What is Private Sector Bank? | Definition, Working, Pros vs Cons

The bank is the most trusted financial institution among the public. This institution fulfils all our financial needs. Anyone can open an account in a bank and do all of their financial activity from there. This institution helps everyone save money, do financial transactions, and get a loan for various financial requirements. However, all banks are not the same. According to their stakeholders, a bank can be categorized into two categories. One of them is private sector banks. These banks operate in another way. Let’s learn how private sector banks work and what are the advantages and disadvantages associated with it.

Key Takeaways

1. A private sector bank is a bank that is owned and controlled by private individuals or corporations.
2. It provides financial services to the public and operates on a profit-making basis.
3. Private sector banks are subject to regulatory oversight by the government.

How does it work?

Private sector banks are where private individuals or companies own a major part of the bank’s equity. Even though these banks follow the nation’s central bank’s guidelines, they can formulate their independent financial strategy for the customers. Many of these banks are traded on the stock market, and anyone can buy a significant part of these banks’ shares from the stock market.

Most private sector banks are very agile in their financial strategy. These privates can make quick financial decisions according to the market condition. For this reason, interest rates fluctuate quickly on both deposits and loans. They offer very reliable services to the customers. They also offer customized services to the customer to fulfil their financial needs. There is no job security in private banks. Most employees work very hard to satisfy the customer’s financial requirements. In these banks, the employees get promotions on their merit and performance.

However, private sector banks charge a little extra for their financial services. Compared to other banks, the interest rate on deposits is low in most private sector banks. Even though getting a loan from private banks is very easy, they charge more interest on these loans. Axis Bank is one of India’s best examples of private sector banks. This bank is very competitive and offers the best services to its customers.

Advantages of Private Sector Bank

Many people believe private sector banks are the best. In their opinion, more banks should take the approach of private sector banks and make the banking system more robust for the public. Here are some advantages that are associated with private sector banks.

1. Private Sector Banks offer quick service to customers.
2. These banks also offer customized services according to the customer’s financial needs.
3. Private Sector Banks have a streamlined management system.
4. Quick financial decision-making is possible in private-sector banks.

Disadvantages of Private Sector Bank

However, everything is not ok with private sector banks. These banks also lag in different parts. For this reason, many people do not use private-sector banks. Here are some common disadvantages of private sector banks.

1. Private Sector Banks charge extra for every financial service.
2. These banks only operate in cities and are out of reach for the rural population.
3. Private Sector Banks offer no job security to the employees.