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Cross Selling and Universal Banking in India

Cross Selling and Universal Banking in India

Cross Selling and Universal Banking in India

Cross-selling stands for offering to the existing and new customers, some additional banking products, with a view to expand banking business, reduce the per customer cost of operations and provide more satisfaction and value to the customer. For insurance, when a bank deposit customer is in a position to sell (save bank or term deposits), a loan product such as housing loans, personal loans, credit cards etc. This is due to the extra business and the cost of each customer is less and the earning per customer will be higher. It is not a transaction based activity. It is initially a relationship building exercise.
Scope of Cross Selling: 
The crossing selling can take place on the liability side (i.e. different kinds of deposit accounts) or on the asset side (i.e. loans for different requirements) or between the two. It could be at the initiative of the customers or a bank can implement it as a well prepared strategy.

Benifits from Cross Selling:
The main advantage is that the cost of a new customer's contract is far more than serving the existing customer (can be up to 3-4 times), on condition of reduced costs for the bank. Further, through cross selling the benefits of economics of scale are available to the bank, which reduce the cost further and increase the profits. Another additional advantages is that the cross selling helps in building brand value if the loyalty of the customer could be endured for the brand, as in the case the likelihood of shifting the business dealings to another organisation or bank by the customer, is much less.

Universal Banking
R H Khan Committee has recommended the concept of Universal Banking. Universal Banking means allowing Financial Institutions and banks to undertake all types of banking or development financing activity, subject to compliance of statutory and other requirements of Reserve Bank of India (RBI), Government and related legal Acts.

Activities in Universal Banking: 
These activities include accepting deposits, granting loans, investing in securities, credit cards, payment systems, project finance, remittances, foreign exchange operations, project counselling, merchant banking, insurance etc.

RBI Guidelines on Universal Banking:
As per RBI guidelines of April, 2001, Financial Institutions have an option to transform into a bank provided they ensure compliance with the following –

  • Permission Activities – Any activity of a Financial Institutions currently undertaken but not permissible for a bank under Section 6(1) of the Banking Regulation Act, 1949. It may be closed after converting a universal bank conversion.
  • Reserve requirements – Compliance with the cash reserve ratio and statutory liquidity ratio requirements would be mandatory for a Financial Institutions after its conversion into a universal banks.
  • Composition of the board – Under Section 10(A) of the Banking Regulation Act it is to ensure compliance which requires at least 51% of the total number of directors to have special knowledge and experience.
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