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    Sector 2 Project Report PDF

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    The banking sector in India is highly competitive with established barriers to entry. There are substitutes for traditional banking services from non-banking financial institutions and other industries. Customers have some bargaining power, especially large corporations, but switching costs are generally high. Competition is driving consolidation in the industry as banks seek scale and efficiency.

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    Sector 2 Project Report PDF

    Uploaded by

    surendra
    119 views5 pages
    The banking sector in India is highly competitive with established barriers to entry. There are substitutes for traditional banking services from non-banking financial institutions and other industries. Customers have some bargaining power, especially large corporations, but switching costs are generally high. Competition is driving consolidation in the industry as banks seek scale and efficiency.

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    The banking sector in India is highly competitive with established barriers to entry. There are substitutes for traditional banking services from non-banking financial institutions and other industries. Customers have some bargaining power, especially large corporations, but switching costs are generally high. Competition is driving consolidation in the industry as banks seek scale and efficiency.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    119 views5 pages

    Sector 2 Project Report PDF

    Uploaded by

    surendra
    The banking sector in India is highly competitive with established barriers to entry. There are substitutes for traditional banking services from non-banking financial institutions and other industries. Customers have some bargaining power, especially large corporations, but switching costs are generally high. Competition is driving consolidation in the industry as banks seek scale and efficiency.

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    of 5

    Sector Project 2: Banking

    The Structure of Indian Banking Industry


    PORTER’S FIVE FORCES MODEL
    Threat of new entrants

     High entry barriers, as RBI & Central Bank control the issuance of licenses
     New licenses may reduce market share of public banks

    Bargaining power of the 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

     Largely, customers prefer banks for its reliability


     Gradually, customers have hedged inflation by investing in other riskier avenues

    Threat for 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. If car companies are offering 0%
    financing, why would anyone want to get a car loan from the bank and pay 5-10% interest.

     For deposit substitutes include investment in gold, real estate, equity etc.
     For advances substitutes include, bonds, IPO/FPO1, etc.

    Rivalry among existing competitors


    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.

     At present public sector banks, led by SBI & associates, control 77.3 per cent of the
    banking sector
     Rivalry is much aggressive in metropolitan areas
     Issuing of new licenses will increase competitive rivalry in rural areas over medium to
    long term

    Bargaining powers of the customers


    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.

     Nascent debt market & volatile stock market, are less opted
     Banks are an indispensible source of fund in India

    Indian Banking Sector Growth

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