PORTER’S FIVE

FORCES ANALYSIS
Banking Industry
AXIS BANK (Large Cap)
Axis Bank is one of the leading private sector banks in India, promoted by UTI. It is listed on
both NSE and BSE and has presence in the retail as well as corporate banking domains. The
Porter’s Five Forces Analysis of Axis Bank is as follows:

Bargaining Power of Buyers – In the Indian banking industry, the bargaining power of the
buyers is very high. This is because there are innumerable banking options for the customers,
both in the private as well as public sectors. Axis Bank provides a host of services such as
Personal Banking, Corporate Banking, NRI Banking, Priority Banking - Online purchases
using Credit Card and VBV / MSC - Online purchases using Debit Card. However, such
services are provided by its peers, both in the public and private domain. The differentiating
factor, thus, is the quality, effectiveness and speed of the delivery of the services to the
customers. Thus, the bargaining power of buyers is very high in the case of Axis Bank.

Bargaining Power of suppliers - For Axis bank, the suppliers can be technology solution
providers, consultants, stationery and equipment providers, legal advisors, fintech companies
etc. In all these cases, the suppliers have low bargaining power since the switching costs are
low and this private sector bank is a huge entity. For other outsourced services, such as
human resource, agents, etc., the bank has a major influence and the providers aren’t in a
position to influence the bank’s decision. Therefore, the bargaining power of the suppliers is
low.

Rivalry among existing competitors – The banking industry is one of the most competitive
industries, wherein there is constant innovation and attempt to grab market share. The
potential peers of Axis Bank include HDFC Bank, ICICI Bank, Kotak Mahindra and
Bandhan Bank.

Bank Market Cap (Rs. Cr) Quarterly Sales (Rs. Cr) Net Profit (Rs. Cr)
Axis Bank 143200 62635 1627
HDFC 667819 114812 26257
ICICI 278523 74798 7930
Kotak 259854 26929 5947
Bandhan 52771 10885 3023

In the above table, we can see that Axis Bank’s profit is lower than its peers (having almost
similar book size). This implies the extent of competition that exists for the bank, since its

1
competitors have a suite of better services and facilities for its clients, which enables them to
lure the customers and consequently, enhance the market share.

Threat of Substitutes – The substitutes for Axis bank products, such as loans and deposits
can be the services provided by other financial institutions, payment banks and insurance
companies. They have a medium threat from substitutes because customers, though, have
options for availing the facilities from other payment solution providers, the clientele base in
India, is more inclined to a traditional banking arrangement, wherein they wish to avail
banking services such as deposits, loans, credit cards, online banking, etc. from the same
institution.

Threat of New Entrants – This is “low”, since establishing a bank is a cumbersome process,
involving a lot of capital investment. Another barrier is the host of regulatory requirements
that have to be complied with in order to set up a bank. Also, it is quite difficult to earn the
trust of people, when it comes to “money”. Having said that, it is possible to set up financial
institutions targeting niches; however, the process is full of challenges.

Entrepreneurial view-point

For an entrepreneur looking to establish business in this sector, it is difficult to establish a

new bank for there is fierce competition, high regulatory requirements, lots of traditional
players performing extremely well, customer sentiment and the reasons mentioned in the
discussion above.

MUTHOOT FINANCE (Mid Cap)

Muthoot Finance, operating under the brand name of “Muthoot Group”, has been classified
as “Systematically Important Non-Deposit Taking NBFC”. It is the largest gold loan NBFC
in the country and provides foreign exchange services, money transfers, travel and tourism
services etc. The company has strong financials and shows strong ROCE even in the
pandemic situation. The company has huge growth potential in the upcoming years. Its 4 -
year revenue and sales CAGR are 15.71% and 38.98% respectively. Porter’s Five Forces
Analysis for Muthoot finance is as follows:

Bargaining Power of Buyers: Muthoot finance operates majorly in two business segments,
i.e. Financing and Power Generation. In these domains, the buyers have medium to high

2
bargaining power since they have plenty of options to choose from, i.e. a lot of companies are
operating in this domain which provide their services at competitive prices. Various banks
provide gold loans, foreign exchange services, wealth transfers, insurance, housing loans, etc
is hassle free manner. The products provided by Muthoot finance can be differentiated on the
basis of type of services provided by them as well as the pricing. The customers, thus,
possess a high bargaining power.

Bargaining Power of suppliers – For Muthoot Finance, the suppliers can be the local gold
dealers, technology service providers, HR, outsourced employees and services etc. There are
umpteen number of local dealers that can provide sustaining business model for Muthoot
finance. Thus, the bargaining power of its suppliers is low.

Rivalry among existing competitors- The peers of Muthoot Finance include Bajaj Finance,
Bajaj Holdings, Sriram Trans, M&M Financials, Motilal Oswal, Mannapuram Gold Loans
etc. having comparable book sizes. These entities have significant presence in the financing
domain. However, for the core product of Muthoot Finance, i.e. the gold loan segment, there
is medium competition, since it targets a particular niche which possesses gold but are
otherwise not able to obtain loan against it. Thus, the existing market provides moderate
competition for Muthoot finance. The services offered by the competitors are at par with the
company and there is constant innovation in this field. Overall, the competition rivalry for
Muthoot is medium.

Threat of Substitutes – The banks providing gold loans at attractive rate of interest and
hassle-free procedures are the major substitutes for Muthoot’s gold loans. For other business
segments, foreign exchange service providers such as banks and other private institutions
such as Thomas cook, and local providers pose threat. Thus, for this segment, there is a
moderate threat of substitute since there are a lot of providers in this domain. Other categories
such as housing loan, personal loan, micro finance, etc have their share of substitutes as well,
mostly from banks and financial institutions. Thus, overall, the threat for substitutes is
medium to high for Muthoot finance.

Threat of new entrants – The entry barriers in this industry are moderately high, since there
are regulatory requirements as well as inventory management procedures and capacities.
Also, since gold holds special sentimental value for Indian consumers, it is a challenge to
gain the trust of the masses. Apart from this segment, the other domains in which Muthoot
operates, have plenty of competitors possessing low cost advantage. However, with a

3
distinguished model and a niche target in mind, new companies can compete for a piece of
market share. Thus, overall, the threat of new entrants for Muthoot is moderately low.

Entrepreneurial view-point

For an entrepreneur looking to enter this industry, it is essential to have a unique,

differentiated model so as to cater to the clients in the most efficient and trustworthy manner.
This industry has loads of competitors providing efficient services, thus, the differentiating
factor can help an entrepreneur set aside a pie from the market share for himself/herself.