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The Porters Five Force Model for Banking Industry -analysis

*** Flow of Presentation ***

K
Introduction h
a
Threats of New Entrants r
g
Power of Suppliers h
a
Power of Buyers/Customers r

Availability of Substitutes SMBA

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Presentation By:
Competitive Rivalry
Rachita Ramjiyani (Roll No 67)
Group
Athira Nair (Roll No 79)
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Conclusion Sanjay Kumbhar (Roll No 107)
The Porters Five Force Model for Banking Industry -analysis
*** Introduction ***

Banking Industry: K
Overview h
a
Introduction on Porters 5 Force Model
r
g
h
a
r

SMBA

30-B

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The Porters Five Force Model for Banking Industry -analysis
*** Threats of New Entrants ***

Threat of new Entrants in Banking industry (Low): K


Despite of the biggest entry barrier like regulatory and capital requirements, between 1977 and
h
2002 an average of 215 new banks opened each year according to the FDIC.
a
r
But in present scenario the threat of new entrants is low due to stringent norms, RBI Regulations, High g
initial investment & entry barriers . h
Factors affecting The threat of new entry barriers: a
r
Government Licensing and RBI regulations
Skills manpower
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High Initial investment 30-B

Protected intellectual property


The entry of foreign banks
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The Porters Five Force Model for Banking Industry -analysis
*** Power of Suppliers ***

The bargaining power of Suppliers (High): K


1. Customer deposits. 2. Mortgages loans. h
3. Mortgage securities. 4. Loans from other financial institutions. a
The Factors affecting bargaining power: r
Rise in investment avenues g
Providers of funds h
Interest rates a
Valuations r
The economic out look
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Role of RBI
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Offshore operation

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The Porters Five Force Model for Banking Industry -analysis
*** Power of Buyers/Customers ***

Bargaining power of customers (High): K


The individual Customers. h
High switching costs. a
The customers Loyalty. r
The Technology g
Factors affecting The Bargaining power of customers: h
Long-term finance. a
Margins and volumes. r
Multiple Options
Banks Competitors SMBA

Retail lending 30-B

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The Porters Five Force Model for Banking Industry -analysis
*** Competitive Rivalry ***

Competitive Rivalry (High): K


The banking industry is considered highly/intense competitive, h
Acquisition & Mergers- Avoids marketing and advertising. a
Factors affecting The Competitive Rivalry: r
Too many players of same size g
Players have similar strategies h
Less product differentiation, price competition a
Low market growth rates r
Barriers for exit are high
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The Porters Five Force Model for Banking Industry -analysis
*** Availability of Substitutes ***

Availability of Substitutes (Medium): K


Largest threats of substitution are not from rival banks but from non-financial competitors, h
investors, NBFCs (attract a significant proportion of market share) and small co-operative banks a
and borrowing avenues r
No real threat of substitutes as far as deposits or withdrawals, however insurances, mutual funds, g
and fixed income securities -offered by non-banking companies. h
Alternative banking services/NBFC- Big Ticket Items-Electronics, Jewelry, Cars a
r
The Factors affecting threats of substitutes:
Close customer relationships, SMBA

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Conservative Customers
Risk taking customers attitude.
Switching costs Group
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The Porters Five Force Model for Banking Industry -analysis
*** Conclusion ***

Porters Five Force Model determine long-term profitability & is a reality check to see if a industry K
is attractive enough to enter or not. If all of those forces are high then the industry is less favorable h
to enter. Before entering a industry, one firm should check whether those forces is low, so its a
favorable for the firm to enter. r
Force 1: Threats from new entrants or potential competitors : Low g
(Requires High Initial Investments)
h
Force 2: The power of the suppliers : High a
(Limited equity suppliers)
r
Force 3: The power of the Buyers/customers : High
(High Competition, CRM, Personal Banking )
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Force 4: The intensity of competition among existing firms : High 30-B
(Zero balance, Life Insurance, Free ATM, Free credit Card, Door step Delivery, opening new acct in 24hrs)

Force 5: The easiness of changing to substitute products : Medium


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Conclusion:
As per Porter's 5 Forces Model most of the forces scored high, Hence is unfavorable.
The Porters Five Force Model for Banking Industry -analysis

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