Key Difference: A public sector bank is a bank in which the major part of stake or equity is held by the government. Private sector banks are banks in which greater part of stake or equity lies in the hands of private shareholders.
A public sector bank is a bank that is operated through institutions owned by the people through their representative governments. In these banks, the government controls the bank. A well-run public sector bank can help state and local governments in getting through cash crunches. The public banking model has been devised in order to work for the benefit of the people. It also includes nationalized banks.
A nationalized bank is formed by taking a bank and its assets into the 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, a success cannot be guaranteed with 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.
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 generally slight costly as compared to public sector banks. Banking has been originated in the form of private banking. Generally, the private banks are looked as a large organization with global operations. A private bank may have retail banking facilities for their clients. They are known for better customer services and investment opportunities. Shareholders of the private banks generally seek short-term profits as their highest priority. The private banks are known for being well equipped with all kinds of contemporary tools and techniques.
Government holds a major share in public sector banks and thus, important decisions are made by the government. The decisions are generally in the interest of the public. Their main aim is to carry out the banking activities that cater to all the sections of the society. On the other hand, a private bank mainly focuses on short term interest. These banks do not have much interference of the government but at the same time these banks lack the administrative support of the government. To sustain in the competitive banking sector, the private sector banks have been using the best and latest softwares.
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