CHALLENGES IN UNIVERSAL BANKING There are certain challenges, which need to be effectively met by the Universal Banking: (1)

The establishment of new private sector banks and foreign banks have rapidily changed the competitive landscape in the indian consumer banking industry placed gerater demands on banks to gear themselves up to meet the increasing needs of customers. For the discerning current day bank customers, it is not only relevant to offer a wide menu of services but also these in an incereasingly efficient manner in terms of cost, time and convenience. (2) Development Financial Institution (DFI) opting for conversion into Universal Banks merger/ reverse merger routes may also face certain difficult situations on accont of Asset Liability Mismatches, burden of mounting NPAs and differences in in regulatory prescriptions applicable to FIs and banks such as CRR and SLR requirements and priority sector lending. The asset profile of DFIs in India is predominantly of long term nature which also includes a very high level of noin performing assets. Further the regulationof DFIs in india has been historically less as compered with the bannking system partly because DFIs do not from of the monetary system and partly because they do not have deposits like liabilities. (3) In case DFIsare converted into banks they would also be subject to the reserve requirements like banks. This would mean that all liabilities issued by the DFIs in the past would also be subject to the reserve requirements and since the assets structuer of DFIs are largely of lomg term nature it would be very difficult for then to maintain the required level of SLR/ CRR. (4) Further the cost at which DFIs have been raising resoures in the past has generally remained high as compered to banks and maintenance of CRR/SLR for such liabilities which may earn lower returns would adversely affect the profitability of such Universal Banks. Compliance of Priority sector lending norms which earn lower may also create difficult situtions for such banks Risk Management is one of the major challenges where in the financial activity carries with it various risks which would need to be identified measurerd monitored and controlled by Universal Banks. The nature of risks and mitigation techniques for different financial products/ services will be different and therefore Universal Banks will be required to develop comprensive system for each product/ service and each kind of risk. (5) Improving Reisk Management System : With the incereasing degree of deregulation and exposure of banks to various types of risks efficient risk management systens have become essentials. For enhancing the risks managements systems in nanks Reserve Banks has issued guidelines on asset-liability management and risk management systems in banks in 1999 and guidelines notes on credit risks management and market risk management in October 2002 and the Guidelines on Operational risks management in 2005.

(6) Another aspect is related to building up of supervisory infrasturcture. The regulatory framework would need to be strengthened so as to cover all aspects of Universal Banking either under control of one regulator or a coordinating mechanism would have to be developed among different regulators like the Resereve Bank of India, SEBI, Insurance Regulatory, Authority atc. The regulators will have to frame sound mechnaism to protect the interests of all concerened including the custoner, the Universal Banking Institution and the financial system of the country. (7) Supervision of financial conglomerates: In view of increased focus on empowering supervisors to undertake consolidated supervision of bank groups and since the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision have underscored consolidated supervision as an indepemdent principle the Reserve Bank had intoduced, as an initial step, consolidated accounting and other quanyitative methods to facilitate consolidated supervision. The compenents of consolidated supervision include, consolidated financial statement intended for public disclosure, consolidated prudential reports intended for supervisory assessment of risks and application of course, consolidated supervision as introduced above would evolve to cover. (8)