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Finlatics Sector Project - 1

The document analyzes Porter's Five Forces on the banking/finance industry in India. It discusses the threats of new entrants from foreign players and non-banking finance companies. The power of suppliers like the Reserve Bank of India as a regulator is also noted. For buyers, switching costs are high but large corporate clients have leverage. There are many substitutes like insurance and mutual funds. The industry has high competitive rivalry as banks try to lure existing clients through lower rates and better services.

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Aditya Chitaliya
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369 views2 pages

Finlatics Sector Project - 1

The document analyzes Porter's Five Forces on the banking/finance industry in India. It discusses the threats of new entrants from foreign players and non-banking finance companies. The power of suppliers like the Reserve Bank of India as a regulator is also noted. For buyers, switching costs are high but large corporate clients have leverage. There are many substitutes like insurance and mutual funds. The industry has high competitive rivalry as banks try to lure existing clients through lower rates and better services.

Uploaded by

Aditya Chitaliya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Finlatics Sector Project – 1

Porter’s Five Forces on Banking/Finance industry

Threat of New Entrants


The average person can’t come along and start up a bank, but there are services,
such as internet bill payment, on which entrepreneurs can capitalize. Banks are
fearful of being squeezed out of the payments business, because it is a good source
of fee-based revenue. Another trend that poses a threat is companies offering other
financial services. What would it take for an insurance company to start offering
mortgage and loan services? Not much. Also, when analyzing a regional bank,
remember that the possibility of a megabank entering into the market poses a real
threat. In Indian banking industry, the main threats are foreign players and Non-
Banking Finance Companies

Power of Suppliers
The suppliers of capital might not pose a big threat, but the threat of suppliers
luring away human capital does. In Indian Banking industry, RBI acts as a
regulator which pose a big threat for banks as a supplier of money

Power of Buyers
The individual doesn’t pose much of a threat to the banking industry, but one
major factor affecting the power of buyers is relatively high switching costs. If a
person has a mortgage, car loan, credit card, checking account and mutual funds
with one particular bank, it can be extremely tough for that person to switch to
another bank. In an attempt to lure in customers, banks try to lower the price of
switching, but many people would still rather stick with their current bank. On the
other hand, large corporate clients have banks wrapped around their little fingers.
Financial institutions – by offering better exchange rates, more services, and
exposure to foreign capital markets – work extremely hard to get high-margin
corporate clients.

Availability of Substitutes
As you can probably imagine, there are plenty of substitutes in the banking
industry. Banks offer a suite of services over and above taking deposits and
lending money, but whether it is insurance, mutual funds or fixed income
securities, chances are there is a non-banking financial services company that can
offer similar services. On the lending side of the business, banks are seeing
competition rise from unconventional companies. All offer preferred financing to
customers who buy big ticket items.

Competitive Rivalry
The banking industry is highly competitive. The financial services industry has
been around for hundreds of years, and just about everyone who needs banking
services already has them. Because of this, banks must attempt to lure clients away
from competitor banks. They do this by offering lower financing, preferred rates
and investment services. The banking sector is in a race to see who can offer both
the best and fastest services, but this also causes banks to experience a lower ROA.
They then have an incentive to take on high-risk projects. In the long run, we’re
likely to see more consolidation in the banking industry. Larger banks would prefer
to take over or merge with another bank rather than spend the money to market and
advertise to people.

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