What do you mean by “private” and “public” banks?
Depending on who owns them, banks are public and private banks. First, let’s look at the main difference between public and private banks in India:
Public Sector Banks
A bank in which the government owns more than 50% of the shares is called a “public sector bank.” They are also called government banks in everyday language.
Because they are privately owned, the goals of these banks are to help people and meet the country’s economic needs. Acts are passed in parliament to set up these banks. Eg. Bank of India, Canara Bank, Punjab National Bank, Bank Of Baroda, and State Bank of India.
Private Sector Banks
A private sector bank is one in which private businesses and people own most of the shares. The main goal of private banks is to make as much money as possible. The Companies Act lets these banks open for business.
Eg. HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, and Yes Bank.
Different ways that public and private banks in India work
Even though both public and private banks do the same things, customers notice big differences between them based on their goals and how long they’ve been around.
Thanks to the reforms that were put in place in 1991, private banks didn’t come to India until a relatively late date. People feel safe with public banks because they have been around longer, which has given them time to earn their trust.
People also feel safe because they know the government won’t let a public bank fail. These worries about security are made up for by the fact that private banks have better technology and better customer service.
Read: Why do fixed deposit rates vary from one bank to the next?
Which is doing a better job?
Customer Base
Since public banks have been in the Indian market longer than private banks, they have built up a larger customer base. The goals that were set have also helped a lot with this. The goal of public banks is to make sure that everyone in the country has access to banks.
This has made public banks try to reach more people in rural areas by going deeper into them. Private banks, on the other hand, only go into places where they think they can make money. This is why private banks are mostly found in cities and not in the countryside.
Market Share
As of 2018, public sector banks made up 62% of all bank assets and 58% of all bank income. Private banks made up the rest. Even though public banks have a bigger share of the market, they are losing ground all the time. As of 2016, 71% of all bank income and 75% of all bank assets came from the public sector.
Even when it comes to loans, public banks are getting worse and worse. In 2018–19, private banks gave out loans totaling 7.3 trillion, while public sector banks gave out loans totaling 2.3 trillion. In 2011, the total amount of loans was 40,8 trillion, of which public sector banks made 74.9% and private sector banks made 17.8%.
The one area where we don’t think public sector banks will lose out is on deposits. Even more so when you consider that the safety of deposits is one of their USPs. But, unfortunately, public sector banks have also lost market share in this area over the past few years.
As of 2011, the Indian banking system had a total of 53.9 trillion in deposits, of which 74.6% was held by public sector banks. A little more than 18% of the banks were private.
By the end of 2019, the total amount of money deposited in Indian banks was 125.6 trillion. Of these, 63.1% were in public sector banks and 28.7% were in private sector banks.
Non-Performing Assets (NPA)
One would expect private banks to have a high number of NPAs because, in order to compete with public banks, they may be easier to get loans from, which would lead to more NPAs.
But this hasn’t happened because nonperforming loans at private sector banks have been lower than at private banks.
Private sector banks’ NPAs went from 0.7% in 2014 to 2.4% in 2018 over the five years before that. When compared to the private sector, where NPAs went from 2.6% in 2014 to 8% in 2018 and have been going up since then, these numbers seem reasonable.
Some Final Thoughts
Even though the public sector still has a larger share of the market, they have not been able to keep up with the rate of growth of private banks. To do this, Private Banks have used the flaws of Public Banks to their advantage.
The private banks have done well because they offer great customer service and keep up with technological changes. It’s good that these steps taken by private banks are forcing public banks to take the same steps.
But if the public banks keep trying to catch up to the private banks, they will soon be behind in market share as well.
This has led to the need for a number of structural changes to make sure that doesn’t happen since it’s the public banks’ job to look out for the economy and do what’s best for it.
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