What is Universal Banking?

Universal banking allows the banks to do all the kind of banking activities according to the rules and regulations of the RBI and other legal acts of the government. It includes the deposits, withdrawals, granting of loans, credit cards, project financing, payment systems, foreign exchange operation, remittances, project counseling, insurance, merchant banking etc. the main aim of universal banking is to bring equality in banking system, to give world class services related to the finance with the help of information and technology of the modern society, competing with international banks by exploring the business beyond the countries’ boundaries. The concept of universal banking was recommended by R H Khan Committee. Reserve Bank of India issued guidelines on universal banking in April 2001.

Any financial institute must have reserve requirements completed that refers to the cash reserve ratio and statutory liquidity ratio. Any activity that is done in financial institute which does not hold good for universal banking regulations need to be stopped. Any immovable property would be needed to be disposed of within period of seven years from the date of acquisition. Composition of board of directors are there to ensure compliance with section 10 (A) of B. R. Act which need 51 per cent of total number of the directors so that they have special knowledge and experience in this kind o the field. Universal banking allows the financial institutes to deal with wider aspects and it is done on the international level. Normally the factors of universal banking needs to be kept in mind when it comes to the dealing with the customers from all over the world at a single platform. It is necessary to ensure the information and technology and communication assets used in this type of baking are completely safe and risk free. Since banking needs to be done in the safe mode so these types of the financial units that are eager to do universal banking have to follow few instructions and guidelines according to the RBI act and other legal acts of the government. One needs to take care of all the measures like reserve requirements (CRR/SLR), permissible activities of financial institutions, disposal of non banking assets and composition of the board.

These factors are necessary to be kept in mind in order for a financial institute to be a part of universal banking. In this financial institute is competing at universal level which means the banks of other countries are in competition with that financial institute which in turn deals with international banks. World class service related to finance is provided with the help of cross selling process and information and technology. Hence he universal banking gave us goals for globalization which are possible only because of the new means of communication, internet banking and mobilization. The use of new forms of technology lets us meet the different needs across the world without any kind of the difficulty. This type of the banking has increased the value of financial system of the country as it has brought it in comparison with the world class banks which in turn gives the outlet to the economy of the country and gives it the wider scope for the financial system of the country. R H Khan set up a committee for this purpose only to tell about the guidelines for conversion of financial institute to universal banking system. CSS and SLR ratio also need to be in compliance as per requirement for making any financial institute to a universal bank. These ratios are mandatory as per the committee of R H Khan. Similarly many other factors need to be kept in mind for the conversion of financial institute to universal bank. It is important for any financial unit to follow them in order to become universal bank.