Banks are the most important financial institutions in the world. Thanks to the banking system, 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, but there are some major differences in-between them. Let’s take a closer look and see what is public sector bank and how does it work.
Key Takeaways
- A public sector bank is a bank that is owned and controlled by the government.
- It provides financial services to the public and works towards achieving the government’s socio-economic goals.
- Public sector banks are subject to government regulations and policies.
How does it work?
Public sector banks are those banks where the government holds more than 50% ownership. With these banks, the government regulates the financial guidelines. Because of government ownership, most depositors believe that their money is more secured 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 the largest public sector bank in India. 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 defaulter is much higher in public sector banks. The promotion in the public sector banks is based on seniority, which de-motivate many employees.
Most public sector banks offer less customized service to customers. As a result, Customer complaint due to poor service is very common in public sector banks. However, public sector banks offer more interest rate 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.
- High-interest rate on deposits
- Low-interest charge on loans
- Employees get full job security
- These employees also get a pension after retirement
- Offer service to a large customer base
- Offer their service to the rural part of the nation
- Offer financial service 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.
- The big bureaucratic system at the management level
- Inability to a big financial decision quickly
- Offer less customized service to the customers
- Too many complaints against the employees for their poor service
- Most public sector banks are suffering from big corruption scandals
- High defaulter rate from the customer
- Public sector banks spend lots of money on financial operation
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
