Description
This is a documentation describes sector analysis of indian banking industry with the example of axis bank.It also applies porter's five forces model to indian banking industry.
SECTOR ANALYSIS of INDIAN BANKING Industry Banking Industry has cheered investor's confidence once again with the stronger set of returns for the quarter ended June 2010. The expected stronger results, Improved operating metrics and Government infusion of capital in the public sector banks have made investors bid high on the banking Industry. Aggregates of 40 banks have reported 26% jump in the Net Profit at Rs 15068 crore over robust 46% jump in the Net Interest Income (NII) at Rs 38513 crore. With increase in the short term rates and recent policy hikes, many of the bank's in the mid of August have increased the lending (PLR) and deposit rates. Many banks have started mobilizing the deposits at higher rates and also CASA regime. However, we expect margins to sustain as loans get reprised faster than deposits. Thus sustainable margins with upward bias, Healthy credit demand and containment in the slippages and provisions will make Indian banking system stronger going ahead. AXIS BANK AXIS Bank is one of the fastest growing banks in private sector. The Bank operates in four segments, namely 1) Treasury, which include investments in sovereign and corporate debt, equity and mutual funds, trading operations, derivative trading and foreign exchange operations on the account, and for customers and central funding 2) Retail banking, which includes lending to individuals/ small businesses subject to the orientation, product and granularity criterion. It also includes liability products, card services, Internet banking, automated teller machines (ATM) services, depository, financial advisory services, and nonresident Indian (NRI) services. 3) Corporate/ wholesale banking, segment which includes corporate relationships not included under retail banking, corporate advisory services, placements and syndication, management of publics issue, project appraisals, capital market related services, and cash management services. 4) Other business which includes five wholly-owned subsidiaries namely Axis Securities and Sales Ltd, Axis Private Equity Ltd, Axis Trustee Services Ltd, Axis Asset Management Company Ltd and Axis Mutual Fund Trustee Ltd.
INDUSTRY COMPETITIVENESS / RIVALRY AMONG COMPETING FIRMS Rivalry among competitors is very fierce in Indian Banking Industry.
The services banks offer is more of homogeneous which makes Axis Bank to offer the same services at a lower rate and eat their competitor market’s share. Market Players use all sorts of aggressive selling strategies and activities from intensive advertisement campaigns to promotional stuff. Even consumer switch from one bank to another, if there is a wide spread in the interest. Hence, the intensity of rivalry is very high. The large numbers of factors which have contributed to increase in rivalry are: 1. A large no of banks: There are so many banks and non financial institutions like ICICI Bank, HDFC Bank, SBI Bank etc fighting with Axis Bank for the same pie, across various segments, which has intensified the competition. 2. High market growth rate: India is seen as one of the biggest market place and growth rate in Indian banking industry is also very high. This has ignited the competition. 3. Homogeneous product and services: The services banks offer is more of homogeneous which makes the Axis Bank to offer the same service at a lower rate and eat their competitor market share. 4. Low switching cost: Customers switching cost is very low, they can easily switch from one bank to another bank and hence, very little loyalty exists. 5. Undifferentiated services: Almost every bank provides similar services. Every bank tries to copy each other services and technology which increases level of competition. BARGAINING POWER OF SUPPLIERS Banking industry is governed/ regulated by Reserve Bank of India. Reserve Bank of India is the authority to take monetary action which leads to direct impact on circulation of money in the Economy. The rules and regulation lay down by RBI are very strict and are ought to be followed by all the banks. Suppliers of banks are depositors, especially domestic & foreign institutional investors, who have excess money and park their funds through Call & Term Money Markets. In banking industry suppliers have low bargaining power as they have to comply with the rates quoted by the banks, which are more or less same for every bank. The factors which lead to decrease in bargaining power of suppliers: 1. RBI rules and regulations Axis Bank is subject to RBI rules and regulations & hence it has to act in a way that RBI wants. So RBI takes most of the decisions related to interest rates. This fact reduces bargaining power of suppliers. 2. Suppliers not concentrated In India, the suppliers are present in numerous quantity which is growing at rate higher than the growth rate of banking industry. Still, a huge untapped market of suppliers is present for the banks like Axis bank. These numerous suppliers (investors) hold negligible portion of the pie, so this reduces their bargaining power. BARGAINING POWER OF CONSUMERS
Axis Bank offers different services, according to client’s needs and requirements. It offers loans at Prime Lending Rate (PLR) to their trust worthy clients and higher rate to others clients. Customers to Axis Bank include retail investors, institutional investors, and corporate salary accounts etc. Customers have high bargaining power, which may be attributed to many factors such as: 1. Large no of alternatives There are large & efficient foreign banks, private sector banks, co-operative banks and development banks together with specialized financial companies like ICICI bank, HDFC Bank, SBI Bank, Yes Bank etc that provide finance to customers .These all provide plethora of option to the customer and hence gives a huge bargaining power to them. 2. Low switching cost Cost of switching from one bank to another is low. Banks are also providing zero balance account and other types of facilities. They are free to select any banks service. Switching cost are becoming lower with internet banking gaining momentum and a result customers loyalties are harder to retain. 3. Undifferentiated service Axis Bank provides various services which are also provided to customers by all the other banks. If any bank launches a new product or service, it is quickly copied by the other competitive banks. Only differentiator being the efficiency & the quality, but with the technological advances this gap is also getting narrower. Hence, customers cannot be charged for differentiation. 4. Market becoming efficient (Availability of Information) Customers have full information about the market due to globalization and digitalization Consumers have become advance and sophisticated .They are aware with each market condition so banks have to be more competitive and customer friendly to serve them. POTENTIAL ENTRY OF NEW COMPETITORS Reserve Bank of India has laid out a stagnant rules and regulation for new entrant in Banking Industry. We expect merger and acquisition in the banking industry in near future In this scenario, if banks are to be made more effective, efficient and comparable with their counterparts functioning abroad, they would need to be more capitalized, automated and technology oriented, even while strengthening their internal operations and systems. Bank Consolidation assumes significance from the point of view of making Indian banking strong and sound apart from its growth and development to become sustainable. Barriers to an entry in banking industry are getting reduced. Also, the RBI has agreed to provide licenses to non-banking financial companies, provided the norms are being followed. This move is going to further heat-up the competition in the banking arena and hence, every bank strives to survive in highly competitive market, so we see intense competition. Indian Banking arena has also seen a spurt of NBFC
sector in last decade, which are nothing but pseudo banks. The small differentiation between NBFCs and Banks which existed till now, with the provision of Banking licenses to them is going to be eliminated in the coming future. Also, we can see that the penetration of Indian Banking industry has yet not reached the global level. The bottom of the pyramid sector is yet untapped and is attracting a lot of attention off late. Hence we can see that the threat of new entrants is looming on Axis Bank.
POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCTS Every day there is one or the other new product in financial sector. Banks are not limited to tradition banking which just offers deposit and lending. In addition, today banks offers loans for all products, derivatives, Forex, Insurance, Mutual Fund, Demat account to name a few. The wide range of choices and needs give a sufficient room for new product development and product enhancement. Substitute products or services are those, which are different but satisfy the same set of customers. Following are the substitutes for the products offered by Axis Bank across various segments: NBFC: Non-banking financial Institutions play an important role in giving financial assistance. Mobilization of financial resources outside the traditional banking system has witnessed a tremendous growth in recent years in the India. NBFC is a close substitute of banking in respect of raising funds Government Bond: Govt. Bond also attracts savings from the general public. It is less risky and more secured as compare to savings in private banks. Mutual Funds & Insurance: Mutual funds products were also good substitutes for Axis Bank, which led to its foray into the sector. Debentures: Debentures is also proved as a good substitute of bank’s fixed deposit as return on debenture is fixed and high. There are different types of debentures, which attract various classes of investors. Other Investment Alternatives: Now common people’s attraction is shifting from banks to other various alternatives such as gold, precious metals, land, small savings etc. As we can see the growing trend in these alternatives in comparison of decreasing interest rates in banks.
-
-
With the increasing threat of substitutes, Axis Bank is to foraying into various financial sectors so as to provide “One Bank Solution” to its customer. Going forward, this is the strategy of Axis Bank to maintain its position as one of the best private sector bank in India.
doc_286813305.docx
This is a documentation describes sector analysis of indian banking industry with the example of axis bank.It also applies porter's five forces model to indian banking industry.
SECTOR ANALYSIS of INDIAN BANKING Industry Banking Industry has cheered investor's confidence once again with the stronger set of returns for the quarter ended June 2010. The expected stronger results, Improved operating metrics and Government infusion of capital in the public sector banks have made investors bid high on the banking Industry. Aggregates of 40 banks have reported 26% jump in the Net Profit at Rs 15068 crore over robust 46% jump in the Net Interest Income (NII) at Rs 38513 crore. With increase in the short term rates and recent policy hikes, many of the bank's in the mid of August have increased the lending (PLR) and deposit rates. Many banks have started mobilizing the deposits at higher rates and also CASA regime. However, we expect margins to sustain as loans get reprised faster than deposits. Thus sustainable margins with upward bias, Healthy credit demand and containment in the slippages and provisions will make Indian banking system stronger going ahead. AXIS BANK AXIS Bank is one of the fastest growing banks in private sector. The Bank operates in four segments, namely 1) Treasury, which include investments in sovereign and corporate debt, equity and mutual funds, trading operations, derivative trading and foreign exchange operations on the account, and for customers and central funding 2) Retail banking, which includes lending to individuals/ small businesses subject to the orientation, product and granularity criterion. It also includes liability products, card services, Internet banking, automated teller machines (ATM) services, depository, financial advisory services, and nonresident Indian (NRI) services. 3) Corporate/ wholesale banking, segment which includes corporate relationships not included under retail banking, corporate advisory services, placements and syndication, management of publics issue, project appraisals, capital market related services, and cash management services. 4) Other business which includes five wholly-owned subsidiaries namely Axis Securities and Sales Ltd, Axis Private Equity Ltd, Axis Trustee Services Ltd, Axis Asset Management Company Ltd and Axis Mutual Fund Trustee Ltd.
INDUSTRY COMPETITIVENESS / RIVALRY AMONG COMPETING FIRMS Rivalry among competitors is very fierce in Indian Banking Industry.
The services banks offer is more of homogeneous which makes Axis Bank to offer the same services at a lower rate and eat their competitor market’s share. Market Players use all sorts of aggressive selling strategies and activities from intensive advertisement campaigns to promotional stuff. Even consumer switch from one bank to another, if there is a wide spread in the interest. Hence, the intensity of rivalry is very high. The large numbers of factors which have contributed to increase in rivalry are: 1. A large no of banks: There are so many banks and non financial institutions like ICICI Bank, HDFC Bank, SBI Bank etc fighting with Axis Bank for the same pie, across various segments, which has intensified the competition. 2. High market growth rate: India is seen as one of the biggest market place and growth rate in Indian banking industry is also very high. This has ignited the competition. 3. Homogeneous product and services: The services banks offer is more of homogeneous which makes the Axis Bank to offer the same service at a lower rate and eat their competitor market share. 4. Low switching cost: Customers switching cost is very low, they can easily switch from one bank to another bank and hence, very little loyalty exists. 5. Undifferentiated services: Almost every bank provides similar services. Every bank tries to copy each other services and technology which increases level of competition. BARGAINING POWER OF SUPPLIERS Banking industry is governed/ regulated by Reserve Bank of India. Reserve Bank of India is the authority to take monetary action which leads to direct impact on circulation of money in the Economy. The rules and regulation lay down by RBI are very strict and are ought to be followed by all the banks. Suppliers of banks are depositors, especially domestic & foreign institutional investors, who have excess money and park their funds through Call & Term Money Markets. In banking industry suppliers have low bargaining power as they have to comply with the rates quoted by the banks, which are more or less same for every bank. The factors which lead to decrease in bargaining power of suppliers: 1. RBI rules and regulations Axis Bank is subject to RBI rules and regulations & hence it has to act in a way that RBI wants. So RBI takes most of the decisions related to interest rates. This fact reduces bargaining power of suppliers. 2. Suppliers not concentrated In India, the suppliers are present in numerous quantity which is growing at rate higher than the growth rate of banking industry. Still, a huge untapped market of suppliers is present for the banks like Axis bank. These numerous suppliers (investors) hold negligible portion of the pie, so this reduces their bargaining power. BARGAINING POWER OF CONSUMERS
Axis Bank offers different services, according to client’s needs and requirements. It offers loans at Prime Lending Rate (PLR) to their trust worthy clients and higher rate to others clients. Customers to Axis Bank include retail investors, institutional investors, and corporate salary accounts etc. Customers have high bargaining power, which may be attributed to many factors such as: 1. Large no of alternatives There are large & efficient foreign banks, private sector banks, co-operative banks and development banks together with specialized financial companies like ICICI bank, HDFC Bank, SBI Bank, Yes Bank etc that provide finance to customers .These all provide plethora of option to the customer and hence gives a huge bargaining power to them. 2. Low switching cost Cost of switching from one bank to another is low. Banks are also providing zero balance account and other types of facilities. They are free to select any banks service. Switching cost are becoming lower with internet banking gaining momentum and a result customers loyalties are harder to retain. 3. Undifferentiated service Axis Bank provides various services which are also provided to customers by all the other banks. If any bank launches a new product or service, it is quickly copied by the other competitive banks. Only differentiator being the efficiency & the quality, but with the technological advances this gap is also getting narrower. Hence, customers cannot be charged for differentiation. 4. Market becoming efficient (Availability of Information) Customers have full information about the market due to globalization and digitalization Consumers have become advance and sophisticated .They are aware with each market condition so banks have to be more competitive and customer friendly to serve them. POTENTIAL ENTRY OF NEW COMPETITORS Reserve Bank of India has laid out a stagnant rules and regulation for new entrant in Banking Industry. We expect merger and acquisition in the banking industry in near future In this scenario, if banks are to be made more effective, efficient and comparable with their counterparts functioning abroad, they would need to be more capitalized, automated and technology oriented, even while strengthening their internal operations and systems. Bank Consolidation assumes significance from the point of view of making Indian banking strong and sound apart from its growth and development to become sustainable. Barriers to an entry in banking industry are getting reduced. Also, the RBI has agreed to provide licenses to non-banking financial companies, provided the norms are being followed. This move is going to further heat-up the competition in the banking arena and hence, every bank strives to survive in highly competitive market, so we see intense competition. Indian Banking arena has also seen a spurt of NBFC
sector in last decade, which are nothing but pseudo banks. The small differentiation between NBFCs and Banks which existed till now, with the provision of Banking licenses to them is going to be eliminated in the coming future. Also, we can see that the penetration of Indian Banking industry has yet not reached the global level. The bottom of the pyramid sector is yet untapped and is attracting a lot of attention off late. Hence we can see that the threat of new entrants is looming on Axis Bank.
POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCTS Every day there is one or the other new product in financial sector. Banks are not limited to tradition banking which just offers deposit and lending. In addition, today banks offers loans for all products, derivatives, Forex, Insurance, Mutual Fund, Demat account to name a few. The wide range of choices and needs give a sufficient room for new product development and product enhancement. Substitute products or services are those, which are different but satisfy the same set of customers. Following are the substitutes for the products offered by Axis Bank across various segments: NBFC: Non-banking financial Institutions play an important role in giving financial assistance. Mobilization of financial resources outside the traditional banking system has witnessed a tremendous growth in recent years in the India. NBFC is a close substitute of banking in respect of raising funds Government Bond: Govt. Bond also attracts savings from the general public. It is less risky and more secured as compare to savings in private banks. Mutual Funds & Insurance: Mutual funds products were also good substitutes for Axis Bank, which led to its foray into the sector. Debentures: Debentures is also proved as a good substitute of bank’s fixed deposit as return on debenture is fixed and high. There are different types of debentures, which attract various classes of investors. Other Investment Alternatives: Now common people’s attraction is shifting from banks to other various alternatives such as gold, precious metals, land, small savings etc. As we can see the growing trend in these alternatives in comparison of decreasing interest rates in banks.
-
-
With the increasing threat of substitutes, Axis Bank is to foraying into various financial sectors so as to provide “One Bank Solution” to its customer. Going forward, this is the strategy of Axis Bank to maintain its position as one of the best private sector bank in India.
doc_286813305.docx