What is Public Sector Bank? | Definition, Working, Advantages vs Disadvantages

Banks are the most important financial institutions in the world. The banking system makes all financial transactions possible without much hassle. People can save their money in banks, take loans, and transfer funds easily through bank accounts. However, all banks are not the same. According to their stakeholders, banks can be classified into two types. These are Public sector banks and private-sector banks. Even though both types of banks offer similar services to the public, there are some major differences between them. Let’s look closer and see what a public sector bank is and how it works.

Key Takeaways

1. A public sector bank is a bank that is owned and controlled by the government.
2. It provides financial services to the public and works towards achieving the government’s socio-economic goals.
3. Public sector banks are subject to government regulations and policies.

How does it work?

Public sector banks are those where the government holds more than 50% ownership. With these banks, the government regulates the financial guidelines. Because of government ownership, most depositors believe their money is more secure in public sector banks. As a result, most public sector banks have a large customer base.

For example, The State Bank of India (SBI) is India’s largest public sector bank. In this bank, the Indian government holds more than 63% share. A large part of the remaining share is also traded in the Indian stock market.

Relative to other banks, the employees of public sector banks enjoy more job security. They also enjoy other perks like pension after retirement. For this reason, many of these employees are reluctant to give their best service. As a result, the rate of loan defaulters is much higher in public sector banks. Promotion in public sector banks is based on seniority, which de-motivates many employees.

Most public sector banks offer less customized services to customers. As a result, Customer complaint due to poor service is common in public sector banks. However, public sector banks offer more interest rates to the customer. Customers can also get different loans with a small interest rate.

Advantages of Public Sector Banks

Multiple advantages are associated with using public sector banks. For this reason, these banks have millions of customers. Here are some advantages customers get from public sector banks.

1. High-interest rate on deposits
2. Low-interest charges on loans
3. Employees get full job security
4. These employees also get a pension after retirement
5. Offer service to a large customer base
6. Offer their service to the rural part of the nation
7. Offer financial services through multiple branches.

Disadvantages of Public Sector banks

Most public banks around the world are facing multiple challenges. These challenges are also making them unpopular in public. Here are some disadvantages associated with public sector banks.

1. The big bureaucratic system at the management level
2. Inability to make a big financial decision quickly
3. Offer less customized service to the customers
4. Too many complaints against the employees for their poor service
5. Most public sector banks are suffering from big corruption scandals
6. High defaulter rate from the customer
7. Public sector banks spend lots of money on financial operation