An Overview Universal Banking includes not only services related to savings and loans but also investments. However in practice the term 'universal banks' refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc. Universalbanking is a combination of commercial banking, investment banking and various other activities including insurance. If specialised banking is the one end universal banking is the other. This is most common in European countries.
Universal banking has some advantages as well as disadvantages.
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. However larger the banks, the greater the effects of their failure on the system. Also there is 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. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking. Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit their plans for transition to a universal bank for consideration and further discussions.