ABSTRACT

Let us first understand the difference between Public sector bank and Private sector
bank.Banks are classified as public sector or private sector, depending on who holds the
majority shares in the bank. Those banks where the Government holds the majority stake
(more than 50% of the shares) are known as public sector banks. And those where private
institutions/individuals hold more than 50% of the shares are known as private sector
banks.

Banks have been broadly divided into private and public.A private bank is that in which
there are but few partners, and these attend personally to its management. A public bank
is that in which there are numerous partners or shareholders, and they elect from their
own body a certain number, who are intrusted with its management.

The business of banking consists chiefly in receiving deposits of money, upon which
interest may or may not be allowed; in making advances of money, principally in the way
of discounting bills; and in affecting the transmission of money from one place to
another. Banks in metropolitan cities are usually the agents of the banks in smaller
communities and charge a commission on their transactions.

Let us take a few examples to clarify this further.

 State Bank of India is public sector bank as the government holding in this bank
is 58.60%. Similarly, PNB is a public sector bank as the government holds a stake
of 58.87%.

 ICICI is a private sector bank as private institutions and individuals own majority
of its shares.

 Another interesting example is the Axis Bank. It is classified as a private sector

bank. However, about 29% of its shares are held by institutions which themselves
are owned and controlled by the Government of India.

1
When the private sector banks are compared with public sector banks, private bank
customers were more satisfied with their bank because of their multiple branches at
convenient locations and technology (like check deposit machines, utility bill accepting
machines etc.) which were not even seen in public sector banks. But when we talk about
public sector banks customers of public sector banks were more satisfied with reputation,
reliability and the prices which public sector banks impose on services like cheque/cash
deposit and cheque/cash withdraw (it has been shown that price charges are lower in
public sector banks than in private sector). When we compare both types of banks in
terms of customer care service, private sector banks are favored more than public sector
banks. Although overall both public and private sector bank customers are satisfied with
their banks but due to wide difference of response, both public and private sector banks
should concentrate on their weak areas in order to meet their customer expectations and
this study provides sort of guidelines to managers of banks to take suitable decisions to
get more satisfied responses from their customers.

2
 INTRODUCTION

The Indian Banking Industry can be categorized into non-scheduled banks and scheduled
banks. Scheduled banks constitute of commercial banks and co-operative banks.
There are about 67,000 branches of Scheduled banks spread across India. As far
as the present scenario is concerned the Banking Industry in India is going
through a transitional phase.
Comparison Chart

PRIVATE
BASIS FOR
PUBLIC SECTOR BANK SECTOR
COMPARISON
BANK

Meaning Public Sector Banks are the banks whose Private Sector Banks refers to the banks
complete or maximum ownership lies with whose majority of stake is held by the
the government. individuals and corporations.

No. of banks 27 22

Share in banking 72.9% 19.7%

industry

Customer Base Large Relatively small

Interest rate on High Marginally lower

deposits

Promotion Based on seniority Based on merit

Growth Low Comparatively high

opportunities

3
 PRIVATE
BASIS FOR
PUBLIC SECTOR BANK SECTOR
COMPARISON
BANK

Job security Always present Purely based on performance.

Pension Yes No

Key Differences Between Public Sector and Private Sector Bank

The points given below explain the differences between public sector and private sector
banks:

1. Public Sector Banks are the banks, whose maximum shareholding is with the
government. On the other hand, Private Sector Banks are the one whose
maximum shareholding is with individuals and institutions.

2. At present, there are 27 public sector banks in India, whereas there are 22 private
sector banks and four local area private banks.

3. Public Sector banks dominate the Indian banking system, by the total market
share of 72.9%, which is followed by Private sector banks, by 19.7%.

4. Public sector banks are established since long, while private sector banks emerged
a few decades ago, and so the customer base of public sector banks is greater than
the private ones.

5. Transparency in terms of interest rate policies can be seen in the public sector.
The interest rate on deposits offered by the public sector banks to its customers is
slightly higher than the private sector banks.

6. When it comes to promotion of employees, public sector banks consider seniority

as a base. Conversely, merit is the basis of private sector banks, to promote
employees.

4
 7. If we talk about growth opportunities in a public sector banks is quite slow in
comparison to a private sector bank.

8. Job security is always present in a public sector bank, but private sector bank job
is secure only when the performance is good because performance is everything
in a private sector.

9. Along with job security, one more pro, of a public sector bank is the after
retirement benefit, i.e. pension. On the contrary, pension scheme is not provided
by private sector banks to its employees. However, other retirement benefits like
gratuity, etc. are offered by the bank.

The Public Sector Banks(PSBs), which are the base of the Banking sector in India
account for more than 78 per cent of the total banking industry assets. Unfortunately they
are burdened with excessive Non Performing assets (NPAs), massive manpower and lack
of modern technology. On the other hand the Private Sector Banks are making
tremendous progress. They are leaders in Internet banking, mobile banking, phone
banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the
Indian Banking Industry.

In the Indian Banking Industry some of the Private Sector Banks operating are IDBI
Bank, ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan
Ltd. and banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO
Bank, Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO
Bank, American Express Bank Ltd, Citibank are some of the foreign banks operating in
the Indian Banking Industry.

Private banking is the oldest form of the banking business and, as is well known, the
antiquity of banks is very great. Records exist of banking transactions among the
Assyrians and in the Metropolitan Museum in New York there are Babylonian tablets
bearing distinct records of transactions in banking that took place in the reign of
Nebuchadnezzar.

5
The private sector banks of India have made significant progress in the last few years. It
was in mid 90's when some new private sector banks entered into the foray and in the
period between 2002 -2007 these banks have grown by leaps and bounds. They have
increased their incomes, margins, asset sizes and outperformed their public sector
counterparts in many areas. The new private sector banks include Axis, Development
Credit, HDFC, ICICI, Indusind, Kotak Mahindra and Yes Bank whereas the public sector
banks consists of 19 nationalized banks, IDBI bank and State Bank group. The
performance of the two sectors is being judged on eight key parameters that enable banks
to achieve better bottom line and remain competitive in a highly volatile and regulatory
environment.

Today banks follow a willful strategy of building a network of branches and ATMs with
effective penetration so that they can continue to enlarge their geographical coverage of
centres with potential for growth. The banks try to deeply entrench across the country
with significant density in areas conducive to the growth of their businesses.

The private sector banks are spreading its wings at a much faster rate than public sector
banks. The customer base of these banks has grown manifold since they are able to
provide innovative services to the customers at a much faster pace. This is leading them
to capture more market share and eating up some of the share of their public sector
counterparts.

The public sector banks’ asset base and income grew at a decent rate in the last 2 years
whereas there was a great fluctuation in case of new private sector banks mainly due to
recession. But the growth of these banks was phenomenal during 2010-11 that shows
their ability to recover fast after such a catastrophe.

However there is huge difference in asset qualities of public & new private sector banks.
The main reason being that public sector banks have higher NPAs in services sector. The
NPAs in other sectors like Agriculture, Industry and Personal Loans are almost similar for
these banks. The asset quality of a bank directly affects its credit rating for example
recently Moody downgraded State Bank of India (SBI) credit rating due to its low asset
quality.

6
Public Sector Banks – Some More Information

So as we read earlier

 A public sector bank is a bank in which the government holds a major portion of
the shares.

 Government holdings are more than 50% in public sector banks.

Let us go through some more information about public sector banks.

There are a total of 27 public sector banks in India. These can further be classified into
three groups

1. SBI and its associate banks – total six banks – State Bank of India, State Bank of
Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Patiala, State Bank of
Mysore, and State Bank of Travancore

2. Nationalised banks – total 19 banks – Allahabad Bank, Andhra Bank, Bank of

Baroda, Bank of India Bank of Maharashtra, Canara Bank, Central Bank of
India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental
Bank of Commerce, Punjab & Sind Bank, Punjab National Bank, Syndicate
Bank, UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank, and
The Karur Vysya bank

3. IDBI bank and Bhartiya Mahila Bank

Private Sector Banks – Some More Information

By now you understand that

 Private sector banks are owned by private lenders.

 The private banks are managed and controlled by private promoters.

7
As mentioned in our other post, only the largest 14 private banks were nationalised
through the act of Parliament in 1969. So another interesting question, why were some
private banks left out from the nationalisation process?

Some banks were left out because they were either very small, too specialist in their
functioning or have a very regional focus to be included in nationalised Banks. On this
basis, the private sector banks are sometimes classified as old private sector banks and
new private sector banks.

The old private sector banks are those which existed before the nationalisation in 1969
and kept their independence. The new private sector banks are those that got their
banking licence after the liberalisation of the Indian economy in the early 1990s.

As per the information available from the Ministry of Finance, there are 20 Private Sector
Banks operational in India. These include 13 old private sector banks and 7 new private
sector banks. The list follows.

Old private sector banks – Catholic Syrian Bank, City Union Bank, Dhanalakshmi Bank,
Federal Bank, ING Vysya Bank, Jammu & Kashmir Bank, Karnataka Bank, Karur Vysya
Bank, Lakshmi Vilas Bank, Nainital Bank, Ratnakar Bank, South Indian Bank, Tamilnad
Mercantile Bank

New private sector banks – Axis Bank, Development Credit Bank, HDFC Bank, ICICI
Bank, IndusInd Bank, Kotak Mahindra Bank, Yes Bank.

8
 OBJECTIVES OF THE STUDY

The objectives of the study are as follows;

1. To study the concept of banking in India

2. To study the difference services and products offered by public and private sector
banks.

3. To differentiate the services and products of public and private banking

9
 SCOPE OF THE STUDY

The scope of the study is as follows:

Banking industry has grown by leaps and bounds in the past few years and offers some of
the best opportunities to grow as a professional. However, the experience of working with
a public sector bank could be totally 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 and it would be best to explore these
aspects before making the ideal choice of banking organization to build a successful
career. Before we discuss it further, it would be important to consider what makes public
and private banks so different from each other.

Banking sector has a very important place in our Indian economy. The amount of the
profit indicates the efficiency of the organization the larger the profit higher the growth
rate. The profitability depends on the effective utilization of funds to procure maximum
profit for growth. . The present research study is an effort to make a comparative study
between the services and products of public and private sector banks.

10
 LITERATURE REVIEW

Joseph M. et al (1999)- The study investigates role of technology on Australian banking

sector and 300 customers were surveyed. The findings suggested that except from
convenience/accuracy and efficiency e banking services did not match with importance
rating specified by customers.

Lassar, et al (2000)- The study compared two models, that is , SERVQUAL and
technical/functional quality model of technology using 65 bank customers using
SERPERF SCALE. The findings revealed that technical/functional quality model was
better than SERVQUAL because latter was lacking technical dimensions. 2 models were
having distinct and unique strength for measuring service quality aspects.

Bahia, K and J Nantel (2000)- The paper suggested an alternative scale for measuring
service quality in retail banking. The study developed a scale called as Banking Service
Quality Scale which contained factors like effectiveness and assurance, access, price,
tangibles, service portfolio and reliability. This model was found to be more reliable than
SERVQUAL

Jamal, A., Naser, K., 2002-The study examined key drivers of customer satisfaction
using 167 customers and it was found that core and relational performances had impact
on customer satisfaction and there was negative relationship between customer expertise
and customer satisfaction

Sureshchandar et al(2002).- The study examined relationship between service quality

and customer satisfaction in Indian banking sector. These were found to be independent
but closely related. Both constructs vary significantly in core services ,human element,
systematization of service delivery, tangibles and social responsibility.

Gani A,Mushtaq Bhatt(2003)-The study is conducted to do a comparative study of

service quality of commercial banks and its dimensions in commercial banks.
SERVQUAL is used and sample size was 800 customers. The study found out that CITI

11
bank and Standard chartered bank are good in tangibility and in reliability also they are
good. In responsiveness parameter Indian banks are inferior to foreign banks. In
Assurance and empathy Indian banks are inferior.

Navdeep Aggarwal and Mohit Gupta (2003)- This study basically finds out the primary
dimensions and sub dimensions of service quality. Informal structured interviews are
conducted with branch managers and academicians to formulate a banking service quality
model. The study found out that service time and personal interactions are very important
along with ambience for service quality

Zhou, L( 2004)- The study analysed impact of service quality in banks on customer
satisfaction in china’s retail banking and it was found out that reliability and assurance
were the primary drivers of customer satisfaction. It was also found out that there were
significant variations in expectations and perceptions in customers

Arora S (2005)- This study analysed factors influencing customer satisfaction in public
sector, private sector and foreign banks in northern India. 300 customers were given
questionnaires which reveled that significant differences exist in customer satisfaction
level of customers in each group of banks regarding routine operation and situational and
interactive factors. Foreign banks were found to be the leaders in mechanization and
automation

12
 RESEARCH METHODOLOGY
Research is common parlance refresh to a search for knowledge. One can also define
research as a scientific and systematic search for pertinent information on a specific topic.
In fact, research is an art scientific investigation. The Advanced Learner’s dictionary of
current English lay down the meaning research as “a careful investigation and inquiry
especially through search for new facts in any branch knowledge”.

RESEARCH METHODOLOGY USED:-

Types of research:- the research is based on descriptive cum analytical research

Data type:- The research is based on secondary data.

Data sources:- Websites, studies, newspaper etc.

Data analysis and interpretation techniques:- The study is based on the secondary
data which has been collected from websites, journals, newspaper etc. The study may
not involve test for sampling because the primary data is not collected for the purpose
of study.

13
 FINDINGS AND ANALYSIS

 The private sector banks are providing more satisfied ATM services then public
sector banks and the customer perception about Productivity, Security and
Sensitivity, Cost Efficiency, Problem Handling, Compensation and Contact
services related to ATM service is very less in both the public sector and privates
sector banks, Therefore both kinds of banks should be aware about these facets of
ATM service to improve customers‟ satisfaction. The entry of information
technology into the banking industry has created a revolution and it has prompted
commercial banks of India to design world-class customer service systems and
practices, to meet the growing customer needs. It is interesting to note that the
results are consistent with the previous studies conducted on customer service
aspects, and it has been observed that the foreign and the new generation private
sector banks are serving the customers better.

 Quality expectation and the valuation of services received are slightly more in the
private sector banks as compared with the public sector banks. The effects for
tactic since sectorial differentiation become veryblurry as a result of increasing
correspondence between services and struggle from linked and additional
industries.

 Service quality is one of main elements of customer satisfaction and their

intention to purchase. However, the customers of public and private sector banks
different in terms of their perception of service quality. Private Banks have been
observed to be higher on dimensions of service quality: effectiveness and
convenient while, the nationalized banks are better on the dimensions of price and
consistency.

 Private bank customers are more satisfied with the services then public banks.
Managers in the banking sector undertake significant efforts to conduct customer
satisfaction surveys and it is appears that customers are saying that they expect

14
 good products and quality to their banks and that may the only thing important to
them.

 Some publicly owned banks are scoring well among customers but overall
analysis shows that satisfaction rate in customers of private banks is much higher
than public sector banks and people will continue the mortgage with private banks
then public because they're impressed by the level of honesty of private banks .

 Cheque deposits and cheque clearing are most common services used by
customers, the charges levied by the bank on these services are higher in private
and foreign banks then in nationalized banks. Their study also shows that the
customers of public banks were not much satisfied with the behavior of employee
and infrastructure, while customers of private and foreign banks were not much
satisfied with high charges, approachability and communication. They have also
suggested that training on stress management and public dealing should be
imparted to the employees of nationalized banks and nationalized banks need to
improve their infrastructure and ambience to compete with private and foreign
banks in India .

 Credit cards have become a part of life. In recent years there was a lot of demand
has been shown for credit cards and there is a lot of scope for credit cards
business in India. The credit cardholders consider eleven 'very important'
variables which "Satisfied" them are: Joining Fee, Annual fee, Minimum payment
due, Cash withdrawal possibility, Availability of ATMs, Life Insurance Cover,
Card replacement fee, Air insurance, Baggage cover, lost card liability-after losing
the card and lost card liability-before losing the card.

 Good sites and suitable site of the branch are essential for bank branches for
smooth operation of banking business. When the private banks were compared
with public banks, all the private banks have excellent locations from business
point of view compared to public banks in India and for providing better service
to customers proper training should be given to the staff by the banks also public
sector banks should invest and concentrate more on staff development where as

15
 private sector gives more priority on infrastructural aspects. The rigid policy of
public banks creates more dissatisfaction among the customers while for private
banks mostly the value of service is the key factor of satisfaction (Uma et, al).

 First dimension of customer satisfaction for nationalized banks is Service

Orientation but, for private banks Service orientation appeared as second
dimension and they focuses more on customer satisfaction and nationalized banks
give more importance to Flexibility in Use of Services, Vision and Competency.
Also customers of nationalized banks had not been given much importance by the
executives. On the other hand customers of private banks had been offered these
services right from the beginning therefore, customers of private banks more
satisfied (Jitendra Kumar Mishra).

 The consumers of nationalized banks are more satisfied with service quality, than
private banks and it‟s required to ascertain the key success aspects in the industry,
in terms of satisfaction of customers by keeping in view the growing market size
and the strong competition (Pooja Mengi).

 The Private Banks came to existence within the last ten years with the objective of
to limit the government intervention in banks and from since then they try hard to
obtain customer satisfaction even after a short period of existence. According to a
survey the result shows that private sector banks are more popular to obtain
customer satisfaction than the public sector banks (Farzad Asgarian).

 Satisfaction of customers is the most important forecaster of service quality of

banking sector. Management of banks should confirm that the banking
atmosphere should focus on quick and fair services to their customers. Public
sector banks are contributing more credit facility to fishermen and farmers than
private banks and the State Government announcement of giving the agricultural
loan has given more satisfaction to the consumers of public banks (N. Senthi
kumar et, al).

 The effort towards ease of banking and accessibility is preferred by the customer
who is more seen in private banks then public and customer care and customer

16
 retention programs should take into consideration by public banks. In Kuwait
Muslim customers are satisfied more with accessibility of ATM machines in
multiple locations, funds safety, ease to use ATM machines and service quality
provided, but the worse element which has been noticed in this study was that the
interest rate on loans, which was the indicator of that the most of customer in
Kuwait give more intention to loans (Khaled et, al).

 Service quality is an important feature of customer satisfaction in Indian banking

industry irrespective of public sector and the private sector banks and Customer
satisfaction is found to be strongly associated with propensity to recommend.

 Some of the respondents choose the SBI bank is because the bank is proving more
ATM facility to the customers and many of the respondents are saying the reason
to choose the services of the SBI bank is because they are good in efficient
customer service but many of the respondents are not aware of the many services
Provided by the SBI bank. The few are deposit of cash in ATM, request for
cheque book in ATM, end of the day balance in mobile, etc. While some of the
respondents choose the ICICI bank is because the bank is more reliable to the
customers and many of the respondents are saying the reason to choose the
services of the ICICI bank is because they are good in efficient customer service
and efficient complaint handling. So finally both the banks are competing equally
with each other but SBI bank is little bit below the line in customer complaints
handling when compared to ICICI bank.

17
 CONCLUSION

Whether, you want to invest your money or you want to make a career in banking sector,
due to the ruthless competition, people have to think more than 100 times, before coming
down to any one of the two. However, every individual has certain priorities, and one can
easily choose between the two, by scheduling down their preferences and going for the
one, that suits best.

Private sector Banks seem to have satisfied its customers with good services and they
have been successful in retaining their customers by providing better facilities than Public
sector Banks. But, still Private Banks need to go a long way to become customer’s first
preference. In an economy of innovative technologies and changing markets, each and
every service quality variable has become important. New financial products and services
have to be continuously introduced in order to stay competent and Private Banks need to
concentrate more on their credit facilities and insurance services since customers do not
have a very good opinion about these facilities being offered by Private Banks also Public
sector banks enjoy the trust of the customers, which they have been leveraging to stay in
the race however they need to improve their service quality by improving their physical
facility, infrastructure and giving proper soft skill trainings to their employees.

18
 DISCUSSION

Banking is a single industry incorporating a dozen businesses, such as corporate

banking, investment banking, small business banking, wealth management, capital
markets and so on. Further one of these is retail banking, which is characterized by large
numbers of customers, accounts and transactions, a variety of products and services, a
high level of dependency on technology and terrific levels of cooperation between banks,
retailers, businesses and consumers .

Banks have more capacity than they can use; consumers will need a bank account to
receive government benefits; and banks continue consolidating into a small number of
large banks. This consolidation may be a good thing, or it may be a bad thing. Certainly,
smaller banks will have to develop successful strategies to compete with large banks, and
such competition will benefit customers. One hope could be that even if we do end up
with a handful of banks, they will at least compete with each other, and not enjoy
comfortable, begin competition between themselves. But that might be a dream. We must
have real competition.

In the banking sector it is necessary to increased adoption of technology to better meet

customer requirements, improve efficiencies, reduce costs and ensure customer delight
and it was the private sector and foreign banks which established the technological
revolution in Indian banking and considering the fact that in the new economy, mind
share leads to market share and mind share is influenced not only by the promotions and
advertisements but more importantly on favorable customer perception which in turn is
based on satisfaction with regard to products, services and interaction.

19
 RECOMMENDATIONS AND SUGGESTIONS

The recommendation and suggestions of the study are as follows:

 Public Sector Banks should now go global in search of new markets, customers
and profits.
 Some of the Public Sector Banks have their presence in overseas to a limited
extent.
 Mergers and acquisitions in the banking sector are the order of the day.
 This trend may lead logically to promote the concept of financial super market
chain, making available all types of credit and non-fund facilities under one roof
which is challenge for public sectors bank and demand of time.
 The Public Sector Banks may need to include customer oriented approach or
customer focus in their five areas of businesses such as cash accessibility, asset
security, money transfer, deferred payment and financial advices.
 In order to develop close relationship with the customers the Public Sector Banks
have to focus on the technology oriented innovations that offer convenience to the
customers.
 Today customers are offered ATM services, access to internet banking and phone
banking facilities and credit cards. These have elevated banking beyond the
barriers of time and space.

20
 IMPLICATION OF FUTURE RESEARCH

After the privatizations of state-owned banks, their performances in comparison with

other banking groups have increased by 95%. The performance of private banks after
privatization of state banks had significant reduces and this reduction indicates that the
share of the market of newly privatized state-owned banks increased. Although the
performance of privatized state banks after privatization has increased significantly .

The economic reforms and the entry of private players have cause nationalized banks to
revamp their services and product portfolios to incorporate new, innovative customer-
centric schemes. Nowadays, due to the rise in competition, customer satisfaction is
considered to be the most important thing in retail services but there is no noteworthy
difference in customer satisfaction of public sector and the private sector banks.

21
 BIBLIOGRAPHY

Book -

 Kothari C. R., Research Methodology- Methods and Techniques, New Age

International Publishers, 2007, 2nd Edition, pp. 26, 95, 111.
 Apropos(2004) The Soundness of Public Sector Banks. Finance India: 12.

 BholeLM (2000)Financial Institution &Markets. Tata McGraw Hill

Publications Ltd, New Delhi.

 Garima C (2014) PreformanceComparisionof Private Banks with Public

Sector Banks. International Journal of Emerging Research inManagement &
Technology.

 Desai,Vasant (1997) Indian Financial System,Himalaya Publishing House,

New Delhi.

 Dutt,Ruddar, Sundaram KPM (2003) IndianEconomy, S. Chand & Company

Pvt. Ltd, New Delhi.

 Gupta R, Sikarwar NS (2013) A Comparative Study of Growth Analysisof

Punjab National Bank of India andHDFC Bank Limited.IJAIEM2: 60-68.

Websites

 http://en.wikipedia.org/wiki/Private-sector_banks_in_India
 http://www.allbankingsolutions.com/Banking-Tutor/Nationalised-banks-vs-
public-sector-banks.htm

 https://competitiondigest.com/difference-nationalised-public-private-sector-
bank/

 https://www.wallstreetmojo.com/private-sector-banks-vs-public-sector-banks/

 https://www.omicsonline.org/open-access/a-comparative-study-of-the-public-
and-private-sector-bank-withspecial-reference-to-punjab-national-bank-and-
hdfc-bank-2167-0234-1000155.php?aid=65942

 https://keydifferences.com/difference-between-public-and-private-sector-
banks.html

22