Difference between Nationalised Banks and Private Banks

Key Difference: A nationalised 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 lot of debate. Private banks and nationalised banks differ in the powers that control them, and hence they both differ in many characteristics.

Nationalised banks are also known as public sector banks. A nationalised bank is formed by taking a bank and its assets into the public ownership. The national government of the country holds the ownership of nationalised banks. In nationalised 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, a success cannot be guaranteed in the act of nationalization of banks. France had nationalised its banking sector and later the government sold it to private hands. State Bank of India was nationalised in 1955 under the SBI Act. Later in 1960, seven state banks were also nationalised. The second phase in India took place is 1980, when seven more banks were nationalised.

Nationalised banks are able to keep the confidence of public. The government is regarded efficient in terms of running and managing the banks. The nationalised banks also come with many advantages. The government has a countrywide administrative network, thus the policies can be changed according to the change in economy. These banks are formed on the basis of public service. The employees of nationalised banks enjoy greater job security than private banks. This strategy of nationalizing the banks has been frequently adopted by socialist governments for transition from capitalism to socialism.

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 the wealthy families. Generally, the private banks are looked as a large organization with global operations. These banks are not incorporated. In U.K. and Switzerland, these banks have been existing since 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 nationalised banks. These banks sustain easily with the aid of the government. Many of the commercial banks were nationalised 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 nationalised banks are often associated with the social welfare and thus the policies of such banks also reflect the same. On the other hand, the private banks focus on profitability but are also known for providing better and quick services. The high end clientele of private banks are very important for the private banks. However, in case of a major financial loss, the future of a private bank remains unpredictable and the customers remain confuse about the actual scenario.

Image Courtesy: bmcindia.net.in, gulfbusiness.com

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