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Why A Loan From A Public Sector (Government) Bank Is Better Than Private Sector Bank?


This is the often asked question by many individuals desiring to take a loan: Should we take a loan from a private sector bank or a public sector bank in India?


Why A Loan From A Public Sector (Government) Bank Is Better Than Private Bank?
Of course, if you want the loan cheaper and are prepared to do some running around, and also have tremendous patience, you could gain monetarily if you approach a public sector bank or a government bank for loan in India. Let's take a look of some of the advantages and disadvantages in doing so.

Processing charges on loans from government banks vs private sector banks

Processing charges on loans are cheaper in the case of government banks. State Bank of India (SBI) is charging a home loan processing fee of 0.25 per cent on loans upto Rs 25 lakhs. On the other hand if your home loan is between Rs 25 and Rs 75 lakhs the amount charged is Rs 6500.

Home loan processing fee at private sector banks can be as high as 1 per cent. Now, if you are taking a big ticket home loan, this could mean a huge loss for you. So, be very careful on the processing loan front.

Interest Rates on loans from government banks vs private sector banks

Interest rates are also lower in the case of most public sector banks, particularly State Bank of India. At the moment SBI charges an interest rate of 9.75 per cent for home loans under Rs 1 crores.

In the case of ICICI Bank the home loan charges is 9.85 per cent for home loans under Rs 30 lakhs and over Rs 30 lakhs it is as high as Rs 9.95 per cent.

Generally, speaking interest rates on things like personal loans and car loans would also be cheaper at public sector banks.

Turnaround time

The processing time is much faster in the case of private sector banks. What this means that your loan can be approved much faster in case of private sector banks, particularly for loans like home loans which requires a lot of due deligence and documents scrutiny.


You can get instant approval for personal loans online through most of the private sector banks.

Prepayment restrictions

There are heavy prepayment charges that are applicable, especially in personal loans from private sector banks. Public sector banks tend to go easy on this front and on some of the loans they do not even charge pre-payment charges.

Technological advancement

In terms of digitization, you may want to consider private sector banks, that are thus far able tp leverage it better to disburse loans. Some of our government banks have to still play catch-up on this front.

Service aspects on loans from government banks vs private sector banks

In terms of overall service private sector banks are far superior. There is a door to door service that is available in most of the cities, offering you convenience for a host of loans.


If you are still asking yourself a question whether to take loan from a government (public sector bank) or a private sector bank, the answer is simple: You need to understand whether you are willing to sacrifice your time and convenience for a cheaper loan. If you can do so, government banks would be a better choice.

Story first published: Monday, June 29, 2015, 9:47 [IST]
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