Before opening a bank account, many people wonder whether they must open it with a public bank or a private bank. Private banks generally offer faster loan approvals but often come with higher interest rates. Public banks offer loan approvals with lower interest rates but getting loan approval can sometimes be a pain in the neck since the process is typically slower.
Both public and private sector banks have advantages and drawbacks. To know whether a public or private bank would be suitable for you, you must learn about the difference between Public Sector and Private Sector Banks. You must carefully evaluate all the pros and cons to make the right decision.
Public sector banks are banks wherein 50% of the stakes are held by the Ministry of Finance of the Government of India or State Ministry of Finance of any of the various Indian State Governments.
These banks’ shares are typically listed on stock exchanges. All the financial guidelines of public sector banks are formulated by the Indian government. The market share of public sector banks is more than 70% in the Indian banking industry.
Public sector banks are divided into two categories, namely, nationalized banks and state banks and their affiliates. In India, there are 12 public sector banks.
The benefits and advantages of public sector banks include the following:
Lower interest rates on loans.
They offer high-interest rates on deposits.
Public sector banks offer full job security to those working for them.
They offer financial services through multiple branches spread across India.
They provide financial products and services to communities in rural areas as well.
The list of public banks in India is as follows:
| S. No. | Name of Public Bank |
|---|---|
| 1. | Bank of Baroda |
| 2. | Bank of India |
| 3. | Bank of Maharashtra |
| 4. | Canara Bank |
| 5. | Central Bank of India |
| 6. | Indian Bank |
| 7. | Indian Overseas Bank |
| 8. | Punjab National Bank |
| 9. | Punjab & Sind Bank |
| 10. | State Bank of India |
| 11. | Union Bank of India |
| 12. | UCO Bank |
A Private Sector Bank is a financial institution where the majority of shares are held and operated by private individuals or corporations, rather than the Central Government or State Government. The objective of private sector banks is to make profits for their shareholders.
Private banks play an important role in the banking industry by providing a wide range of banking and financial services. They compete with the public sector banks in India. HDFC Bank, which is the largest bank in India, and the fourth largest bank in the world, is a private bank.
Although private sector banks are owned by private companies or individuals, they must still follow the rules and regulations stipulated by the Government of India and the Reserve Bank of India (RBI).
Some key advantages of private banks include the following:
Private sector banks provide quick services to the customers.
Their management system is generally streamlined and they provide state-of-the-art customer services.
They offer customized services to customers based on their financial requirements.
They generally make quick financial decisions, such as for loan approval.
They offer attractive salaries, incentives and other perks to their employees.
The list of private banks in India is as follows:
| S. No. | Name of Private Bank |
|---|---|
| 1. | Axis Bank |
| 2 | HDFC Bank |
| 3 | ICICI Bank |
| 4 | CSB Bank |
| 5 | Nainital Bank |
| 6 | City Union Bank |
| 7 | IDBI Bank |
| 8 | Dhanlaxmi Bank |
| 9 | IDFC FIRST Bank |
| 10 | IndusInd Bank |
| 11 | DCB Bank |
| 12 | Federal Bank |
| 13 | Bandhan Bank |
| 14 | Kotak Mahindra Bank |
| 15 | J&K Bank |
| 16 | Karur Vysya Bank |
| 17 | Karnataka Bank |
| 18 | RBL Bank |
| 19 | YES Bank |
| 20 | South Indian Bank |
| 21 | Tamilnad Mercantile Bank |
In the table below, we will compare the difference between private sector bank and public sector bank.
| Point of Difference | Public Sector Banks | Private Sector Banks |
|---|---|---|
| Owned By | Owned by Central Government or State Government | Owned by Private individuals, companies, or groups of individuals or companies |
| Objective | To promote public welfare | To maximize profits for shareholders |
| Customer Base | Usually larger than private banks | Usually smaller than private banks |
| Foreign Direct Investment (FDI) | Up to 20% FDI is allowed | Up to 74% is allowed, subject to certain restrictions on ownership and control |
| Number of Banks | There are 12 Public Banks in India | There are 21 Private Banks in India |
| Examples | SBI Bank, Union Bank of India, UCO Bank, etc. | HDFC Bank, South Indian Bank, Tamilnad Mercantile Bank, etc. |
The main distinction lies in their ownership and operational approach: public banks are government-owned, while private banks are controlled by private entities. Some popular public sector banks include SBI Bank, Union Bank of India and Bank of India. On the other hand, some popular private sector banks include HDFC Bank, South Indian Bank, Federal Bank and Bandhan Bank.
Q1. What is the difference between public sector and private sector banks?
A. The public sector banks are owned by the government, whereas private sector banks are owned by private companies or individuals.
Q2. Which bank is the largest bank in India?
A. The largest bank in India by market cap is HDFC Bank.
Q3. Which bank is the oldest bank in India that is still in operation?
A. Established in 1806, the State Bank of India (SBI) is the oldest bank in India that is still in operation.
Q4. What was the State Bank of India originally known as?
A. When the State Bank was established, it was originally known as the Bank of Calcutta.
Q5. Which bank became the first private sector bank to be established in India?
A. IndusInd Bank was the first private sector bank in India. It was established by SP Hinduja in 1994.
Also Read: Top 10 NBFCs in India
Hi, I'm Sachin Chawla. I’m a commerce graduate from Agra University and a Chartered Accountant (2015) with DISA certification. I focus on helping businesses with formation, management, tax and FEMA matters, business licenses and regulatory compliance, IP advisory, risk management and auditing among others. Through my articles, I aim to share my expertise and provide practical guidance in these areas.
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