Diversified Banking Functions of Commercial Banks

Diversified Banking Functions of Commercial Banks

Competition  in  the  banking  industry has reduced their profits. Therefore the commercial banks started identifying and offering new and diversified financial services. They are purely other than banking services. Providing all such banking and other financial services is also called universal banking. Such services are as follows:

1. Bank Assurance

It refers to the offering of insurance policies or products by a bank  in  association  with another insurance company. Banks should follow  Insurance   Regulatory and Development Authority of India (IRDA) regulations in addition to RBI regulations. Corporation Bank, Oriental Bank of Commerce and Vijaya Bank has tied up with Life Insurance Corporation  of India. SBI has joined hands with BNP Paribas Cardif - a French company to sell insurance products.

2. Merchant Banking

Merchant banks do not provide regular banking services.  A  commercial bank or its subsidiary merchant  bank  may offer services like project counselling, underwriting, etc. required for starting a company. It is called merchant banking. They are mostly stock market related services. Merchant Banks are controlled by Stock Exchange Board of India (SEBI) regulations also.

3. Retail Banking (Personal Banking)

It refers to mass market banking which reaches out to large number of individual end customers. Apart from accepting deposits, their services include personal loans, vehicle loans, consumer durable loans, loans against equity shares, debit and credit cards, mortgages, etc.

4. Housing Finance

Housing finance is provided against the security of immovable property of land and buildings. Many banks such as SBI, Bank of India, etc, have set up housing finance subsidiaries.

5. Mutual Fund

It is a financial intermediary that pools the savings of investors for collective investment in diversified portfolio securities in the capital market and money market. Many banks like SBI, Indian Bank, etc, have set up mutual fund subsidiaries.

6. Venture Capital Fund

Venture capital fund provides  start-up share capital to new ventures of little known, unregistered, risky, young and small private business, especially in technology oriented and knowledge intensive business. Many commercial banks like SBI, Canara Bank, etc. have set up venture capital fund subsidiaries.

7. Factoring

Factoring is a continuing arrangement between a financial intermediary (factor) and a business concern (client) whereby the factor purchase the clients’ accounts receivable. Banks like SBI and Canara Bank have established subsidiaries to provide factoring services.