Public sector banks are those financial institutions in which government holds more than 51 percent stake and also has controlling power of the bank. Public sector banks are the backbone of the financial system of the country, in order to understand more about public sector banks let’s look at some of the advantages and disadvantages of public sector banks –
Advantages of Public Sector Banks
- The first and foremost advantage of public sector banks is that they are safe and people keeping money in fixed deposit and in saving account do not have to worry about the safety of their funds as chances of default by public sector banks is next to nil as government tends to bail out these banks in case they are in financial stress and hence as far as individual is concerned his or her money will be safe even if bank has financial problem.
- Another advantage of these banks is that there are less hidden charges and also lower limit of amount to be held as minimum deposit as far saving account is concerned, so for example in case of private banks minimum balance to be maintained is anywhere between 5000 to 20000 rupees whereas in case of public sector banks it is 1000 rupees and in case of student account and no frill accounts it is 0.
- As far as employees are concerned these banks are more beneficial because of job security and once an individual gets into public sector bank he or she does not need to worry about retrenchment which is the case with private sector banks, though at higher levels of management private banks pay higher remuneration to its employees but at lower levels the exploitation is more in case of private banks as compared to public sector banks.
Disadvantages of Public Sector Banks
- The biggest disadvantage of public sector banks is that in terms of technology they lag far behind as compared to private sector banks so if you are one of those who do his or her majority of work online than public sector bank is not his or her cup of tea. Although public sector banks are trying their best by upgrading their technology still private sector banks hold an edge over them.
- Another disadvantage of public sector banks is that if you go in public sector banks excepting that you will get all information at one seat which is the case with private sector banks then you will be disappointed because in public sector banks one individual keep doing same work for years resulting in he or she losing touch with other areas of banking.
- Due to government share in public sector banks there is lot of government intervention and due to it these banks have to give loans not on the basis of merit of project but due to political pressure resulting in that loan becoming NPA which will result in loss for the bank. Another area of distress due to government intervention is opening various no frills account due to government seeking political mileage, also opening branches in far-flung areas due to government financial inclusion program affects the profitability of the banks.
As one can see from the above that public sector has both advantages as well as disadvantages and for an economy like India they are very important because of large unbanked population and also due to the state of the Indian economy which requires not only fast growth but an inclusive growth where everybody benefits and not some sections of society.