Porters 5 Force Analysis

of Banking Industry
Group 2
Abhishek Anand
Aman Chandan
Amit Kanojia
Habib Khan
Nayanchand Rao
November 12, 2013

Agenda
Banking Industry A Glance
Porters 5 Force Model Overview &
Structure
5 Forces Analysis of Banking Industry
Case study: HDFC Bank
Conclusion

Agenda
Banking Industry A Glance
Porters 5 Force Model Overview &
Structure
5 Forces Analysis of Banking Industry
Case study: HDFC Bank
Conclusion

Banking Industry A Glance

Structure Monopolistic Competition
Phase Maturity
Way Forward Financial Inclusion

Challenges

Stringent
capital
requirements to achieve compliance to
Basel III Norms
Past Performance

Banking Industry A Glance

Banking Industry A Glance

Source: Report on trend and progress of Banking Industry by RBI 2012

Banking Industry A Glance

Source: Report on trend and progress of Banking Industry by RBI 2012

Banking Industry A Glance

Source: Report on trend and progress of Banking Industry by RBI 2012

Banking Industry A Glance

Source: Report on trend and progress of Banking Industry by RBI 2012

Banking Industry A Glance

Source: Report on trend and progress of Banking Industry by RBI 2012

Banking Industry A Glance

Source: Report on trend and progress of Banking Industry by RBI 2012

Agenda
Banking Industry A Glance
Porters 5 Force Model Overview &
Structure
5 Forces Analysis of Banking Industry
Case study: HDFC Bank
Conclusion

Overview of 5 Force Model

Represents Competitive environment of
the firm
Strategic foresight to avoid putting
competitive edge at risk and ensure
profitability of products in long term
Profitability of business within industrial
structure depends on following forces:
Competitive Rivalry within the industry
Threats of New Entrants
Threats of Substitute Products
Bargaining Power of Customers
Bargaining Power of Suppliers

Overview of 5 Force Model

Often model is adjusted with 6th Force

Public Authorities
Because the Laws and
influence porters 5 forces

Norms

can

Golden Rules
6th Force Public authorities
Government, Regulators, Judiciary etc

Key Factors for Success

Identification of Key Success factors of
Environment
To have competitive advantage some
strategic
elements
needs
to
be
controlled

Structure
Competitive Rivalry within the Industry
Sl.
No.

INFLUENCED BY

COMPETITIVE MOVES

1.

Large no. of Firms

Changing Prices

2.

Slow Market Growth

Improving Product
Differentiation

3.

High Fixed Costs

Creatively using channels

of Distribution

4.

High Storage Costs

Exploring relationship
with suppliers

5.

Low Switching Costs

6.

Low Level of Product

Differentiation

7.

High Exit Barriers

Structure
Substitute Products
Refers to products in other industry
Products price elasticity is affected
Products demand is affected by the price
change of substitute product
Close substitutes constraints the ability of
firms to raise prices

It affects the industry through Price

Competition

Structure
Buyers Bargaining Power
Impact that
industry
Sl.
Buyers are
No. Powerful if

the

customers

have

on

Buyers are weak if

1.

Buyers are
concentrated

Producers threaten
forward integration

2.

Buyers purchase a
significant portion of
output

Significant buyer
switching costs

3.

Buyers possess a
credible backward
integration threat

Buyers are fragmented

4.

--

Producer supplies
critical portion of
buyers input

Structure
Suppliers Bargaining Power
How much pressure suppliers can place
on business
Sl.
No.

Suppliers are
Powerful if

Suppliers are weak

if

1.

Suppliers are
concentrated

Many Suppliers with

standardized product

2.

Credible forward
integration threat by
suppliers

Purchase commodity
product

3.

Significant cost to
switch suppliers

Concentrated
purchasers

Structure
Threat from New Entrants and Entry
Barriers
Not just the incumbent rivals but the
possibility of new firms entering the
industry affects competition

Barriers to entry
Patents and proprietary knowledge
Existing loyalty to major brands
High Fixed costs
Government restriction or legislation

Structure
Barriers to entry

Structure
Public Authorities
Government Regulations
Licenses
Regulators

Agenda
Banking Industry A Glance
Porters 5 Force Model Overview &
Structure
5 Forces Analysis of Banking Industry
Case study: HDFC Bank
Conclusion

5 Force Analysis of Banking

Industry

5 Force Analysis of Banking

Industry

Customers Bargaining Power: HIGH

Banks provide homogenous kind of
services
Customers can obtain all information
easily
Switching cost is low
Suppliers Bargaining Power: LOW
Major sources of Suppliers of capital
Customer Deposits
Loans from Financial Institution
Mortgage backed securities

Banks have to meet regulatory

5 Force Analysis of Banking

Industry
Competitive Rivalry: HIGH

Due to presence of large number of

Public, Private, Foreign and Cooperative Banks

Factors

Metro/Urban Rural

Industry
Concentration
ratio(Market
Share)

Low

High

Fixed Cost per

transaction

Low

High

Product
differentiation

High

Low

5 Force Analysis of Banking

Industry
Availability of Substitutes: HIGH

Due
to
Mutual
funds,
T-Bills,
Government Securities and NBFCs
Banking
Services

Activities

Substitutes

Lending

Lending Money to
earn interest

0% Finance for
Consumer Goods

Deposit Taking

People deposit
money for future
use

Housing
Companies take
deposits,
Investment in
Stock market &
other instruments

Ancillary Services

Selling Insurance,
MF or FIS.

NBFC does same

thing

5 Force Analysis of Banking

Industry
Threat of New Entrants: LOW
Setting up new
approval of RBI

bank

requires

Public Authorities: HIGH

Banking industry is highly regulated
and monitored by RBI

Agenda
Banking Industry A Glance
Porters 5 Force Model Overview &
Structure
5 Forces Analysis of Banking Industry
Case study: HDFC Bank
Conclusion

HDFC Products & Customer

Segments

HDFC Liability Products Interest

Rates

HDFC Leveraging Technology

5 Forces for HDFC Bank

Same as Banking
Industry

Competitive Rivalry of HDFC:

HIGH
Competition in this sector is very high
because of large number of public,
private, foreign and cooperative banks.
Public Sector Banks: SBI, Nationalized
Banks, Regional Rural Banks
Private Sector Banks: ICICI, Axis
Foreign Banks- HSBC, CITY

Competitive Rivalry of HDFC :

HIGH
Many Players of Same Size- ICICI, Axis
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

Availability of Product
Substitutes of HDFC - HIGH
There is a high threat from substitutes
such as
Mutual funds
Treasury bills
Government securities
Post Office Deposits
NBFCs for Loans & Advances

Availability of Product
Substitutes of HDFC - HIGH
The relative price of substitutes- e.gPost offices offer attractive interest rates
with minimum balance requirement.
Switching costs for customers - NIL
People (customers) are not conservative
and are risk takers

Threat of New Entrant for HDFC LOW

RBI Licensing and statutory requirements
High initial investments and fixed costs500 cr
HDFC Bank reputation and brand loyalty
of customers
Good network of branches with ATMs
channels- 3,251 Branches and 11,177
ATM's
in
2,022 Indian towns and cities

Suppliers Bargaining power

(HDFC Bank) - Low
Sl.
No.

Customers*

1.

Low

RBI as supplier

High

Major sources of Suppliers of capital

Customer Deposits
Loans from Financial Institution
Mortgage backed securities

The power of the suppliers is largely

based on the market conditions

Higher the Interest rate

Bargaining
power
of
supplier
customers)

Lower
(Retail

Buyers Bargaining Power (HDFC

Bank) - HIGH
Corporate Customers - High
Retail customers - Low
If Switching costs Low
Then Bargaining power of buyer is
High
If Switching costs High
Then Bargaining power of buyer is
Low

Conclusion

Thank You