Chap 12nbfc [Cp]

8

12.1 BARGANING POWER OF BUYERS:

No. of Alternatives

Low switching costs

Market Growth Rate

Undifferentiated Services

Full information of about the market

The individual doesn't pose much of a threat to the NBFC industry, but one major factor

affecting the power of buyers is relatively high switching costs. If a person has one financial

A Study on Non Banking Financial Companies in India

12. Industry Analysis: Michel Porter’s Five Force Model

8

service that services their financial needs, mortgage, specializes equipment, operating lease,

etc, it can be a huge hassle for that person to switch to another financial companies.

To try and convince customers to switch to their financial companies they will often times

lower the price of switching, though most people still prefer to stick with their current

financial companies? The internet has greatly increased the power of the consumer in the

NBFC industry.

Factors

Bargaining Power of Buyers

High

(5)

High to

Moderate (4)

Moderate

(3)

Moderate

to Low (2)

Low

(1)

No. of alternatives

Switching costs

Market growth rate

Undifferentiated services

Full information about the

market

Total Score 10 8 0 2 0

Number of Factors 5

Sum of factor value 20

Average 4

Conclusion: High to Moderate

As banks has also forayed into long-term finance and consumer finance. Many

alternatives: The consumers have got many alternatives for availing credit.

Large number of NBFCs: The consumers have a large spectrum to choose from.

12.2 BARGANING POWER OF SUPPLIERS:


8

Many alternatives: The suppliers in this case are the depositors or the NBFC‘s funds.

Suppliers have lots of alternatives to put their money. With the risk they can invest their

money. E.g. Low Risks: Banks, Bonds etc. High Risk: Stocks, Investment

RBI rules and regulations: RBI rules and regulations are not as stringent as of Banks.

NBFC‘s are governed by many bodies. E.g. RBI, FIDC, NHB etc. Capital is the primary

resource on any financial companies and there are many major suppliers (various other

suppliers contribute to a lesser degree) of capital in the industry.

• Funding of commercial vehicles

• Funding of infrastructure assets

• Retail financing

• Loan against shares

• Funding of plant and machinery

• Small and Medium Enterprises Financing

• Financing of specialized equipment

• Operating leases of cars, etc.

By utilizing these many major suppliers, the financial companies can be sure 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 suppliers is largely based on the market, their power is often considered to

fluctuate between medium to high.

Factors

Bargaining Power Of Suppliers

High

(5)

High to

Moderate (4)

Moderate

(3)

Moderate

to Low (2)

Low

(1)

Alternatives

RBI rules and regulations

Number of substitute inputs

Competition among supplier

Concentration of supplier

Diverse Distribution Channel

Impact on cost

Switching Cost



8

Number of Factors 27


Average 3.38

Conclusion: High to Moderate,

Providers of funds could be more demanding, base rate requirements are

applicable.

As quality of services provided with minimum time matters a lot.

Many alternatives: The suppliers in this case are the depositors or the NBFC’s

funds. The suppliers have many alternatives at their disposal to invest their

money depending on their risk appetite. Eg: High risk: stocks, low risk: banks

12.3 THREAT OF NEW ENTRANTS:

Product differentiation is very difficult: As most of the NBFC‘s offer similar types of loans

which caters to same market. Innovation of a product plays a very important role in the

market.

Licensing requirement: There are already 13000 registered NBFC. So, the licensing

requirement is also low. The regulations are not that stringent as that of a Bank.

Reserve Bank of India has laid out a stagnant rules and regulation for new entrant in NBFC

Industry. Hence, the industry is less porn of new competitor. Barriers to an entry in NBFC

industry no longer exist. So lots of privet and foreign financial services are entering in the

market. Competitors can come from an industry to disinter mediate financial product

differentiation is very difficult for NBFC and exit is difficult. So every financial service

strives to survive in highly competitive market so we see intense competitive can mergers and

acquisitions. Government policies are supportive to start new financial companies. There is

less statutory requirement needed to start a new venture? Every bank to tries to achieve

economies of scale through use of technology and selecting and training manpower .There

are public sector banks, private sector and foreign banks along with non-banking finance

companies competing in similar business segments.


8

Factors

Threat Of New Entrants

High

(5)

High to

Moderate (4)

Moderate

(3)

Moderate

to Low (2)

Low

(1)

Product differentiation is

difficult

Licensing requirement

Distribution Network Required

Capital Requirement

Economies of scale

Sunk Cost

Technology Required

Switching cost of customer

Entry Barrier

Brand Name


Number of Factors 38


Average 3.8


There are public sector, private sector and foreign banks along with non-

banking finance companies competing in similar markets.

Licensing requirement, investment in technology, skills required for project

finance, distribution reach, minimum capital requirements, etc.

Undifferentiated services: The service offerings by NBFCs are almost the

same. Thus there is a low level of service differentiation.

12.4 THREAT OF SUBSTITUTE PRODUCTS:


8

Banks: Banks are important substitutes as they are leaders in the markets. They have a quite

strong brand presence and a good credit appraisal method also.

Money Lenders: Small NBFC‘s catter to the rural areas where there is already a very strong

presence. They dominate the market in the rural areas and it’s mostly the unorganized market

they tap in.

Every day there is one or the other new product in financial sector. Financial companies are

not limited to tradition financial services which just offer deposit and lending. In

addition, today NBFC offers loans for all products, derivatives, For Ex, Insurance, Mutual

Fund, Demit 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.

Factors

Threat Of Substitute Products

High

(5)

High to

Moderate (4)

Moderate

(3)

Moderate

to Low (2)

Low

(1)

Money Lenders

Banks

Inferior Service

Service Differentiation

Cost of switching to Substitute

Number of Substitute


Number of Factors 6


Average 3.17

Conclusion: Moderate

There are public sector, private sector and foreign banks along with non-

banking finance companies competing in similar markets.

Banks: NBFCs were actually created by the government of India as it felt the

need to provide banking facilities to the poor and underprivileged who could

not get access to banks. Thus banks are a perfect substitute for NBFCs.


8

Unorganized money lenders: The unorganized money lenders have a strong

presence in the rural markets. They pose a big threat to the NBFCs in the rural

areas

12.5 RIVALRY AMONG EXISTING COMPETITORS:

The services NBFC‘s offer is more of homogeneous which makes the Company to offer the

same service 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 no of factors has contributed to

increase rivalry those are.

A large no of NBFC serving similar loan products: There is so many NBFC‘s and

nonfinancial institution fighting for same pie, which has intensified competition.

High market growth rate: India is seen as one of the biggest market place and growth rate

in Indian financial industry is also very high. This has ignited the competition.

Homogeneous product and services: The services banks offer is more of homogeneous

which makes the company to offer the same service at a lower rate and eat their competitor

market‘s share.

Undifferentiated services: Almost every NBFC provides similar services. Every bank tries

to copy each other services and technology which increase level of competition.

High exit barriers: High exit barriers humiliate banks to earn profit and retain customers by

providing world class services.

Factors

Rivalry among existing Competitors

High

(5)

High to

Moderate (4)

Moderate

(3)

Moderate

to Low (2)

Low

(1)


8

No. of NBFC serving similar loan

products

Market growth rate

Homogeneous product and

services

Undifferentiated services

Exit barriers


Number of Factors 5


Average 3.6


Market Players use all sorts of aggressive selling strategies and activities from

intensive advertisement campaigns to promotional stuff.

Marketing strategies: Due to the increased rivalry among the NBFCs, there has

been use of aggressive selling & intensive marketing strategies by the

companies to gain the market share.


Documents

Chap 12nbfc [Cp]