Difference between Public Sector and Private Sector Banks

The banking industry has been the backbone of our country’s financial sector. Banks play an important role in the overall economic growth of the country. Public Sector Banks and Private Sector Banks are two of the three types of Commercial Banks (the third being Foreign Banks).

What are Public Sector Banks?

Public Sector Banks are the banks whose majority of stakes are held by the state or central government. The government is responsible for formulating all the financial guidelines for these banks. These banks work under the government and thus they are trustworthy. Public sector banks work for the benefit of people by introducing new schemes from time to time and also charge less for their services. The charges on loans are also less as compared to private sector banks. The biggest public sector bank in India is the State Bank of India.

Some of the advantages of public sector banks include:

• Low-interest charges on loans
• High-interest rate on deposits
• Full job security for employees
• Offers its services to a large customer base
• Offers financial services through multiple branches
• Offers its services to the rural areas too

What are Private Sector Banks?

Private Sector Banks and the banks whose stakes are held by private companies or maybe by an individual. Despite being owned by private companies or individuals, these banks have to follow the rules and regulations of the central bank. These banks provide good services and are efficient. Private sector banks provide numerous excellent services but at an additional cost.

Some of the benefits of private sector banks include:

• Offers quick services to the customers
• Offers customied services according to the financial needs of the customers
• Quick financial decision-making
• Have a streamlined management system

Private banks were set up in India after 1990 when the Government of India gave permission to establish them. Before 1990, the major stakeholders were the public sector banks. As of today, both the public sector and private sector contribute largely to the Indian economy. People choose between public sector banks and private sector banks based on their requirements and the type of service they want. At present, there are 12 public sector banks and 21 private sector banks in India.

Difference between Public Sector Banks and Private Sector Banks

Basis	Public Sector Banks	Private Sector Banks
Meaning	The banks whose majority of stakes are held by the state or central government are known as Public Sector Banks.	The banks whose stakes are held by private companies or maybe by an individual are known as Private Sector Banks.
Governing Act or Law	Public sector banks are formed by passing an act in the parliament.	Private sector banks are registered under the Indian Companies Act.
Controlling Authority	Public sector banks are controlled by the government.	Private sector banks are controlled by companies or an individual.
Shareholding Pattern	More than 50% of the shareholding of public sector banks lies with the government (state or central).	The majority shareholding of private sector banks lies with private companies or individuals.
No. of Banks	There are 12 public sector banks in India.	There are 21 private sector banks in India.
Regulatory Body	The Reserve Bank of India issues rules, regulations, guidelines, and directions for the public sector banks under the Reserve Bank of India Act, 1934.	The Reserve Bank of India issues rules, regulations, guidelines, and directions for the private sector banks.
Customer Base	The customer base of public sector banks is high.	The customer base of private sector banks is comparatively low.
Interest Rate	In public sector banks, the interest rate on savings is less and the interest rate on loans is high.	In private sector banks, the interest rate on savings is high; however, the interest rate on loans is low.
Job Security	There is high job security in public sector banks.	There is less job security in private sector banks.
Trustworthy	Public Sector Banks are more trustworthy than private sector banks as they are governed by the government.	Private sector banks are less trustworthy.
Share in Banking Industry	Public Sector banks hold 72.9% of the total market share in India’s banking system.	Private sector banks hold only 19.7% of the total market share in India’s banking system
Foreign Direct Investment	Public sector banks allow 20% Foreign Direct Investment.	Private sector banks allow 74% Foreign Direct Investment only if there is no change in the control and management. Besides, according to RBI regulations, a single organisation or an individual cannot invest more than 10% stake in a bank.
Pension	Pension is provided to public sector bank employees.	No concept of pension is there for private sector bank employees.
Example	Public sector banks include State Bank of India, Union Bank of India, Indian Bank, and Punjab National Bank.	Private sector banks include ICICI Bank, HDFC Bank, Axis Bank, and Karnataka Bank.