Difference between Nationalised Banks and Private Banks
Key Difference: The main difference between a nationalized bank and private banks is that nationalized bank is any commercial bank that is bought and controlled by the government. Private banks are owned, controlled and managed by an individual or conducted by a partnership.
Banking is a very important term in our lives. Banks can be used for various purposes. The financial status of an individual is often reflected by his bank statements. The nationalization of banks has always been followed by a lot of debate. Private banks and nationalized banks differ in the powers that control them, and hence they both differ in many characteristics.
Nationalized banks are also known as public sector banks. A nationalized bank is formed by taking a bank and its assets into public ownership. The national government of the country holds the ownership of nationalized banks. In nationalized banks, the government controls the bank. This could refer to taking control of the public shares, change in management and new corporate strategy. This is a common practice in the countries of the west, where it is used as an emergency method to help the banks during rough times.
However, success cannot be guaranteed in the act of nationalization of banks. France had nationalized its banking sector and later the government sold it to private hands. State Bank of India was nationalized in 1955 under the SBI Act. Later in 1960, seven state banks were also nationalized. The second phase in India took place is 1980, when seven more banks were nationalized.
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Nationalized banks are able to keep the confidence of the public. The government is regarded as efficient in terms of running and managing the banks. The nationalized banks also come with many advantages. The government has a countrywide administrative network, thus the policies can be changed according to the change in the economy. These banks are formed on the basis of public service. The employees of nationalized banks enjoy greater job security than private banks. This strategy of nationalizing the banks has been frequently adopted by socialist governments for the transition from capitalism to socialism.
The difference between nationalized and private banks are also understood by how they are managed and run. Private sector banks are owned by the private lenders. The private banks are also managed and controlled by private promoters and these promoters are free to operate according to the market forces. The interest rates of private banks are costly as compared to public sector banks. Banking has been originated in the form of private banking.
Banks in Venus are supposed to be the first banks that were formed to manage the finances of wealthy families. Generally, private banks are looked like a large organization with global operations. These banks are not incorporated. In the U.K. and Switzerland, these banks have been existing for a long time. A private bank can also refer to a private sector bank or a bank that is not owned by the government. The private banks can be of two types. The first type includes unincorporated banks that are owned by either an individual or in partnership. The second type includes incorporated banks that are specialized in wealth management especially for high-net-worth individuals.
The role of government is very important in nationalized banks. These banks sustain easily with the aid of the government. Many of the commercial banks were nationalized in order to save them from financial debts. These banks provide more security to the customers in comparison to the banks that are private. The nationalized banks are often associated with social welfare and thus the policies of such banks also reflect the same. On the other hand, private banks focus on profitability but are also known for providing better and quick services. The high-end clientele of private banks is very important for private banks. However, in case of a major financial loss, the future of a private bank remains unpredictable and the customers remain confused about the actual scenario.