Difference Between Private and Public Sector Banks

Publication Date :

13 Jun, 2016

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Private Sector Banks vs Public Sector Banks

The private sector banks and the public sector banks are differentiated mainly based on the persons who are holding the majority of the shares, whereas in the case of the private sector banks majority of shares are held by the private individuals and corporations, whereas in the case of the public sector banks, majority of shares are held by the government.

The banking industry has grown by leaps and bounds in the past few years and offers some of the best opportunities to grow professionally. However, the experience of working with a public sector bank could be different from a private sector bank in terms of work hours, level of competition, and the professional learning curve.

Job security and compensation can also be at a great deal of variance. It would be best to explore these aspects before making the ideal choice of the banking organization to build a successful career. Before discussing it further, it would be important to consider what makes public and private banks so different.

Please note that this article is written from the Indian Banking point of view.

Private Sector Banks vs Public Sector Banks

Private-Sector-Banks-vs-Public-Sector-Banks

Conceptual Differences

Private Banks:

Private sector banks are usually known for their highly competitive outlook and technological superiority. As a result, careers in private sector banking also tend to be more competitive, where professionals are required to meet stiff targets and perform above par to ensure good career growth.

A risk-reward component is also higher, and remuneration could be better, but job security may not be on par with publicly-owned banks.

Public Sector Banks:

Public sector banks are known for their better organizational structure and greater penetration into the customer base. However, the work environment is also relatively less competitive than privately-owned banks. As a result, professionals often do not focus on meeting targets and being the best performer in a team.

There is typically greater stress on providing necessary training to their personnel to help update their knowledge and skills to be a better performer in the long run. Job security is much higher than private sector banks, and for some, this could be the prime attraction for building a long-term career.

Public Sector vs Private Sector Banks Infographics

Private-Sector-Banks-vs-Public-Sector-Banks-info

Key Differences

The government has a major stake in public sector banks, and management control also lies. In private sector banks, the majority stake lies with the private individual or entity; hence management control lies in private hands.
Public sector banks are governed by the acts passed by the Parliament of India, like the State Bank of India (Subsidiary Banks) Act, 1959 & Bank nationalization Act (1970, 1980), while private sector banks are registered under the governed law under Companies Act.
As the government of India has a majority shareholding in public sector banks, all PSB's come under the purview of the Central Vigilance Commission and RTI Act 2005. On another side, private sector banks are not under the ambit of the aforementioned acts.
Appointment of Director and non-executive chairman in public sector banks is made on the recommendation of the Bank Board Bureau. On the other hand, in the private sector, bank appointments will be made as per guidelines provided by RBI.

Education & Skills

Private Banks:

Usually, a degree in economics, business, or finance would do good in terms of building a solid foundation for a banking career. Most private banks would require graduation in one of these areas and an MBA from one of the reputed institutions. They prefer to hire fresh talent via campus recruitments, referrals, and walk-ins through consultants instead of relying on newspaper advertisements for the purpose.

However, depending on the number of vacancies available, they could be advertised. They do not have to follow the reservation policies to allocate a set number of positions for certain pre-designated sections of society. Private banks are looking for competitive young people who enjoy working under pressure and believe in giving their best.

Public Sector Banks:

The selection of candidates is based on clearing certain common entrance tests conducted by PSU banks. A graduate from any discipline can apply for a government banking job. Candidates should have a good knowledge of finance, accounting, banking practices, and excellent communication skills as a public banker.

However, requirements are less competitive than private banks, but one must clear the test. In addition, government-owned financial institutions must abide by certain state policies and regulations while recruiting. Usually, they need to advertise vacancies in national newspapers and adhere to reservation policies to decide how many positions would be set aside for individuals belonging to certain underprivileged sections of the society.

Employment Outlook

Private Banks:

Private sector banks have been growing from strength to strength, delivering high-end services to a wide customer base while making the best use of available technology. Private banks engage in a highly competitive market space and adopt aggressive customer engagement strategies, building on their strength to deliver quality services in the shortest time frame possible.

This has helped create a reputation for their efficiency, and an average user prefers doing business with them for the kind of advantages afforded. As a result, there has been a continually growing demand for competitive banking professionals in private banks for the past few years. It should not be difficult to succeed with the right kind of academic background and skill set.

Public Sector Banks:

As the government continues to expand the scope and reach of publicly-owned banks to the remotest parts of the country, the demand for banking professionals continues to rise. However, given the additional benefits and job security afforded, a much larger number of people apply for a relatively limited number of positions, intensifying the competition.

For instance, nearly 40 lakh applications were received for approximately 80,000 government bank jobs in 2013. Yet, despite all the professed advantages of a public banking career, clearing the exam hurdle can prove to be a tough nut to crack.

Private and Public Sector Bank - Salary & Benefits

Private Banks:

The kind of remuneration offered primarily depends on an individual's merit more than anything else. Candidates with an excellent academic background and a competitive outlook can get a higher pay package with some of the best private banks today. On the other hand, perks and incentives are not an issue for those who can deliver higher performance levels and be promoted in a comparatively short period based on their merit.

Generally, a competitive work atmosphere can provide the much-needed motivation to perform better, and individuals can enjoy fast-paced career growth. However, the working hours could be longer than public sector banks, and job security can also be an issue, especially for lower-to-mid rung professionals. However, even top-level professionals may not be completely safe in this sense.

Average Salaries:

Branch Manager: INR 732,503
Credit Manager: INR 599,978
Relationship Manager: 477,734
Operations Manager: 475,490
Personal Banker: 294,791
Customer Service Officer: 260,000

Average Salary Info Reference Link: Payscale

Public Sector Banks:

For entry-level professionals, public sector banks may not offer as exciting a work experience as might be possible with their privately-owned counterparts. The pay scales are fixed for every position, and pay hikes are not as frequent if compared with private banks, which may not be a good enough incentive for top performers. In addition, promotions are usually based on years of work experience instead of merit, although out-of-turn promotions can also happen occasionally.

However, work hours are among the best, and there is less competition or targets to meet, which gives enough time to grow as a professional at one's own pace. Moreover, job security is one of the most important advantages of public sector banks as they are rarely laid off, except for disciplinary reasons.

Salary Structure:

IBPS PO / SBI PO: The basic pay for PO is the same irrespective of the city of appointment. It is INR 23700 w.e.f. from June 1, 2015. Several additional allowances are making the Gross Annual CTC around INR 5,50,000 Per Annum on the lower side and INR 9,50,000 Lakh Per Annum on the higher end.
IBPS Clerk / SBI Clerk: Basic Pay: The basic pay for clerks is the same irrespective of the city of appointment. It is INR 11765 w.e.f. from June 1, 2015. This excludes the additional allowances, which make the Gross CTCT much higher.

Reference Link for Salary structure: Mockbank

Comparative Table

Criteria	Meaning	Public Sector Bank	Private Sector Bank
Status of Control	Controlling Authority	These banks are under control of the Government	These banks are under the control of a private individual.
Structure	Shareholding Pattern	Public Sector Banks are the banks whose more than 50% shareholding lies with the central or state government.	Private Sector Banks are the banks whose majority of stake is held by private corporations or individuals.
Registration	Governing Act or law	Public Sector Banks are formed by passing acts in the parliament. For e,g: State Bank of India (Subsidiary Banks) Act, 1959 & Bank nationalization Act (1970, 1980)	Private Sector Banks are registered under the Indian Companies Act
Regulatory Control	Regulatory Body	The Reserve Bank of India Act, 1934 (RBI Act) gives power to Reserve Bank of India (RBI) to issue rules, regulations, directions, and guidelines	Reserve Bank of India (RBI) issues rules, regulations, directions, and guidelines
FDI	Foreign Direct Investment	20% of Foreign Investment is allowed in Public Sector Bank	Private banks have a higher FDI cap at 74 percent, provided there should be no change of control and management. RBI regulations do not permit a single organization or individual to invest for more than 10 percent of stake in a bank.
Management	Selection of Management	Bank Board Bureau (BBB) gives recommendations for the appointment of full-time Directors as well as non-Executive Chairman of PSBs.	Private Banks have their own selection process like any other private entity but have to fulfill RBI guidelines.
Ease of Banking	new technology and innovative products	Public banks are slow in adopting new technologies and still follow old processes	Private Banks always look forward to using innovative technology which can speed up their processes and increase reliability.
Customer Services	Consumer Grievances or query redressal	Public sector bank employees are not urged enough to resolve customer requests or handle customer complaints.	Private sector bank employees are more agile and proactive in catering to customer requests.
Accessibility	Number of Branches	Public sector banks have a wider branch network and higher tier 2 cities and rural coverage.	Despite technology-based banking Private banks are mainly catering services to tier 1 cities and few tier 2 cities and have limited access for the rural population.
Services	Facilities provided by Banks to their consumers	Banking Services and products are common in both public and private sector banks. But Public sector banks are way ahead in providing services to the marginalized section of society.	The Private Sector also provides similar services as in public sector banks but the only difference is that they focus on higher consumer satisfaction and services at a high premium, their rural outreach is very less in comparison to private sector banks.
Loan Disbursal	Speed of Disbursing the loan	Usually, Loan Disbursal in a Public Sector bank involves a lot of paperwork and takes more time as compared to the private sector. In public sector bank employees are driven by old processes hence reduce the turnaround time	Public Sector Bank Loan Disbursal is attached to the performance of the employees and that too is driven by innovative and technology-driven processes that reduce the turnaround time.
Customer Base	Number of customers to whom they cater the services	Public Sector banks have a high Consumer base because of high geographical coverage and people also find government banks are more trustworthy than private ones.	They have a lesser consumer base and private banks need more time to gain trust from people.
Employee Promotion Status	Process of Promotion of Bank Employees	In Public Sector Banks Employees are promoted on the basis of their seniority, performance is not the major criteria for the promotion.	In Private Sector Bank promotion is done on the basis of merits. Only performing employees will get growth.

Career Pros & Cons

Private Banks:

Pros:

Competitive Work Environment: They provide a highly competitive and exciting work atmosphere to grow professionally. Professionals are encouraged to take up challenging tasks, and enterprising individuals are rewarded accordingly.
Performance-Based Incentives: Private banks usually offer several performance-linked incentives both in monetary and non-monetary forms. This promotes a spirit of competitiveness in employees and helps boost their morale further.
Instant Work Recognition: Some of the best private banks focus on recognizing merit over experience, and top performers usually receive instant recognition for their work. The best thing is that recognition and rewards go hand in hand.
Hands-On Learning Experience: Greater stress is placed on acquiring the necessary skills and knowledge on-the-job instead of solely relying on training programs. However, those who perform well could be selected for prestigious training programs at some of the best institutes.
Technology-Oriented Outlook: Individuals with a keen interest in technology are among the preferred choices for premium private banking institutions of the day. This aims to strengthen their resources for continuing the digital expansion of banking services.
Fast-Paced Career Growth: Professionals can grow quickly and acquire higher positions along with greater payments within the first few years. This propels even average performers to do well and keep themselves on the hunt for the next promotion.
Additional Benefits: Employees are also offered special benefits, including a higher interest rate on fixed deposits and paid holidays, among other things.

Cons:

Longer working hours: Working hours are typically longer, and the stress is on meeting targets instead of leaving the office on time. This is one of the lowdowns in almost any competitive job, and in the long term, it may potentially affect an individual's health and personal life.
Lesser Job Security: This is one of the biggest disadvantages with private banks. Despite occupying the best of positions, there is no assurance that one cannot be asked to leave if the situation demands it. Possible reasons might include the banking industry or the banking institution in question passing through a bad phase. This is exactly what happened in the wake of the 2008 meltdown when thousands of private bank employees were shown the door.
Average Performers Might Suffer: Most of the job roles are cut out for go-getters where there is little place for slow learners or average performers. Though not everyone can be a top performer, those who do not perform very well or are not comfortable taking on challenging roles may not benefit much.

Public Sector Banks:

Pros:

Less Competitive Work Atmosphere: In general, the work environment is comfortable, and there is usually no rush to meet some predefined targets. Professionals get enough time to gear up for the role and learn things at their own pace.
Regular Training Programs: There is a lot of stress on conducting training programs at regular intervals to help employees upgrade their finance, people, and technical skills and perform better.
Greater Job Security: There is but little risk of sudden termination waiting around the corner even if the performance of an individual is not up to the mark. This may not sound like the best of incentives to encourage employees to do better, but it certainly attracts a lot of talent looking for secure job roles. In an event similar to the 2008 meltdown, there is little chance of being sent home due to market conditions, unlike private banks.
Better Work Hours: Work hours are pre-defined, and there is no rush to meet targets, no overbearing sense of competition, and no additional working hours. It offers enough time to spend with family and friends.
Attractive Additional Benefits: In keeping with the professional designation, certain additional benefits are defined by public sector banks. These include a home and a car for higher-ranked professionals, along with some common benefits for most roles. These include a lower rate of interest on loans, a higher rate of interest on fixed deposits, and pension packages, among other things. However, these benefits may vary based on the professional role, and the institution one is working with.

Cons:

Less Rewarding for Competitive Individuals: A career with public sector banks could be a relatively less exciting experience for competitive individuals who are looking to achieve more in a short period. There would be comparatively fewer rewards for performing well, which may not work well for more ambitious individuals.
Slow Career Progress: Career growth would be rather stagnant, with most promotions and pay hikes based on experience instead of merit. Unlike private banks, one would need seniority for desired career progress which can be a bit of a dampener, although other benefits might compensate for it to an extent.
Lesser Motivation to Perform Better: With little competition and fewer performance-based rewards, average performers have little motivation to do better and prove their mettle.
Work-Life Balance: Private banks are relatively worse on this count with longer and more intense working hours, which tends to affect the balance between work and personal life. There is usually little time left for recreation or relaxation, and it becomes difficult to spend quality time with friends and family.
PSU bank employees have comparatively much better working hours which leave a lot of time to be spent with family, recreation, or other activities. Lesser competition at work also helps them enjoy a more balanced existence than private bank employees.

Conclusion

Choosing a career is not a simple decision as several complex factors must be considered and balanced against each other. However, the approach should preferably be simple and based on the individual's skill set, interests, and capabilities more than anything else. Usually, individuals are driven by herd mentality into entering a career they might regret later.

Banking can be a taxing career for any individual as it requires the presence of mind, good communicative abilities, and interest in finance and accounting. Depending on the role, skill sets could vary, but as we have already discussed, those who believe in instant recognition and performance-based rewards should opt for a career in private banking.

However, public sector banks could be a better choice for long-term job security and better working hours. In addition, those interested in technology-aided banking would benefit from either of these choices as online banking continues to grow at an exponential rate for both private sector and public sector banks.

It would be important to carefully weigh the pros and cons and then align them with an individual outlook on professional life to make the right decision.