Public sector banks are those where majority of the stake in the bank is held by government. Where as in private sector bank, majority is held by share holders of the bank.
Individuals get a fair idea, if we say SBI is a public sector bank and ICICI is a private sector bank.
Both type of bank offer same services, however charges differ and so as the quality and time duration for the services provided. One can also see the difference between interest rates.
Public Sector banks and private sector banks - a definition
A bank in which the government holds a major portion of the shares. Say for example, SBI is public sector bank, the government holding in this bank is 58.60%. Similarly PNB is a public sector bank, the government holds a stake of 58.87%. Usually, in public sector banks, government holdings are more than 50 per cent.
Nationalized banks are public sector banks. In nationalized banks the government controls the bank.
Some examples are SBI, PNB, etc. However, the government keeps reducing the stake in PSU banks as and when they sell shares. So to that extent that can also become minority shareholders in these banks.
Private Sector Banks
Private sector banks are owned by private bodies. These banks management and controlled by private promoters. After the liberalization in the 1990s, the new private sector banks are those who got their licenses. These days there are also payment banks that have come up like Airtel Bank, apart from the private and public sector banks.
The major differences between a private and public sector bank
a) In a public sector bank more than fifty percentage of the stake is held by the Government.
b) In a private sector majority of the stake owned to private shareholders.
• Interest Rate
Deposit interest Rates offered by public sector banks are almost the same when compared to private sector banks.
In case of loans, interest rates are marginally lower.
• Fees & Service
Private Sector Banks have made names in providing better service, however, they charge for the extra services provided by them.
Public sector banks fees and charges are less such as on balance maintenance . A lot of public sector banks are still picking up in the service.
• Customer Base:
Mostly public sector accounts are opened for government employees for their salaries, fixed deposits, lockers etc.
Whereas private sector bank in India target company employees,for their salary accounts, credit cards and net banking.
Comparing financial performance of public and private sector banks
In terms of financial performance, PSU banks lag behind. In terms of most of the parameters like non performing assets and net interest margins, private sector banks tend to be much better placed. The share prices of these banks are also significantly higher. Another important factor is that in terms of capital adequacy as well, as public sector banks are lagging behind, their private sector banking peers.
For example, some of the private sector banks like HDFC Bank and IndusInd Bank have very low level of non performing assets, as compared to the public sector or government owned banks. Some of the banks like Bank of Baroda from the government or public sector have reported record losses.
Losses from the steel sector has aggravated the non performing assets of the public sector banks in India. Only recently the government of India decided to infuse fresh capital in some of the government owned banks.
It is hoped that there would be some recovery in the losses and the public sector banks would be able to compete with the private sector banks in India.
Examples of private and public sector banks
Some of the public and government sector banks in the country include State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, Andhra Bank, Syndicate Bank, Allahabad Bank, State Bank of Mysore, Bank of Maharashtra etc.
Some of the larger private sector banks in the country include ICICI Bank, HDFC Bank, Yes Yank, IndusInd Bank, Kotak Mahindra Bank and a host of others.