Public sector banks are those in which the government holds more than 50% of the total stock. The government formulates all the financial guidelines for public sector banks. The public sector banks operate under the government to inspire trust in the depositors that their money is safe.

India’s biggest public sector bank is the State Bank of India. Public sector banks constantly work in the public interest by introducing schemes for customers’ benefit. They also charge less for their services than private banks. Besides working in the public interest, nationalised banks in India also earn huge profits.

Public sector or nationalised banks

Public sector banks or nationalised banks are those in which the government has retained a majority of its share with the primary aim of public interest.

After independence, the government of India started the nationalisation of the Imperial Bank of India in 1955 to enter the banking business. The Reserve Bank of India took 60% of the share and renamed it the State Bank of India.

In 1969, the government of India nationalised 14 more banks. In the last decade of the 20th century, the public sector banks achieved huge growth.

Many political changes in the early 21st century affected the growth of the public sector banks, and these banks reported huge losses. In 2002-03, these banks returned to the growth track and posted a profit of ₹7780 crores.

The Indian government merged ten public sector banks into four to restructure them and optimise functionality, significantly increasing profits. The State Bank of India is one of the biggest banks in India and worldwide.

The public sector banks of India

There are 12 public sector banks in India currently. Listed below are all the Indian public sector banks with their headquarters and year of establishment.

S. No.

Bank Name

Headquarter

Establishment Year

1

Bank of Baroda

Vadodara, Gujrat

1908

    

2

Bank of India

Mumbai, Maharashtra

1906

3

Bank of Maharashtra

Pune, Maharashtra

1935

4

Central Bank of India

Uttar Pradesh

1911

5

Canara Bank

Bengaluru, Karnataka.

1906

6

Indian Bank

Chennai, Tamil Nadu

1907

7

Indian Overseas Bank

Chennai, Tamil Nadu

1937

8

Punjab National Bank

New Delhi, Delhi

1894

9

Punjab and Sind Bank

New Delhi, Delhi

1908

10

State Bank of India

Mumbai, Maharashtra

1955

11

Union Bank of India

Mumbai, Maharashtra

1919

12

UCO Bank

Kolkata, West Bengal

1943

Public sector and private sector banks

Despite being in the same field, there are many differences between public and private sector banks. Public sector banks are government-owned and regulated, while private banks are independent. The major differences between the two are listed below.

S.No.

Public Sector Banks

Private Sector Banks

1

Public sector banks are government-owned banks.

Private sector banks are owned by private parties.

2

Work in the public interest through various welfare schemes.

Work to generate revenue and maximum profit.

3

Charges are lower than private sector banks.

Charges on loans are much higher than public sector banks.

4

Many public sector banks do not limit the daily international transfer amount.

Private sector banks like ICICI limit the $5000 amount of daily transfer.

5

In government-owned banks the directors may be appointed by the government without consulting with board members.

Such banks are independent and completely empowered boards.

Challenges of public sector banks

There are many challenges in the functioning of nationalised banks. Some of the challenges are listed below.

  • Financial loss in rural branches. In public interest, nationalised banks have to open their branches in both urban and rural areas. In the highly populated urban areas, the growth rate of these banks is positive. However, in many rural areas, the banks have to bear losses.
  • High overdue amount. The government generally waives the loans of farmers and other backward sectors with the intent to help these sectors. This often results in a high overdue amount on public sector banks.
  • Advancement of private banks. There are many private sector banks with top-notch infrastructure and customer service that people are drawn to.
  • Conventional system. Many public sector banks follow the conventional banking methods, making them less attractive to the younger, tech-savvy generation.
  • Non-Performing Assets. The low asset growth and high loan write-off of public sector banks impact their profitability.

Conclusion

Public sector banks are those in which the government holds more than half of the total share. Governments always back public sector banks with a view to grow them. The security assurance of the government and fewer charges compared to private banks attract people across the country to invest or take loans from public sector banks.