandinavian and Mid-European countries. Again, Dutch and French words
„Banque‟, „Bangko‟ were used to mean stool or bench and in course of time the
word „Bank‟ came into effect.

Objectives of Bank:

1. To establish as an institution for maximizing profits and to conduct

overall economic activities.

2. To collect savings or idle money from the public at a lower rate of interests
and lend these public money at a higher rate of interests.

3. To create propensity of savings amongst the people.

4. To motivate people for investing money with a view to bringing solvency in them .

5. To create money against money as an alternative for enhancing supply of money.

6. To build up capital through savings.

7. To expedite investments.

8. To extend services to the customers.

9. To maintain economic stability by means of controlling money market.

INTRODUCTION OF UNIVERSAL BANKING

Universal banking is a combination of commercial banking, investment banking,

development banking, insurance and other financial activities and all financial
products are available under one roof. So we can say that a universal bank is that bank
which offers commercial bank functions plus other functions such as merchant
banking, mutual funds, factoring, credit cards, finance for housing loan, auto loan,
retail loans, and insurance etc. Universal banking is running with very large banks.
These banks provide a large number of finance to various companies, and also
contribute in the Corporate Governance (Management) of these companies. Universal
banking has a large network of branches all over the country and all over the world.

The
The rise of universal banking offers a unique setting for investigating the firm-level
real effects of financial development. It is a well known fact that economic growth
implies a long term rise in per capita national output and such increases are very much
associated with extreme and extraordinary charges in technology, institutional setup,
psychological environment, organizational behavior, socio culture and attitude of
common people for social development economic is necessary and for industrial
growth efforts, capital and knowledge are three important elements and between these
elements capital is the most crucial component. However metamorphic environmental
developments in and outside the political boundary and the open market policy with
the hedge cocooning the economy has been abolished by the computer and
telecommunication revolution. The net communications have explored geographical
and functional integration of international financial markets further deregulation of
financial market merchant banking, mutual banking and universal banking.
MEANING OF UNIVERSAL BANKING

Universal banking is a system in which banks provide a wide variety of

comprehensive financial services, including those tailored to retail, commercial, and
investment services. Universal banking is common in some European countries,
including Switzerland.

In the United States, by law banks are required to separate their commercial and
investment banking services. Proponents of universal banking argue that it helps
banks better diversify risk. Detractors think dividing up banks' operations is a less
risky strategy.

Key Takeaways

 Universal banking is a term for banks that offer a wider variety of

services than their competitors, or when compared with traditional banks.
 Universal banking is not yet common in the United States, but it's growing;
right now, banks in the United States focus more exclusively on
investments than their European counterparts.
 Banks in a universal system may still choose to specialize in a subset of
banking service, even though they technically offer much more to their
client base.

How Universal Banking Works

Universal banks may offer credit, loans, deposits, asset management, investment
advisory, payment processing, securities transactions, underwriting, and financial
analysis. While a universal banking system allows banks to offer a multitude of
services, it does not require them to do so. Banks in a universal system may still
choose to specialize in a subset of banking services.

Some of the more notable universal banks include Deutsche Bank, HSBC and ING
Bank; within the United States, Bank of America, Wells Fargo and JPMorgan Chase
qualify as universal banks.
FUNTIONS OF UNIVERSEL BANKING

A universal bank has two kinds of main functions for which first is to operate as a
commercial bank and second is to operate as an investment bank. Mainly in the
United Kingdom and the United States of America, these two institution types are
likely to be kept separately. Although with the recent removal of legal and technical
barriers, the possibility of universal bank has become perceptible. After the global
financial crisis of 2008, universal banks have become more popular as the number of
pure investment banks has fallen. In other major countries, almost all type of large
financial institutions operates as universal banks, with some smaller firms
specializing in either commercial or investment banking.

From the discussion we can explain the concept of commercial banking and
investment banking to understand the scope and range of universal
banking.

1. Commercial banking - Commercial banks are the most important constituents of

banking system. These are the banks which do banking business to earn profit. In
accordance with Gold Field and Chandler the term “Commercial” with regard to
these banks refers to commercial loan theory, and according to this theory, in the
asset of banks are included short term loans in addition to cash. Therefore,
commercial banks are those banks which offer advance loans for short period and
commercial banking involves meeting of the financial needs of regular consumers
and also offer features such as Savings Account, Current Accounts, and Credit in
order to meet the needs of a range of customers. The extent to which they are willing
to work with a particular consumer will depend upon the individuals credit rating.
Those with better credit scores will have more access to loans and current accounts
with substantial overdraft facilities.

2. Investment banking - Investment banks provide most often work with firms, or
consumers with large quantities of savings. They will work with money of
customer and invest it in different areas, often in firms listed on the financial times
stock exchange 100 (FTSE 100). Most investment banks offer a range of
investment portfolios with varying levels of risk. According to advise of experts
these financial institutions will aim to get the most out of investment opportunities
as possible i.e.
customers hand over their savings in order to gain returns. Certainly, this method of
making money is not always successful, and can result in huge losses.

UNIVERSAL BANKING GOALS

According to Investopedia: A banking system in which banks provide a wide variety

of financial services, including both commercial and investment services. Universal
banking is a common in some European countries, including Switzerland. In the
United States, however, banks are required to separate their commercial and
investment banking services. Proponents of universal banking argue that it helps
banks better diversify risk. Detractors think dividing up bank‟s operations is a less
risky strategy.

UNIVERSAL BANKING GOALS

 Attract new customers

 Increase “share of wallet”
 Retain more customers
 Reduce costs of service delivery through scale

OBJECTIVES OF UNIVERSAL BANKING

Universal banking is a term which is related to other banks for providing both
investment services and savings and also options for loan to their customers. In
Europe so many banks function on the source of the universal banking model.
Therefore, the main objectives such a model are on increased participation in
investment strategies securing customers through saving and loan schemes,
development of private sectors and cutting costs of financial services.

As per the above mentioned the objective of universal banking is of four types,
which are as under:

 Participation in investments
 Savings and loans
 Development of private sector
 Cutting the costs
1. Participation in investments - Universal banking focuses on routine of private
firms by straight investing into such entities. With participating on the investment
market, such banks can directly exercise decision-making power in the Governance
of corporations. The 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.

2. Savings and loans - By delivering multiple financial services, universal banking

aims distribute immediate benefits for their customers. This makes such entities
quite attractive for customers who want to take care of their all financial need at one
place; they can both apply for an investment scheme and require credit for their
business development. With providing their customers according to their saving and
loan options, universal banks aim to diversify their range of services and bigger
influence on the financial markets.

3. Development of private sector - Along with the main objectives of universal

banking is the development of private sector. As such, banking institutions are
highly unlikely to co-operate with Governmental funds, because of their urgent need
to invest money. Universal banks target the private sector as a main source of
customer. Universal banks need to develop the sector and insure its stable run and
Economic Growth.

4. Cutting the costs - According to the ideas of the universal banks is to reduce
the costs of their financial services by extension; being able to expand their areas
of expertise would empower.

IMPORTANCE OF UNIVERSAL BANKING

Utility of universal banking concept due to its effective features, efficient economic
services, high output, lower cost, better products and offerings has gained surprising
success and became popular all over the world in a short period of time. In global
scenario financial institution have freedom to choose the size and products mix and
offering of its operations and activities to optimize the use of their available resources.
Its large size and range of operations provide economy of scale and greater scope for
better utilization of resources. Universal banking enjoys advantage of avoiding waste
full marketing duplication, cost less marketing research, concentrated customer
feedback and development. In addition, large scales of operational activities enable
the institution to optimally utilize the modern information technologies which make it
more effective and competitive. In comparison to specialized financial institutions
universal banking are sufficiently equipped to under-take verities of business
according to demand by shifting the surplus resources within the organization without
substantial cost it single window offering financial products and services also
consolidate its relation with customers which ultimately result growth in business as
customer prefers to do business with universal banks because they gets services at
one place, which are as follows:-

1. Regulatory burden,

2. Regulatory requirements,

3. Optimal transition path,

4. Economies of scale

5. Diversion of surplus

6. Optimally utilization of resources

7. Advantage of brand name in marketing bank

8. One point shopping

9. Pro investors environment and activities

10. Improvise proficiency and productivity

1. Regulatory burden - In India there is an urgent need to reduce the regulatory

burden particularly banks vis-à-vis mutual funds and insurance companies, if
the banks are expected to compete in free market place.
2. Regulatory requirements - Salient of rational and regulatory issues of
reserve bank of India to be addressed by the financial institutions for conversion
into a universal bank.

3. Optimal transition path - The transition path contains several operational and
regulatory issues for information and direction of DFIs (Development Financial
Institution). The S.H. Khan working group and the discussion paper on the subject
prepared by RBI (Reserve Bank of India) ultimately felt that DFIs should
transform themselves into commercial banks but in a phased manner.

4. Economies of scale - The biggest advantage of universal banking is greater

economic efficiency which enables them to exploit economies of scale by improving
spread, higher output with better and diversified product range and low operating cost.

5. Diversion of surplus - Through diversification of activities bank can use its

overall potential expertise optimally in providing different kinds of services and can
reduce cost by performing all functions by one individual rather than under separate
bodies.

6. Optimally utilization of resources - Banks operating different functions under

one roof is advantageous. It can collect information like market trends, risk and return
analysis of customers portfolios etc. so, this information can be further used to pursue
other activities in order to generate additional business with customers through
minimum efforts.

7. Advantage of brand name in marketing bank - With established brand have

wide network of its branches which become active point for promoting products
like insurance, mutual funds etc. as branch will act as source and will help bank to
reach remotest area without any other support.

8. One point shopping - The idea of one shopping point helps customers as well as
banks in saving transaction and other related costs and improvises the economic
activities to great extent which ultimately advantageous to all participants.

9. Pro investor environment and activities - Adopting universal banking will lead
to diversification of business activities which is ultimately related to customers thus,
required investors friendly environment. Apart from this basic, another manifestation
of universal bank is banks holding stakes in firms. Its equity holding in borrower
firms indicate health of the firm to others investors and being a lending bank it have
an advantage to monitor the firms activities.

10. Improvise proficiency and productivity - Liberalization and globalization has

led banks to cross the political boundary and become universal. The main focus will
be ultimate profit rather than size of balance sheet. To increase the profit margin
banks will prefer of the based opportunity than mobilizing deposits which also save
cost and paying interest on deposit. Being part of free economy and to survive with
surplus banks have to improve their efficiency and productivity, which will ultimately
results in new financial products and services.

UNIVERSAL BANKING :- THE CONCEPT

The entry of banks into the realm of financial services was followed very soon after
liberalization in the economy. Since the early 1990s, structural changes of profound
magnitude came to be witnessed in global banking systems. Large scale mergers,
amalgamations and acquisitions among the 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 building the production of financial services organization called Universal
Banking.

PRODUCT AND SERVICES OFFERED BY UNIVERSAL BANKS

broad classification of product in a universal bank:

• Retail Banking.

• Trade FINANCE.

• Treasury Operation.
Retail banking is a way for individual consumers to manage their money, have access
to credit, and deposit their money in a secure manner. Services offered by retail banks
include checking and savings accounts, mortgages, personal loans, credit cards, and
certificates of deposit (CDs).

Retail Banking:

• Deposits

• Loans,cash credit and overdraft

• Negotiating for loans and advances

• Remittances

• Book keeping(maintain all accounting records)

• Receiving all kinds of bonds valuable for safe keeping

Trade Finance:

• Issuing and confirmation of letter of credit

• Drawing,accepting,discounting,buying,selling,collecting of bill
of exchang,promissory notes,bill of lading and other securities

Treasury operation:

• Buying and seeling of bullion.foreign exchange

• Acquring,holding,underwriting and dealing in shares,debentures,etc.

• Purchasing and selling of bonds and securities on behalf of consitituents.

The treasury department of a bank is responsible for balancing and managing

the daily cash flow and liquidity of funds within the bank. The department also
handles the bank's investments in securities, foreign exchange, asset/liability
management and cash instruments.

• Capital and Reserve Requirements

• Liasioning with Regulatory Bodies

• Liasioning with Regulatory Bodies

• Disaster Management

• Back Office Functions

Common banking product available:

some of common available product which are in universal banking explain below:

1) Credit card: A credit card is a payment card issued to users (cardholders) to

enable the cardholder to pay a merchant for goods and services based on the
cardholder's promise to the card issuer to pay them for the amounts plus the other
agreed charges.[1] The card issuer (usually a bank) creates a revolving account and
grants a line of credit to the cardholder, from which the cardholder can borrow
money for payment to a merchant or as a cash advance.

A credit card is different from a charge card, which requires the balance to be repaid
in full each month.[2] In contrast, credit cards allow the consumers to build a
continuing balance of debt, subject to interest being charged. A credit card also
differs
from a cash card, which can be used like currency by the owner of the card. A credit
card differs from a charge card also in that a credit card typically involves a third-
party entity that pays the seller and is reimbursed by the buyer, whereas a charge card
simply defers payment by the buyer until a later date.

2) Debit card: A debit card is a payment card that deducts money directly from a
consumer’s checking account to pay for a purchase. Debit cards eliminate the need
to carry cash or physical checks to make purchases directly from your savings. In
addition, debit cards, also called “check cards,” offer the convenience of credit cards
and many of the same consumer protections when issued by major payment
processors such as Visa or Mastercard. Unlike credit cards, debit cards do not allow
the user to go into debt, except perhaps for small negative balances that might be
incurred if the account holder has signed up for overdraft protection. Debit cards
usually have daily purchase limits, meaning it may not be possible to make an
especially large purchase with a debit card.

3) Automatic Teller Machine(ATM): An automated teller machine (ATM) is an

electronic banking outlet that allows customers to complete basic transactions without
the aid of a branch representative or teller. Anyone with a credit card or debit card can
access cash at most ATMs.

ATMs are convenient, allowing consumers to perform quick self-service transactions

such as deposits, cash withdrawals, bill payments, and transfers between accounts.
Fees are commonly charged for cash withdrawals by the bank where the account is
located, by the operator of the ATM, or by both. Some or all of these fees can be
avoided by using an ATM operated directly by the bank that holds the account.

4) E-Cheaque: An electronic check, or e-check, is a form of payment made via the

Internet, or another data network, designed to perform the same function as a
conventional paper check. Since the check is in an electronic format, it can be
processed in fewer steps.Additionally, it has more security features than standard
paper checks including authentication, public key cryptography, digital signatures,
and encryption, among others.

5) Electronic Fund Transfer(EFT): An electronic funds transfer (EFT) is a

transaction that takes place over a computerized network, either among accounts at
the same bank or to different accounts at separate financial institutions.EFTs include
direct-debit transactions, wire transfers, direct deposits, ATM withdrawals and online
bill pay services. Transactions are processed through the Automated Clearing House
(ACH) network, the secure transfer system of the Federal Reserve that connects all
U.S. banks, credit unions and other financial institutions.

6) Mobile Banking: Mobile banking is the act of making financial transactions on a

mobile device (cell phone, tablet, etc.). This activity can be as simple as a bank
sending fraud or usage activity to a client’s cell phone or as complex as a client
paying bills or sending money abroad. Advantages to mobile banking include the
ability to bank anywhere and at any time. Disadvantages include security concerns
and a limited range of capabilities when compared to banking in person or on a
computer.

Mobile banking is very convenient in today’s digital age with many banks offering
impressive apps. The ability to deposit a check, to pay for merchandise, to transfer
money to a friend or to find an ATM instantly are reasons why people choose to use
mobile banking. However, establishing a secure connection before logging into a
mobile banking app is important or else a client might risk personal information
being compromised.

7) Internet Banking: Internet banking is the system that provides the facility to the
customer to conduct the financial and non-financial transactions from his net banking
account. The user can transfer funds from his account to other accounts of the same
bank/different bank using a website or an online application. The customer uses a
resource and a medium to conduct financial transactions. The resource that a customer
uses might be an electronic device like a computer, a laptop, or a mobile phone. The
internet is the medium that makes the technology possible. The facility of internet
banking is provided through banks and the customer must be an account holder with
any bank to get the facility available for him/her.

8) Telebanking: Telephone banking is a service provided by a bank or other

financial institution, that enables customers to perform a range of financial
transactions over the telephone, without the need to visit a bank branch or automated
teller machine.
Telephone banking times are usually longer than branch opening times, and some
financial institutions offer the service on a 24-hour basis. Most financial institutions
have restrictions on which accounts may be accessed through telephone banking, as
well as a limit on the amount that can be transacted.

9) Demat: Demat Account is an account that is used to hold shares and securities
in electronic format. The full form of Demat account is a dematerialised account.
The purpose of opening a Demat account is to hold shares that have been bought or
dematerialised (converted from physical to electronic shares), thus making share
trading easy for the users during online trading.

Advantages of Universal Banking

The benefits or advantages of universal banking are:-

1. Investors' Trust : Universal banks hold stakes (equity shares) of many

companies. These companies can easily get other investors to invest in their
business. This is because other investors have full confidence and faith in
the Universal banks. They know that the Universal banks will closely watch
all the activities of the companies in which they hold a stake.
2. Economics of Scale : Universal banking results in economic efficiency. That
is, it results in lower costs, higher output and better products and services. In
India, RBI is in favour of universal banking because it results in economies of
scale.
3. Resource Utilisation : Universal banks use their client's resources as per
the client's ability to take a risk. If the client has a high risk taking capacity
then the universal bank will advise him to make risky investments and not
safe investments. Similarly, clients with a low risk taking capacity are
advised to make safe investments. Today, universal banks invest their
client's money in different types of Mutual funds and also directly into the
share market. They also do equity research. So, they can also manage their
client's portfolios (different investments) profitably.
4. Profitable Diversification : Universal banks diversify their activities. So,
they can use the same financial experts to provide different financial services.
This saves cost for the universal bank. Even the day-to-day expenses will be
saved
 because all financial services are provided under one roof, i.e. in the same
office.
5. Easy Marketing : The universal banks can easily market (sell) all their
financial products and services through their many branches. They can ask
their existing clients to buy their other products and services. This requires
less marketing efforts because of their well-established brand name. For e.g.
ICICI may ask their existing bank account holders in all their branches, to take
house loans, insurance, to buy their Mutual funds, etc. This is done very easily
because they use one brand name (ICICI) for all their financial products and
services.
6. One-stop Shopping : Universal banking offers all financial products and
services under one roof. One-stop shopping saves a lot of time and transaction
costs. It also increases the speed or flow of work. So, one-stop shopping gives
benefits to both banks and their clients.

Disadvantages of Universal Banking

The limitations or disadvantages of universal banking are:-

1. Different Rules and Regulations : Universal banking offers all financial

products and services under one roof. However, all these products and
services have to follow different rules and regulations. This creates many
problems. For e.g. Mutual Funds, Insurance, Home Loans, etc. have to follow
different sets of rules and regulations, but they are provided by the same bank.

2. Effect of failure on Banking System : Universal banking is done by very

large banks. If these huge banks fail, then it will have a very big and bad
effect on the banking system and the confidence of the public. For e.g.
Recently, Lehman Brothers a very large universal bank failed. It had very bad
effects in the USA, Europe and even in India.

3. Monopoly : Universal banks are very large. So, they can easily get
monopoly power in the market. This will have many harmful effects on the
other banks and the public. This is also harmful to economic development of
the country.
 4. Conflict of Interest : Combining commercial and investment banking can
result in conflict of interest. That is, Commercial banking versus Investment
banking. Some banks may give more importance to one type of banking and
give less importance to the other type of banking. However, this does not
make commercial sense.

UNIVERSAL BANKING - A SWOT ANALYSIS

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 spread 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.

 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 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 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 the 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, and the quality of the
management.
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.

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. The
asset base sans capital of most of the top 10 banks in the world are much
more 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.

 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.

ISSUES OF CONCERN FOR UNIVERSAL BANKING

Increased Systemic Risk

The larger the banks, the greater are 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.

Excessive Risks

Universal bankers have a feeling that they are too big to be allowed to fail.
Hence, they might succumb to the temptation of taking excessive risks. In such cases,
the government would be forced to step in to save the bank. Furthermore, it is argued
that universal banks are particularly vulnerable because of their role in underwriting
and distributing securities.

Gain 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. Two kinds of concentration should be distinguished, viz., the
dominance of universal banks over non-financial companies and concentration in the
market for financial services. The critics of universal banks blame Universal Banking
for fostering cartels and enhancing the power of large non-banking firms.

Bureaucratic and Inflexible

 It is often observed that universal banks tend to be bureaucratic and
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.

Conflict of Interests

Combining commercial and investment banking gives rise to conflict of

interests as universal banks may not objectively advise their clients on optimal means
of financing or they may have an interest in securities because of underwriting
activities. The potential for conflicts of interest is endemic in universal banking, and
runs across the various types of activities in which the bank is engaged. The matrix
presented below provides a simple framework for taxonomy of conflicts of interest
that may arise across the broad range of activities engaged in by universal banks. The
major types of conflicts include the following:

 SALESMAN’S STAKE

When banks have the power to sell affiliates’ products, managers will no longer
dispense “dispassionate” advice to clients. Instead, they will have a salesman’s stake
in pushing “house” products, possibly to the disadvantage of the customer.

 STUFFING FIDUCIARY ACCOUNTS

A bank that is acting as an underwriter and is unable to place the securities in a public
offering and is thereby exposed to a potential underwriting loss may seek to
ameliorate this loss by “stuffing” unwanted securities into securities managed by its
investment department over which the bank has discretionary authority.

 BANKRUPTCY-RISK TRANSFER

A bank with a loan outstanding to a firm, whose bankruptcy risk has increased, to the
private knowledge of the banker, may have an incentive to induce the firm to issue
bonds or equities – underwritten by its securities unit- to an unsuspecting public. The
proceeds of such an issue could then be used to pay-down the bank loan. In this case,
the bank has transferred debt-related risk from itself to outside investors, while it
simultaneously earns a fee and/or spread on the underwriting.

 THIRD-PARTY LOANS

To ensure that an underwriting goes well, a bank may take below-market loans to
third-party investors on condition that this finance is used to purchase securities
underwritten by its securities unit.

 TIE-INS

A bank may use its lending power activities to coerce or tie-in a customer to the
“securities products” sold by its securities unit. For example, it may threaten to credit-
ration the customer unless it purchases certain investment banking services.

 INFORMATION TRANSFER

In acting as a lender, a bank may become privy to certain material inside

information about a customer or its customer’s rivals that can be used in
setting prices or helping in the distribution of securities offerings
underwritten by its securities unit. This type of information-flow could
work in the other direction as well- i.e., from the securities unit to the
bank.

RBI Guidelines

The Reserve Bank of India had noted the following salient operational and
regulatory issues to be addressed by the Financial Institutions for conversion into a
Universal Bank:

1) 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 a
Financial Institution after its conversion into a universal bank.
2) Permissible activities: Any activity of a Financial Institution currently
undertaken but not permissible for a bank under Section 6(1) of the Banking
Regulation Act 1949, may have to be stopped or divested after its conversion into a
universal bank.

3) Disposal of non-banking assets: Any immovable property, howsoever acquired

by a Financial Institution, 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 Banking Regulation Act.

4) Composition of the Board: Changing the composition of the Board of Directors

might become necessary for some of the Financial Institutions after their
conversion into a universal bank, to ensure compliance with the provisions of
Section 10(A) of the Banking Regulation Act, which requires at least 51% of the
total number of directors to have special knowledge and experience.

5) Prohibition on floating charge of assets: The floating charge, if created by an

Financial Institutions, 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
Banking Regulation Act, since a banking company is not allowed to create a floating
charge on the undertaking or any property of the company unless duly certified by
RBI as required under the Section.

6) Nature of subsidiaries: If any of the existing subsidiaries of an Financial

Institution is engaged in an activity not permitted under Section 6(1) of the Banking
Regulation Act, then on conversion of the Financial Institution into a universal
bank, de-linking 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
Banking Regulation Act.

7) Restriction on investments: A Financial Institution 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 Banking Regulation
Act, which prohibits a bank from holding shares in a company in excess of these
limits.
Section 19(2) of the Banking Regulation Act, which prohibits a bank from holding
shares in a company in excess of these limits:-

8) Connected lending: Section 20 of the Banking Regulation Act prohibits grant of

loans and advances by a bank on security of its own shares or grant of loans or
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 withthese provisions would
be mandatory after conversion of a Financial Institution to a universal bank.

9) Licensing: A Financial Institution converting into a universal bank would be

required to obtain a banking licence from RBI under Section 22 of the Banking
Regulation Act, for carrying on banking business in India, after complying with
the applicable conditions.

10) Branch network: A Financial Institution, 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 least 25 per cent.
 CHAPTER- 2

RESEARCH METHODOLOGY

Research methodology process includes a number of activities to be performed. These

are arranged in proper sequence of timing for conducting research. One activity after
another is performed to complete the research work. Research methodology includes
the following steps:

1. Type of Research

The topic for the research study is sales promotion strategy and the nature of the topic
is theoretical and descriptive. So the conduct the research study the type of research
suitable is descriptive research only. The data are collected from sales records,
dealers, customers and salesmen of the companies performing in FMCG sector. The
descriptive research has met the requirement of research study.

2. Sources of Data

For the study purpose both primary and secondary data are used. The primary data
collected from sales men of the companies, customers and dealers dealing in the
products of the company. The secondary data collected from records of the company,
retailers and dealers. The data of past sales also have been collected. The primary and
secondary data have been collected to cover every aspect of the study. The primary
data are related to behaviour and response of employees, dealers and customers. The
secondary data shows the sales of the company product wise. These data used in
combination as per need of the study. These data having different merits and
demerits and have serves our purpose of the research study. These are explained
below:

(a) Primary Data

Primary data are information collected by a researcher specifically for a research

assignment. In other words, primary data are information that a company must gather
because no one has compiled and published the information in a forum accessible to
the public. Companies generally take the time and allocate the resources required to
gather primary data only when a question, issue or problem presents itself that is
sufficiently important or unique that it warrants the expenditure necessary to gather
the primary data. Primary data are original in nature and directly related to the issue
or
problem and current data. Primary data are the data which the researcher collects
through various methods like interviews, surveys, questionnaires etc. The primary
data have own advantages and disadvantages:

(i) Advantages of primary data:

Advantages of primary data are as follows:

• The primary data are original and relevant to the topic of the research study so
the degree of accuracy is very high.

• Primary data is that it can be collected from a number of ways like

interviews, telephone surveys, focus groups etc. It can be also collected across
the national borders through emails and posts. It can include a large population
and wide geographical coverage.

• Moreover, primary data is current and it can better give a realistic view to
the researcher about the topic under consideration.

• Reliability of primary data is very high because these are collected by the
concerned and reliable party.

(ii) Disadvantages of primary data:

Following are the disadvantages of primary data:

• For collection of primary data where interview is to be conducted the coverage

is limited and for wider coverage a more number of researchers are required.

• A lot of time and efforts are required for data collection. By the time the data
collected, analysed and report is ready the problem of the research becomes
very serious or out dated. So the purpose of the research may be defeated.

• It has design problems like how to design the surveys. The questions must be simple
to understand and respond.

• Some respondents do not give timely responses. Sometimes, the respondents

may give fake, socially acceptable and sweet answers and try to cover up the
realities. With more people, time and efforts involvement the cost of the data
collection goes high. The importance of the research may go down.
•In some primary data collection methods there is no control over the data
collection. Incomplete questionnaire always give a negative impact on research.

•Trained persons are required for data collection. In experienced person in

data collection may give inadequate data of the research.

(b) Secondary Data

Secondary data are the data collected by a party not related to the research study but
collected these data for some other purpose and at different time in the past. If the
researcher uses these data then these become secondary data for the current users.
These may be available in written, typed or in electronic forms. A variety of
secondary information sources is available to the researcher gathering data on an
industry, potential product applications and the market place. Secondary data is also
used to gain initial insight into the research problem. Secondary data is classified in
terms of its source – either internal or external. Internal, or in-house data, is
secondary information acquired within the organization where research is being
carried out.
External secondary data is obtained from outside sources. There are various
advantages and disadvantages of using secondary data.

(i) Advantages of Secondary Data:

Advantages of secondary data are following:

•The primary advantage of secondary data is that it is cheaper and faster to access.
•Secondly, it provides a way to access the work of the best scholars all over the world.

•Thirdly, secondary data gives a frame of mind to the researcher that in

which direction he/she should go for the specific research.

•Fourthly secondary data save time, efforts and money and add to the value of
the research study.

(ii) Disadvantages of Secondary data:

Following are the disadvantage of secondary data:

•The data collected by the third party may not be a reliable party so the reliability
and accuracy of data go down.
•Data collected in one location may not be suitable for the other one due
variable environmental factor.

•With the passage of time the data becomes obsolete and very old

•Secondary data collected can distort the results of the research. For using
secondary data a special care is required to amend or modify for use.

•Secondary data can also raise issues of authenticity and copyright. Keeping in view
the advantages and disadvantages of sources of data requirement of the research
study and time factor, both sources of data i.e. primary and secondary data have been
selected. These are used in combination to give proper coverage to the topic.
3.Instruments for Data Collection

For collection of data the following instruments have been used:

(a) Questionnaire

Questionnaire is a set of questions has been prepared to ask a number of questions

and collect answers from respondents relating to the research topic. A number of
questions usually in printed or electronic form are to be answered by the individuals.
The forms often have blank spaces in which the answers can be written. Sets of such
forms are distributed to groups and the answers are collected relating to research
topic. A questionnaire is a series of questions asked to individuals to obtain
statistically useful information about a given topic. When properly constructed and
responsibly administered, questionnaires become a vital instrument by which
statements can be made about specific groups or people or entire populations.
Inappropriate questions, incorrect ordering of questions, incorrect scaling, or bad
questionnaire format can make the survey valueless, as it may not accurately reflect
the views and opinions of the participants. A useful method for checking a
questionnaire and making sure it is accurately capturing the intended information is to
pretest among a smaller subset of target respondents. In a research or survey questions
asked to respondents, and designed to extract specific information. It serves four basic
purposes: to (1) collect the appropriate data, (2) make data comparable and amenable
to analysis, (3) minimize bias in formulating and asking question, and (4) to make
questions engaging and varied. For our study purpose a set of questions has been
prepared to collect information relating to the topic of the study. In this study a
structured questionnaire has been used with different types of questions such as closed
ended and open ended. Special case has been taken to select the scales for the
questions for collection of responses very effectively.

(b) Telephone, Mobile Phone and Facsimile

Telephone and other devices can be used for collecting data verbally and written on
fax from respondents located away from the researcher and having these facilities
plus the researcher having their contact numbers. Use of interviewers encourages
sample persons to respond, leading to higher response rates. Interviewers can increase
comprehension of questions by answering respondents' questions. It is fairly cost
efficient, depending on local call charge structure. It is good for large national or
international respondents and gives wider coverage. It cannot be used for non-audio
information (graphics, demonstrations, taste/smell samples) this instrument is not
suitable for the respondents where the telephone facility is not available.

(c) Mail

For collection of data from the respondents who are located at a long distance and do
not have any communication facility. They can be contacted through mailed
questionnaire. Only thing is required that the researcher should have the postal
addresses of the respondents. The questionnaire may be handed to the respondents or
mailed to them, but in all cases they are returned to the researcher via mail. The cost
involved is very less but no clarification can be given to the respondents if required.
Respondents can answer at their own convenience. The respondents cannot be biased
by the researchers and the detail information can be collected for the research
purpose. Only one disadvantage this instrument gives is that the response rate is very
less due to lack of interest in the topic of respondents and low literacy rate.

(d) Interview

In this method the interviewer personally meets the informants and asks necessary
questions to them regarding the subject of enquiry. Usually a set of questions or a
questionnaire is carried by him and questions are also asked according to that. The
interviewer efficiently collects the data from the informants by cross examining them.
The interviewer must be very efficient and tactful to get the accurate and relevant data
from the informants. Interviews like personal interview/depth interview or telephone
interview can be conducted as per the need of the study.

(i) Advantages:

Advantages of interview are following:

•In this method information can be gathered from illiterate people too.

•There are no chances of non-response as the interviewer personally collects data.

•The collected data is very reliable since the interviewer tactfully collects the data
by cross examining the responders.

(ii) Disadvantages:

The major disadvantages of interview are:

•There is a chance of bias.

•The informants may not answer some personal questions.

•It is a time-consuming process.

•Money and manpower requirements are very high.

•Some time the interviewers are involved in pressurising respondents to share

their personal information.

To study the topic of the research out of available instruments for research
mainly questionnaire, interview and telephone/mobile phones have been used
because theseinstruments were found suitable for data collection purpose. Mailed
questionnaire has not been used because the need has not been felt during the study.

4. Research Methods

For collection of primary data for this research work survey and observation methods
have been used. Experimental method is not found suitable for this study because the
topic is a theoretical topic and there is no need to have experiments. These two
methods are explained below:

(a) Survey Method

Survey is used to collect quantitative information about items in a population.
Surveys are used in different areas for collecting the data even in public and private
sectors. A survey may be conducted in the field by the researcher. The respondents
are contacted by the research person personally, telephonically or through mail. This
method takes a lot of time, efforts and money but the data collected are of high
accuracy, current and relevant to the topic. When the questions are administered by a
researcher, the survey is called a structured interview or a researcher-administered
survey. When the questions are administered by the respondent, the survey is referred
to as a questionnaire or a self-administered survey. It is an efficient way of collecting
information from a large number of respondents. Very large samples are possible.
Statistical techniques can be used to determine validity, reliability, and statistical
significance. Surveys are flexible in the sense that a wide range of information can be
collected. They can be used to study attitudes, values, beliefs, and past behaviors.
Because they are standardized, they are relatively free from several types of errors.
There is an economy in data collection due to the focus provided by standardized
questions. Only questions of interest to the researcher are asked, recorded, codified,
and analyzed.

(b) Observation Method

Observation is a complex research method because it often requires the researcher to

play a number of roles and to use a number of techniques; including her/his five
senses, to collect data. The observer puts himself in the actual situation and watch
carefully. On the basis of his knowledge, skills and experience he collects the data
without contacting the respondents. The results of observation entirely depend on the
talents of the researcher. This method can be used only by expert persons in the
research. Observation methods have been developed with the objective of 'observing
people in their natural setting - as they go about their everyday lives. Observation
methods can overcome some of the criticisms of quantitative research methods
(Validity, bias etc.) and can be useful when its subject can't provide information, or
can only provide inaccurate information. Out of available methods for collecting
primary data, survey and observation methods have been found suitable for the topic
study. These have fulfilled the requirements for data collection properly.
5. Sampling

(a) Introduction

The research is a systematic study to examine or investigate the issue or problem

and find out the relevant information for solution. For study data are to be collected
from the respondents. It is not possible to collect data from everyone of the
population.
Population is a very large number of persons or objects or items which is not feasible
to manage. A population is a group of individuals, persons, objects, or items from
which samples are taken for measurement. For research purpose a part of the
population is to be selected. Sampling is the process in which a representative part of
a population for the purpose of determining parameters or characteristics of the whole
population is selected. This is called a sample. It is easier to contact a smaller part of
the population for data collection. It can be done within a limited time, efforts and
with minimum cost. For selection of a sample special care should be taken that the
sample is proper representative of the whole population. Every segment of the
population should be included but the number should not be very large which may
become difficult to manage within time and cost limits. For this research study
purpose out of different sampling methods the stratified random sampling has been
selected. The universe includes salesmen, wholesalers, retailers and customers of
selected companies located in different parts of Gujarat region

(b)Time Duration

The permitted time by the university for completion of research study for Ph.D degree
is two years. Continuous efforts have been put to work on this research. It has been
completed and submitted within the permitted time period.

(c) Statistical Tools for Data Analysis

For data analysis measures of central tendency, standard deviation, variance will be
used. For testing of hypothesis F Test and T test will be used.

(d) Hypothesis

The following hypotheses have been tested with the help of statistical tools:
(i) Null Hypotheses:

There is significant difference amongst sales promotion strategies of the selected

companies.

•There is significant impact of sales promotion strategies on sales, number of

customers, overall profitability and business performance of selected
companies

(ii) Alternative Hypotheses:

There is no significant difference amongst sales promotion strategies of the selected

companies.

•There is no significant impact of sales promotion strategies on sales, number

of customers, overall profitability and business performance of selected
companies

6. Limitations of the Study

To carry out the research study the following limitations were expected and
faced during the research study:

(a)Availability of secondary data from sales records of the companies were difficult.

(b)Salesmen, customers, dealers and retailers were reluctant or hesitant to share

data. (c)Management may not like to share their views on the topic.

(d)Time, cost and location factors become major difficulties in completion

of research.
 CHAPTER- 3

REVIEW OF LITERATURE

A literature review is a text written by someone to consider the critical points of

current knowledge including substantive findings, as well as theoretical and
methodological contributions to a particular topic. Literature reviews a re secondary
sources, and as such, do not report any new or original experimental work. Thud, also
a literature review can be interpreted as a review of an abstract accomplishment.

Most often associated with academic-oriented literature, such as a thesis or peer-

reviewed article, a literature review usually precedes a research proposal and results
section. Its main goals are to situate the current study within the body of literature and
to provide context for the particular reader. Literature reviews are a staple for research
in nearly every academic field. A systematic review is a literature review focused on a
research question that tries to identif1y, appraise, select and synthesize all high
quality research evidence relevant to that question. A systematic review aims to
provide an exhaustive summary of current literature relevant to a research question.
The first step of a systematic review is a thorough search of the literature for relevant
papers. The Methodology section of the review will list the data bases and citation
indexes searched, such as Web of Science, Embase, and PubMed, as well as any hand
searched individual journals. Next, the titles and the abstracts of the identified articles
are checked against pre-determined criteria for eligibility and relevance. Thus ,we can
say that review of literature is the process of reading, analyzing, evaluating, and
summarizing scholarly materials about a specific topic.

Universal Banking plays vital role in making banks profitable. This is very intense
subject of debate among the academician, researchers and policy maker. Internal as
well as external factors affect the universal banking. Some researchers have tried to
find out the factors which affect the profitability and efficiency of banks by providing
universal banking services to the customers. In universal banking, large banks
operate extensive networks of branches provide many different services hold several
claims on firms i.e. equity and debt and participate directly in the Corporate
Governance of firms.
Adalet Muge (2009) examined that German banking crisis using a bank-level data
set near about the period of 1931. It specifically focused on the link among
banking structure and financial stability. The universality of banks, a key
characteristic of the German banking system, it showed, to increase the
probability of bank failure after controlling for other bank-level characteristics and
macroeconomic variables.

Adams Adewale Adegoke Alawiye and Babatunde Afolabi (2013) focused on

the arguments for universal banking especially for efficient services to
customers and also for financial systems stability and profitability, while, the
comparative practice of universal banking in some notable countries of the
world was also x-rayed because universal banking is a superstore for financial
products under a single roof. Corporate bodies can lot of opportunities of universal
banking system are yet to be fully exploited universal banking being a worldwide
banking business phenomenon is continually been subjected to research efforts over
the last century everywhere in the world. Universal banking is the panacea to
resuscitate and revamp the business of banking back to recovery, efficiency and
windfall profitability. This is especially so from United States to Germany,
Switzerland, Britain, and India and across all the established financial markets and
financial systems through the world, the impact of universal banking on the growth
and development of the banking industry cannot be underestimated.
Therefore ,universal banking is preferable to split banking system is that which
provides greater financial systems stability and also offer better solutions for
customer services.

Albertazzi Ugo (2006) developed a used to show the provision of incentives in a

universal bank, which is regarded as a common agent serving different customers
with potentially conflicting interest for example, it may buy assets on behalf of
investors and sell assets on behalf of issuing firms. The customers offer incentive
schemes to the bank and they behave non-cooperatively. The bank decides a level of
effort and, when firewalls are absent, a level of collusion, modeled as a costly and
unproductive redistribution of wealth among the customers.
Atunbas and Chonga (1996) examined the effects of universal banking on the risk
and returns of Japanese commercial banks, long-term credit banks, trust banks and
security firms using an event study methodology and Chi square, the results of their
study showed that universal banking in Japan has significant effects on the risks and
returns of financial institutions. Universal banking in particular increases the Japanese
financial institutions exposure to market risks, but lowers the exposure to interest rate
risks but only the trust banks and security firms seem to benefit from universal
banking in terms of increased returns.

Banerji Sanjay and Basu Parantap (2009) analyzed that, relative performance of a
fully integrated financial system with respect to a stand-alone system where there is
strict separation among depositories and under writing activities where both system
vulnerable to problems of moral hazard. In other words, a simple inter temporal
model with moral hazard and uninsured risk, if financial contracts are properly
written, the integration in financial markets could give risk to greater risk sharing
arrangement and could eliminate the equity risk premium attributed to informational
asymmetry between the lenders and the borrowers .

Banerj Sanjay, Chen Andrew H. and Mazumdar Sumon C. (2002) found the act
of Gramm Leach Bliley in the year of 1999 repealed many provisions that reduced
competition among banks and commercial firms. Significantly, however, the above
act did not repeal the constraint on banks from owning equity in commercial firm ‟s
means universal banking that banks are allowed to hold equity in corporate
borrowers? If allowed, would banks optimally choose to do so? Despite its relevance
from a policy perspective, there are surprisingly few theoretical analyses of this issue
of universal banking. Thus ,develop a model in which the bank's advisory role as an
“inside” shareholder hinges on its equity stake. The optimal capital structure and the
bank's and entrepreneur's equity stakes are endogenously determined in a world with
potential double-sided moral hazard. In certain scenarios, the bank may prefer not to
hold any equity. Hence ,analyzed indicates that allowing optimal bank equity
participation may foster improved corporate performance, and benefit of universal
banking should be considered in policy debates.

Benston George J. (1994) found that universal banks are financial institutions which
offer the entire range of financial services including sell insurance, underwrite
securities, and carry out securities transactions on behalf of others. They may own
equity interests in firms including nonfinancial firms and shares of companies
including shares of others because universal banks elect their employees as members
of the Board of Directors of these companies. Germany today and before the second
World War provides the best example of universal banking. European community
(EC) countries also permitted to operate in their home country. Thus, all countries in
the EC will be served by universal banks, subject to some restrictions on share
ownership by banks as well as by specialized banks.

Ber et al (2001) observed that the combination of bank lending, underwriting and
investment fund management is more likely to result in conflicts of interest. In line of
this finding, the ideal structure of universal banks should be compartmentalized into
separate departments for core-banking and other non-banking services.

Berger, Allen N. and Gregory F. Udell (1995) examined the contention that as
banks become larger and more organizationally complex means more like universal
banks, they may reduce the supply of credit to small business borrowers. This would
be consistent with an effort to reduce Williamson-type managerial diseconomies in
providing services for large and small borrowers jointly, and investigated that the
empirical association of loan price and quantity with bank size and complexity, using
a data set with over 9,00000 bank loans. The data support the proposition that larger,
more complex banks may reduced the supply of small business lending, although
other institutions may replace many of these loans.
 CHAPTER-4

DATA ANALSIS AND INTERPRETATION

The success of Universal banking concept depends to some extent on how the
services are being offered by the concerned banks and also about the awareness and
demand of these services from existing and potential customers of banks.
Therefore, an attempt was made through this research to (i) know the perception of
Bank Managers on Universal Banking concept and (ii) customers’ awareness of and
need for diversified services that are on offer. This is deemed necessary as both the
employees of banks (especially the Bank Managers) and the customers of banks are
the two vital pillars necessary to make Universal Banking in India a success.

Findings of Survey on Bank Managers

Sample Size : 100 Bank Managers of Public and Private sector banks

Profile of Indian Bank Managers

The profile of Bank Managers shows that majority of them are

 Males;
 Professionally qualified (CAIIB, Law, MBA etc.);
 Have experience of minimum 10 years; a few had more than 15 years
of service.

Perception of Bank Managers

1) Services
Majority of the sample (about 88%) believes that to remain competitive as
well as to retain its market position, a bank needs to provide a host of
innovative banking and financial services under ‘one-roof’. However, a small
percentage of the sample (12%) thinks that apart from variety of
services, brand name and efficient service delivery process of banks play
important role in retaining their competitive position.
 Need to offer diversified Services Need to offer
diversified offered Services
Responses No. of Respondents 63
25
Strongly Agree Agree Indifferent Disagree12
Strongly Disagree 0
0

2) TRANSACTION COST

All the respondents agreed that as and when banks would start to
offer diversified services, they would save transaction costs
considerably.

Offering Diversified Offering Diversified

Responses No. of Respondents 49

51
Strongly Agree Agree Indifferent Disagree0
Strongly Disagree 0
0

3) RESOURCES UTILISATION

All the respondents agree that while providing diversified services

under ‘one- roof’, a bank can make optimum utilisation of resources
and the responses so obtained are depicted below –
 Optimum utilisation of Optimum utilisation
resources of Banks of resources of bank
Responses No. of Respondents 49
51
Strongly Agree Agree Indifferent Disagree0
Strongly Disagree 0
0

4) Opportunities associated with Universal Bank

All the respondents believed that the transition of a bank from a

traditional bank to a Universal bank is going to bring about
opportunities for the existing employees (for example, a higher pay
scale or promotion etc.).

Universal Bank will Universal increase will

increase opportunities increase opportunities

Responses No. of Respondents 63

36
Strongly Agree Agree Indifferent Disagree1
Strongly Disagree 0
0

5) Workload associated with Universal Banking

Interestingly, majority of the respondents (86 %) feel that a

commercial bank’s transformation into a Universal bank will increase
their work load. However, 14
% of the respondents believe that their work load would be
 significantly reduced when a bank makes this transition.

Universal Banking will Universal Banking

will increase work load of Employees increase work load of
Employees

Responses No. of Respondents 12

74
Strongly Agree Agree Indifferent Disagree0
Strongly Disagree 14
0

6) Technology

The research brings to light that all the bank managers agree that as
banks would be offering a variety of products under Universal banking
framework, their dependence on latest technology would definitely
increase – about 74% of the respondents strongly agreed with the
statement while the remaining 26% simply agreed with it.

Universal banking will Universal banking will

increase dependence on latest increase dependence on
latest Technology Technology

Responses No. of Respondents 74

26
Strongly Agree Agree Indifferent Disagree0
Strongly Disagree 0
0

7) Training & Development

Majority of the respondents (about 88%) felt that their banks gave
highest importance on training and development of the existing staff so
as to make them capable of handling their job responsibilities
efficiently in a technology-intensive banking environment. However,
according to the remaining minority of the respondents (12%), their
 banks did not give too much priority to training and development of
their work-force but at the same time they have mentioned that their
organisation generally provided need-based training to the staff.

Importance given to Importance given

Training Training & Development of Staff Training & Development

Responses No. of Respondents 62

26
Strongly Agree Agree Indifferent Disagree12
Strongly Disagree 0
0

8) Customer-base

Banks, under Universal banking framework, would offer a variety of

tailor-made products – like credit cards, housing finance, investment
banking, stock trading, insurance, mutual funds etc. to their customers
apart from their traditional products.

All the respondents agreed that as banks begin offering

diversified products under Universal banking framework, a
bank would definitely increase its customer-base.

Universal Banking will Universal Banking will

increase Customer-base increase Customer-base

Responses No. of Respondents 75

25
Strongly Agree Agree Indifferent Disagree 0
Strongly Disagree 0
0

9) Customer Satisfaction

The respondents unanimously agreed that customer satisfaction

under Universal banking would be higher as banks will opt for
 cross selling products.

Customer Satisfaction under Customer Satisfaction

Universal Banking will be higher under Universal
Banking will be higher

Responses No. of Respondents

51

Strongly Agree
Agree49
Indifferent0
Disagree0

10) Concentration of Economic Power

The respondents felt that banks’ transition towards Universal banking
framework may result in concentration of financial and economic
power in the banking sector because of the diverse financial services
under one roof.

Universal Banking will lead to Universal Banking

will concentration of Financial concentration of
Economic Power. Financial
& Economic

Responses No. of Respondents 12

88
Strongly Agree Agree Indifferent Disagree 0
Strongly Disagree 0
0

11) Core Competence

Experts opine that in course of offering multi-products, there is a

possibility that the banks would lose sight of their core competence and
would face greater risk by participating in untested activities.
 Majority of the respondents (63%) disagree that while providing
diversified service, a bank would lose its ‘core competence’ while 25%
of the respondents feel that banks might lose their ‘core competence’
when they provide diversified services under Universal banking
framework.

Bank offer product Banks offer product

Responses No. of Respondents 0

25
Strongly Agree Agree Indifferent Disagree12
Strongly Disagree 63
0

Mode of Cash Withdrawal

The study brings to light that 60.74 % of the respondents use ATMs to
withdraw money and the remaining 39.26 % of the respondents still
prefer to use the traditional method of withdrawing money by visiting a
bank branch.

Preferred Mode of Preferred

Mode of Cash withdrawal from the Bank Cash withdrawal
from the Bank
Responses No. of Respondents
% of Respondents
164 60.74

Through ATM
Visits a bank
106 39.26
 PRAHLADRAI DALMIA LIONS COLLEGE OF COMMERCE AND ECONOMICS

Moreover, out of those respondents who make use of ATMs, majority of them fall
in the age group of 20 – 50 years. On the other hand, in case of respondents who do not
use ATMs, majority of them fall in the age group of 51– 60 years and above.

Age-group of Customers Age-group of

who use ATMs Customers who use
ATMs
Age group of Customers Above
No.
60ofyears
Respondents 10
51 – 60 years 15
41 – 50 years 35
31 – 40 years 50
21 – 30 years 41
Below 21 years 13

Age group of Customers Age group of

who visit a bank branch for cash Customers who visit a bank
branch withdrawal for cash withdrawal

Age group of Customers Above

No.
60ofyears
Respondents 35
51 – 60 years 31
41 – 50 years 11
31 – 40 years 09
21 – 30 years 11
Below 21 years 09

Thus, it seems that there is a relation between age of a customer and the use
of technology.

Advertisement & Awareness

Advertisement creates demand and eventually facilitates the sale for such
products which have got a latent demand in the market. Moreover, advertisement
generates awareness of the available products of the banks and how these can be
availed.

Majority of the respondents (72%) think that their banks generate awareness
UNIVERSAL BANKING 78 | P a g e
 on the available products of the bank through frequent advertisement. However,
28% of the respondents feel that advertisement and awareness generation
programme undertaken by their banks are average.

Advertisement & Advertisement &

Awareness generation activities of Awareness generation activities
of Banking Services Banking Services

Responses % of26
No. of Respondents Respondents 9.63

Very frequent Frequent Medium Infrequent Very infrequent

169 62.59
75 27.78
0 0
0 0

Attitude of Bank Personnel

The profitability of the banks, today, depends to some extent on its customer
relation policies. This is because, courtesy shown to the customer matters a lot in
striking a business deal. Thus, customer relation is another crucial area on which
banks are increasingly paying attention.

The research highlights that although a major percentage of the respondents

(67%) feel that the personnel of the banks are friendly, yet a significant 33% of
the respondents felt that they had not seen any friendly gestures on the part of
the bank personnel while dealing with them.

Attitude of Bank Personnel Attitude of

Bank Personnel
Responses No. of Respondents
% of 26
Respondents 9.63
155 57.41
Very friendly Friendly Indifferent Unfriendly Highly
89 unfriendly 32.96
0 0
0 0
PRAHLADRAI DALMIA LIONS COLLEGE OF COMMERCE AND ECONOMICS

Degree of fast & efficient Customer Service of the Bank

Another aspect that has to be given importance for the

success of a service organisation like a bank is the degree of
fast and efficient customer service of the bank. If time taken
for a transaction is very long, there would be longer waiting
time. This would be a demotivating factor for a potential
client of a bank to avail a service from the bank.

Majority of the respondents (64.07 %) think that the

customer services of the bank is fast and at the same time it
is efficient. However, 35.93 % of the respondents feel that
there are avenues for improvement and banks need to work
in this aspect.

ResponsesNo. of% of
RespondentsRespondents
Very high3011.11
High14352.96
Medium9735.93
Slow00
Very slow00

Degree of Fast Degree of Fast

Efficient Customer Service Efficient Customer Service

UNIVERSAL BANKING 81 | P a g e
 CHAPTER-5

Conclusion and Recommendations

1.1 Conclusion

At present, universal banking system has become the boon to the banking sector. The
banking scenario has changed drastically. The changes which have taken place in the
last ten years are more than the changes took place in last fifty years because of the
institutionalization, liberalization, globalization and automation in the banking
industry.

Universal banking system is a banking system in which banks provide a

wide variety of financial services, including both commercial and investment
services. For the purpose of the study we have selected two banks i.e. State Bank of
India (Public sector) and ICICI Bank (Private Sector). The objectives of the study are
to identify the various factors which affect universal banking in India, to check the
relationship of universalisation on efficiency and profitability of State Bank of India,
to check the relationship of universalisation on efficiency and profitability of ICICI
Bank and to compare the efficiency and profitability between State Bank of India and
ICICI Bank.

Data have been collected from secondary sources and this data have been
collected from Annual Reports of the State Bank of India and ICICI Bank. For the
purpose of the study we have applied one sample independent t-test to check the
significance difference between two means, Correlation to check the relationship
between two means and regression analysis to check the impact of one variable on
another. We have also used bar diagrams and tables to interpret the financial data.
From the extensive review of literature we found factors of universal banking i.e.
diversified range of financial product retail deposit, asset management fund, financial
services & insurance, investment banking, trading, brokerage and portfolio
management activities. From the regression analysis study revealed that there is effect
of Net Profit Margin, Return on Long Term Funds, Return on Net Worth and Return
on Assets on EPS of State Bank of India and ICICI bank, there is relationship between
deposits and investments of State Bank of India and ICICI Bank.
 f-test results indicated that there is significant difference between Net Profit
Margin and Return on Long Term Fund of State Bank of India and ICICI Bank, there
is significant difference between Net Profit Margin and Return on Long Term Fund
of State Bank of India but there is no significant difference between Net Profit
Margin and Return on Long Term Fund of ICICI Bank. Therefore, we can conclude
that both banks have universal banking system which is affecting the profitability and
efficiency of the banks. Correlation between dividend per share and net operating
profit, correlation between total assets and total deposits, correlation between total
income and total investment is greater in SBI than ICICI Bank.

1.2 Recommendations

1. This study is a useful contribution towards banking sector for increasing

the universal services and profit thereupon.

2. This study can be recommended to different researcher for further research.

3. Present study is a useful contribution to understand the relationship between

profitability and efficiency of the banks which are having universal banking
services.

4. It will help to other banks to understand the profit earned through

providing universal banking.

5. This study can also be recommended to the banks which are using
universal banking system in determining and improving the profitability and
efficiency.

6. It is also recommended to the Central Govt. of India that it must reduce the NPA so
that profitability can be increased by the banks.
 CHAPTER-6

BIBLIOGRAPHY

Books:

 Universal Banking By P.K.Bandgar (Vipul Prakashan)

 Bedi, H.L., & Hardikar, V.K. (1983). Practical Banking – Advances. (7th ed.).
(pp 1-7). New Delhi, India: Institute of Banking Studies.
 Bhole, L.M. (2004). Financial Institutions and Markets: Structure, Growth and
Innovations. (4th ed.). New Delhi: Tata McGraw Hill Publishing Company
Limited.
 Dhar, P.K. (2004). Indian Economy – Its Growing Dimensions. (12th ed.).
(pp. 689-744). India: Kalyani Publishers.
 Gurusamy, S. (2009). Banking Theory – Law and Practices. (2nd ed.). India:
Tata McGraw-Hill Publishing Company Limited.
 Joshi, Vasant C., & Joshi Vinay V. (2002). Managing Indian Banks –
challenges ahead. (pp. 117-147). India: Response Books.

Articles:

 Adalet Muge (2009) Were universal banks more vulnerable to

banking failures? Evidence from the 1931 German Banking crisis.
 Adams Adewale Adegoke Alawiye and Babatunde Afolabi (2013) universal
banking: arguments for efficient services to clients: issues of financial
systems stability and profitability.
 Albertazzi Ugo (2006) incentives in universal banks.
Websites:

 www.wikipedia.com
 www.sbi.com
 www.icicibank.com
 www.investopedia.com
 www.scribd.com
 www.ssrn.com
 www.moneycontrol.com
 www.banknetindia.com/banking/ubfeature.htm: Universal
Banking: introduction,
 RBI rules and regulations, Universal Banking in India
 www.answers.com/topic/universal-banking: Universal Banking:
definition
 www.investopedia.com/terms/u/universalbanking.aspUniversal
Banking: definition
 www.cato.org/pubs/journal/cj13n2/cj13n2-8.pdf Universal Banking:
Future