Public Sector Banks in India

What is a Public Sector Bank?

Public Sector Banks are those banks in which the Central Government holds majority of the stake. Generally, Central Government holds 51% (or more) of the stake in a Public Sector Bank. Central Government is responsible for managerial control of all Public Sector Banks. Similarly, Private Sector Banks are those in which a private entity has majority of the stake. If Central Government buys majority of the stake in a Private Sector Bank, then that bank would be called as ‘Nationalized’. This process of Central Government purchasing the majority of stake in a Private Sector Bank is called as ‘Nationalization’.

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Public Sector Banks History:

Banking sector in India was started in the British era. British developed three banks:

1) Bank of Bengal

2) Bank of Bombay

3) Bank of Madras

These three banks functioned predominantly in pre-independence era and were merged and called as the ‘Imperial Bank of India’. Reserve Bank of India (RBI) was established in 1935 to control the monitory related activities in India. In 1955, Imperial Bank of India was renamed as ‘State Bank of India (SBI)’. The State Bank of India (Subsidiary Banks) Act, 1959, was enacted to setup subsidiaries of SBI and the following banks were established;

1) State Bank of Bikaner and Jaipur

2) State Bank of Hyderabad

3) State Bank of Mysore

4) State Bank of Travancore

5) State Bank of Patiala  

In 1969, Central Government decided to nationalize banks in order to have control over monetary movement in the country. As a result, fourteen banks got nationalized;

1) Allahabad Bank

2) Bank of Baroda

3) Bank of India

4) Bank of Maharashtra

5) Central Bank of India

6) Canara Bank

7) Dena Bank

8) Indian Bank

9) Indian Overseas Bank

10) Punjab National Bank

11) Syndicate Bank

12) Union Bank

13) UCO Bank

14) United Bank of India

 In the year 1980, Central Government decided to nationalize all the banks with reserves of Rs 200 Crores and above. As a result, the below mentioned banks got nationalized;

1) Andhra Bank

2) Corporation Bank

3) New Bank of India

4) Oriental Bank of Commerce

5) Punjab and Sindh Bank

6) Vijaya Bank

Indian Banking System developed immensely after the Nationalization of many banks, but rural areas still didn’t have basic banking facilities. In 1990, Central Government merged New Bank of India with Punjab National Bank and this is the only merger between two Nationalized Banks. Government then started liberalization and gave banking license to small Private Sector Banks. This resulted in the birth of HDFC Bank, ICICI Bank and Axis Bank.

Axis Bank was previously called UTI Bank. Today, there are 21 Public Sector Banks. In 2016, SBI decided to merge State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Hyderabad and State Bank of Patiala with State Bank of India. Below mentioned is the current list of Public Sector Banks in India;

1.   Allahabad Bank 

2.   Andhra Bank 

3.   Bank of Baroda 

4.   Bank of India 

5.   Bank of Maharashtra 

6.   Canara Bank 

7.   Central Bank of India 

8.   Corporation Bank 

9.   Dena Bank

10.  IDBI Bank 

11.  Indian Bank 

12. Indian Overseas Bank 

13. Oriental Bank of Commerce 

14. Punjab & Sind Bank 

15. Punjab National Bank 

16. State Bank of India 

17. Syndicate Bank 

18. UCO Bank 

19. Union Bank of India 

20. United Bank of India 

21. Vijaya Bank 

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Private Sector Banks in India

Private Sector Banks are those banks that are largely owned by private stake holders. In 1969, almost all the major commercial banks were nationalized. Few banks still remained private, because they were either too small or were very specific in their functions. These banks got boosted when the Indian Government adopted the liberalization approach in their economic policies in 1990. They are:

1. City Union Bank

2. Karur Vysya Bank

3. Catholic Syrian Bank

4. Tamilnad Mercantile Bank

5. Nainital Bank (Wholly owned subsidiary of Bank Of Baroda)

6. Karnataka Bank

7. Lakshmi Vilas Bank

8. Dhanlaxmi Bank

9. South Indian Bank

10. Federal Bank

11. Jammu and Kashmir Bank

12. RBL Bank

Modern Private Sector Banks are ‘tech-savvy’ and were established post 1990 due to liberalization. Below mentioned is the list of modern (established post 1990) Private Sector Banks:

1. DCB Bank

2. ICICI Bank

3. Axis Bank

4. HDFC Bank

5. IndusInd Bank

6. Kotak Mahindra Bank

7. Yes Bank

8. IDFC Bank

9. Bandhan Bank

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Public Sector Banks versus Private Sector Banks:

Majority of the stake is held by Central Government in case of Public Sector Banks, whereas a private entity holds majority of the stake in Private Sector Banks. Central Government is responsible for managerial control over Public Sector Banks while a private organization would look after the managerial functions in Private Sector Banks. The interest rates in Private Sector Banks are higher when compared to that of Public Sector Banks. The loan processing time is shorter in Private Sector Banks while Public Sector Banks take longer time to process loan applications. 

Majority of the stake is held by Central Government in case of Public Sector Banks, whereas a private entity holds majority of the stake in Private Sector Banks. Central Government is responsible for managerial control over Public Sector Banks while a private organization would look after the managerial functions in Private Sector Banks. The interest rates in Private Sector Banks are higher when compared to that of Public Sector Banks. The loan processing time is shorter in Private Sector Banks while Public Sector Banks take longer time to process loan applications.

Government employees have their salary accounts in Public Sector Banks while most of the private employees have their salary accounts in Private Sector Banks. Private Sector Banks have implemented modern technology in their operations while Public Sector Banks are not so well versed with modern technology.

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