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The five forces are competitive factors which determine industry competition and include: suppliers, rivalry within

an industry, substitute products, customers or buyers, and new entrants.

Porters 5 forces model Porter's model depends on the concept of power within the relationships of the five forces. Porters 5 force model can help us determine the factors involved and various market forces that influence the functioning of the Bank business model. It helps in understanding the level of competition the banking industry faces, competition is an important factor to determine the level of profits the banking industry can achieve. Understanding the model helps banking industry to gauge its market positions. Understanding the competitors in the market can help the banking industry to gauge its strengths and weakness, and better equip itself to face the ever changing trends in the market, to optimize its profitability. Lets now customize the above model to understand the forces surrounding Banking industry.
1. Bargaining Power of Suppliers to Banking industry: The term 'suppliers' comprises all

sources for inputs that are needed in order to provide goods or services. Supplier bargaining power is likely to be high when:

Interest rates play a major role in the functioning of the bank.

Valuations of Dollar, Euro and Rupee play a major role. RBI ( Reserve Bank Of India) is the supreme controller of the functioning of the bank. The functioning of the bank is very sensitive to the fluctuations in the interest rates of the Federal Reserve Bank in the US.

2. Bargaining Power of Customers for Banking industry: The bargaining power of

customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high when:

They take large volumes of loans and deposit large sums of money; there is a concentration of buyers. The consumers have a wide choice of banks and services to choose, which offer very attractive offers for the consumers. With better penetration in the semi urban and rural areas the bank garnered a higher proportion of low cost deposits thereby economizing on the cost of funds.

3. Threat of New Entrants for banking industry:

The competition in this industry will be the higher, if it is easier for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty, financial services, and deposit interest rates) at any time. The threat of new entries will depend on the extent to which there are barriers to entry. These are typically:

Economies of scale (minimum size requirements for profitable operations) High initial investments and fixed costs Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets Bank reputation and brand loyalty of customers Protected intellectual property like patents, licenses, etc.

4. Threat of Substitutes for banking industry: A threat from substitutes exists if there are

alternative banking services available with lower prices of better performance parameters for the same purpose. Similarly to the threat of new entrants, the threat of substitutes is determined by factors like:

Close customer relationships Switching costs for customers The relative price for performance of substitutes Current trends People are not very conservative and are risk takers.

FIs are not required to maintain cash reserve ratio (CRR) and statutory liquid ratio (SLR). Priority sector lending norm of 40% (of total advances) is not applicable to them. While this is at their advantage, they do not have access to low cost demand deposits. As a result their cost of funds is always high, resulting in thinner interest spread.
Competitive Rivalry between Existing Players for banking industry:

This force describes the intensity of competition between existing players and banking industry in financial markets. High competitive pressure results in pressure on prices and margins and thus on profitability for every finance organization in the segment. Competition between existing players is likely to be high when

There are many players of about the same size Players have similar strategies There is not much differentiation between players and their products, hence, there is much price competition Barriers for exit are high (e.g. expensive and highly specialized service oriented approach) Less paper work in case of rural / local financers

Many financial institutions such as SBI, HDFC, HSBC, ICICI Banks will spend the rest of this decade positioning themselves to meet the demand for long-term savings products and for life-cycle wealth management services.

Tata Steel acquires Corus Group Plc, UK:Tata Steel Ltd has announced that
on October 20, 2006, the Company announced a cash offer of 455 pence per share for Corus Group Plc. (Corus), valuing it at GBP 4.3 billion. Further, on December 11, 2006, the Company announced the terms of a revised offer for Corus at 500 pence per share, valuing it at GBP 4.7 billion. accordance with the auction rules published by the panel on 26 January 2007, following this announcement, Tata Steel will be seeking a recommendation for the Revised Acquisition from the board of Corus. Corus was formed from the merger of Koninklijke Hoogovens N.V. with British Steel Plc on 6 October 1999. It has major integrated steel plants at Port Talbot, South Wales, UK, Netherlands etc..

Tata was one of the lowest cost steel producers in the world and had self-sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore. Tata had a strong retail and distribution network in India and SE Asia. This would give the European manufacturer an in-road into the emerging Asian markets. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Hence there would be a powerful combination of high quality developed and low cost high growth markets
On 20 October 2006, Tata Steel announced that it had agreed to pick up a 100% stake in the AngloDutch steel maker Corus at 455 pence per share in an all cash deal, cumulatively valued at GBP 4.3 billion (USD 8.04 billion). Tata Ltd, a majority-owned subsidiary of Tata Sons, holds 2,125 Corus Shares.