ICICI – A Universal Bank Presented By Under the guidance of Prof. Hemal Submission Date : 21/02/2010 ACKNOWLEDGEMENT We are greatly indeed to our honorable Prof. Hemal for all her encouragement support and facilities strength in getting this project to its present stage. Developing any project is not an easy job. It needs lots of human efforts, dedication and togetherness among the people involved in it. These things mean a lot only when there is strong driving force and continuous support behind the team in every stage of development.
This driving force and support in our case was by our own project guide: Prof. Hemal. We would like to thank our parents for providing us with all their support and encouragement’s right from the projects budding stage to its current maturity. Above all we would like to thank the almighty for giving us courage. Index Introduction Universal Banking is a multi-purpose and multi-functional financial supermarket (a company offering a wide range of financial services e. g. stock, insurance and real-estate brokerage) providing both banking and financial services through a single window.
Definition of Universal Banking: As per the World Bank, “In Universal Banking, large banks operate extensive network of branches, provide many different services, hold several claims on firms (including equity and debt) and participate directly in the Corporate Governance of firms that rely on the banks for funding or as insurance underwriters”. THE CONCEPT OF UNIVERSAL BANKING The entry of banks into the realm of financial services was followed very soon after the introduction of liberalization in the economy.
Since the early 1990s structural changes of profound magnitude have been witnessed in global banking systems. Large-scale mergers, amalgamations and acquisitions between the banks and financial institutions resulted in the growth in size and competitive strengths of the merged entities. Thus, emerged new financial conglomerates that could maximize economies of scale and scope by building the production of financial services organization called Universal Banking.
By the mid-1990s, all the restrictions on project financing were removed and banks were allowed to undertake several in-house activities. Reforms in the insurance sector in the late 1990s, and opening up of this field to private and foreign players also resulted in permitting banks to undertake the sale of insurance products. At present, only an ‘arm’s length relationship between a bank and an insurance entity has been allowed by the regulatory authority, i. e. IRDA (Insurance Regulatory and Development Authority).
The phenomenon of Universal Banking as a distinct concept, as different from Narrow Banking came to the forefront in the Indian context with the Narsimham Committee (1998) and later the Khan Committee (1998) reports recommending consolidation of the banking industry through mergers and integration of financial activities. UNIVERSAL BANKING – PROS AND CONS The solution of Universal Banking was having many factors to deal with, which can be further analyzed by the pros and cons.
Advantages of Universal Banking * 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. Many Committees and reports by Reserve Bank of India are in favour of Universal banking as it enables banks to exploit economies of scale and scope. * 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 can be used to pursue other activities with the same clients. A data collection about the market trends, risk and returns associated with portfolios of Mutual Funds, diversifiable and non-diversifiable risk analysis, etc, is useful for other clients and information seekers.
Automatically, a bank will get the benefit of being involved in the researching. * Easy Marketing on the Foundation of a Brand Name: A bank’s existing branches can act as shops of selling for selling financial products like Insurance, Mutual Funds without spending much efforts on marketing, as the branch will act here as a parent company or source. In this way, a bank can reach the client even in the remotest area without having to take resource to 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 its customers. * Investor Friendly Activities: Another manifestation of Universal Banking is bank holding stakes in a form a bank’s equity holding in a borrower firm, acts as a signal for other investor on to the health of the firm since the lending bank is in a better position to monitor the firm’s activities.
Disadvantages of Universal Banking * 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 requirement 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 terms lending: In the case of traditional project finance, an area where DFIs tread carefully, becoming a bank may not make a big difference to a DFI.
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 that the DFIs have had to encounter is bad loans or Non-Performing Assets (NPAs). For the DFIs and Universal Banking or installation of cutting-edge-technology in operations are unlikely to improve the situation concerning NPAs. ICICI Bank
Industrial Credit and Investment Corporation of India) is India’s largest private sector bank in market capitalization and second largest overall in terms of assets. ICICI Bank has total assets of about USD 79 Billion (end-Mar 2007), a network of over 950 branches and offices. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management.
ICICI Bank’s equity shares are listed in India on stock exchanges at Kolkata and Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its ADRs are listed on the New York Stock Exchange (NYSE). History • The World Bank, the Government of India and representatives of Indian industry formed ICICI Limited as a development finance institution to provide medium-term and long-term project financing to Indian businesses in 1955. • 1994 ICICI establishes ICICI Banking Corporation as a banking subsidiary. ICICI Banking Corporation is renamed as ‘ICICI Bank Limited’. • 1999 ICICI becomes the first Indian company and the first bank or financial institution from non-Japan Asia to list on the NYSE. • 2002 The Boards of Directors of ICICI and ICICI Bank approve the merger of ICICI, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank.
After receiving all necessary regulatory approvals, ICICI integrates the group’s financing and banking operations, both wholesale and retail, into a single entity. Also, ICICI Bank bought the Shimla and Darjeeling branches that Standard Chartered Bank had inherited when it acquired Grindlays Bank. • 2003 ICICI opens subsidiaries in Canada and the United Kingdom (UK), and in the UK it establishes alliance with Lloyds TSB. It also opens an Offshore Banking Unit (OBU) in Singapore and representative.