What is Universal Banking?

Universal banking is generally compared to a super market where all types of financial products available within one roof. A universal bank undertakes financial services like commercial banking, investment banking, forex operations, remittances & payment systems, development banking and other financial services including functions of merchant banking, mutual funds, factoring, project finance, housing finance, credit cards, insurance etc. We can simply summarize that under Universal Banking system the large banks operate extensive network of branches, provide many different services, wherein individuals and corporates can get other convenient financial services while they can deposit and borrow money from the banks.

Universal Banking is usually undertaken by large banks that have the sources to manage the cost of such widespread operations. Banks like BNP Paribas, Deutsche Bank, Morgan Stanley, JP Morgan Chase, Citigroup, Bank of America, UBS, Credit Suisse, HSBC, and Barclays etc. are the examples of world’s top level universal banks.

RBI guidelines:

As per Reserve Bank of India guidelines for ‘on tap’ licensing of Universal Banks in the Private Sector (On tap licensing literally means the RBI window for granting banking licences will be open throughout the year), the promoter/promoting entity/promoter group should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record at senior level. The bank shall comply with priority sector lending targets as well as conditions like to open at least 25 per cent of its branches in unbanked rural centres, as applicable with the existing domestic scheduled commercial banks. The initial minimum paid-up voting equity capital for a bank shall be ` five billion. Thereafter, the bank shall have a minimum net worth of ` five billion at all times. The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank. The board of the bank should have a majority of independent directors.