Private Sector Banks vs Public Sector Banks

A bank is a financial organization licensed to receive deposits and make loans. Banks may additionally provide financial services like wealth management, currency exchange and safe deposit boxes. The Reserve Bank of India is the apex bank and the monetary authority, which regulates the banking system of the country. It is the banker’s bank, it governs all the banks of the country, like cooperative banks, commercial banks and development banks. The different sectors in which banks are divided are the same as any other industry: the private sector and the public sector.

Public Sector Banks:

Public Sector Banks (PSBs) are those banks, wherein the central or state government has a stake of more than 50%. These banks are listed on the stock exchange. In the Indian banking industry, PSBs are the largest category of banks and originated before India’s independence.

Over 70% of the market share in the Indian banking sector is dominated by public sector banks. These banks are broadly classified into two groups: Nationalised Bank and State Bank and its associates. There are 27 public sector banks in India, which are of different sizes. 

Almost all PSBs share the same business model, organizational structure and human resource policies. Therefore, competition can be seen among these banks in the market segment they cater to.

Private Sector Banks:

These are the kind of banks in which most of the capital belongs to private hands. In India, there are two kinds of private sector banks: old private sector banks and new private sector banks.

Old Sector Private Banks:

Old private sector banks are those which existed in India at the time of nationalization of major banks but weren't nationalized because of their small size or other reason. After the banking reforms, these banks got a license to continue and have existed in India alongside new private banks and government banks.

At present, there are  12 old private sector banks in India, they are:

  1. Catholic Syrian Bank
  2. City Union Bank
  3. Dhanlaxmi Bank
  4. Federal Bank
  5. Jammu and Kashmir Bank
  6. Karnataka Bank
  7. Karur Vysya Bank
  8. Lakshmi Vilas Bank
  9. Nainital Bank
  10.  Ratnakar Bank
  11.  South Indian Bank
  12.  Tamilnad Mercantile Bank

New Private Sector Banks:

The new private sector banks were incorporated as per the revised guidelines issued by the RBI regarding the entry of private sector banks in 1993. At present, there are 9 new private sector banks as follows:

  1. Axis Bank
  2. DCB (Development Credit Bank)
  3. HDFC Bank
  4. ICICI Bank
  5. IndusInd Bank
  6. Kotak Mahindra Bank
  7. Yes Bank
  8. IDFC
  9. Bandhan Bank.

Key Differences Between Public Sector Bank and Private Sector Bank:

  • Public sector banks are banks whose maximum shareholding is with the government. On the other hand, private sector banks are those whose maximum shareholding is with individuals and institutions.
  • At present, there are 27 public sector banks in India, whereas there are 22 private sector banks and 4 local area private banks.
  • Public sector banks dominate the Indian banking industry with a total market share of about 73%, followed by private sector banks with a market share of about 20%.
  • Public sector banks have been established for a long time, while private sector banks have emerged in the last few decades and so the customer base of public sector banks is greater than the private ones.
  • Transparency, in terms of rate of interest policies, is often seen within the public sector. The rate of interest on deposits offered by the public sector banks to its customers is slightly above the private sector banks.
  • When it involves the promotion of employees, public sector banks consider seniority as a base. Conversely, merit is the basis of private sector banks to market employees.
  • If we talk about growth opportunities in a public sector bank, it is quite slow in comparison to a private sector bank.
  • Job security is always present in a public sector bank but a private sector bank job is secure only when the performance is good because performance is everything in the private sector.
  • Along with job security, another pro of a public sector bank is the after-retirement fund, which is pension. On the contrary, pension schemes are not provided by private sector banks to their employees. However, there are other retirement benefits like gratuity offered by the bank.

Whether you want to invest your money or you want to make a career in the banking sector, due to the ruthless competition, people have to think long and hard about choosing between the two. However, every individual has certain priorities and one can easily choose from the two, by putting down their preferences and going for the one that suits them the best.

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