The document analyzes Porter's Five Forces model in the context of the Indian banking industry. It discusses the competitive nature of the industry, with many public and private sector banks vying for customers. While it is difficult for new banks to enter due to customer trust in established brands, online banking has reduced switching costs between banks. The major suppliers of capital to banks are customers through deposits and loans from other institutions. While insurance and mutual funds can substitute some banking services, core banking functions have no real substitutes. Overall, the Indian banking sector has grown significantly in recent decades and remains an important part of the economy.

1. PORTER FIVE FORCES ON
BANKING INDUSTRY
The banking sector is one of the most important economic sector and most
influential and responsive to change whether international or domestic.
The overall banking industry is going through a modernisation phase of migrating
from physical bank visits to online banking.
The Porter 5 forces help to better understand the banking sector as a whole.
They are namely:
1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
Competition in the Industry
Banking industry is a highly competitive one. Most of the people who need banking services
already have accounts in not one, but multiple banks. Banks try to lure existing or new
customers by giving better facilities in terms of more interest rate when depositing, less
interest rate when taking a loan, better customer services and experience. As is the norm in
the banking industry of mergers and acquisitions, recently the Government of India merged
many different PSBs (Public Sector Bank), in order to increase their financial capabilities and
to have a global presence in terms of business.
Potential of new entrants into the industry
As per the latest list of RBI, there are 155 banks operating on Indian soil. Of these some are
private sector, local area banks, small finance banks, public sector banks, financial
institutions, regional rural banks, foreign banks having presence in India and the latest
category of Payments Bank. Many of these public sector banks were merged and their
number were reduced from 20 to 12.
The major bottleneck for new banks is the trust the customers have in their existing banks,
as they deal with the hard earned money and people are generally apprehensive in
experimenting with a new bank.
The banking industry has also recently evolved from money lending or depositing facility to
managing the mutual funds, fixed deposits etc.

2. Power of Supplier
Capital is the primary resource of any bank and there are four major suppliers (various other
suppliers [like fees] contribute to a lesser degree) of capital in the industry.
1. Customer deposits.
2. Mortgages and loans.
3. Mortgage-based securities.
4. Loans from other financial institutions.
While utilizing these four major suppliers, the bank needs to ensure that they have the
necessary resources required to service their customers' borrowing needs while maintaining
enough capital to meet withdrawal expectations.
The power of the supplier is largely market dependent and can vary from medium to high.
Power of Customer
The end customer can be an individual or a firm. They don’t directly pose as a threat to the
whole banking industry, but a low switching cost between banks can be a major concern to
the banking players.
Different banks will try to persuade customers to shift business with their banks and in this
scenario, the cost of switching can become one major factor for their decision. A relatively
low cost of changing with better options might force the individual to switch banks, similarly
a high cost of changing can act as a deterrent.
The recent internet oriented banking facilities has reduced this barrier to a large extent and
it is very convenient both cost and time wise to switch between banks.
Threat of Substitute Products
There is major competition between Public sector and Private sector banks. While usually
private banks provide better facility and customer experience, the public sector banks help
in enforcing the trust with which they keep their money in the banks, by providing more
stability because of their backing by government.
The industry does not suffer any real threat of substitutes as far as deposits or withdrawals,
however insurances, mutual funds, and fixed income securities are some of the many
banking services that are also offered by non-banking companies.
Growth of the Banking Sector in India
The banking system in India is the most extensive. The total asset value of the entire
banking sector in India is nearly US$ 270 billion. The total deposits is nearly US$ 220 billion.
Banking sector in India has been transformed completely. Presently the latest inclusions
such as Internet banking and Core banking have made banking operations more user
friendly and easy. The growth of financial sector in India at present is nearly 8.5% per year.
The rise in the growth rate suggests the growth of the economy. The financial policies and
the monetary policies are able to sustain a stable growth rate. The reforms pertaining to the
monetary policies and the macro economic policies over the last few years has influenced
the Indian economy to the core.