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Government bank v/s Private bank : who to choose?

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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 entrusted with its management. 

Public Sector bank means any Government Sector Bank that goes public… means that issues it shares to general public. It also has a greater share of government(more than 50%) so that the main motto of social welfare other than maximizing profit remains intact.

Where as Private Sector Banks are those Banks where the management is controlled by Private individuals and Government does not have any say in the management of these banks. Maximizing profit is the basic motto. 

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. The disposable means of a bank consist of –

  • First, the capital paid in by the partners, or shareholders.
  • Second, the amount of money deposited by their customers.
  • Third, the amount of notes they are able to keep out in circulation.
  • Fourth, the amount of money in the course of transmission – that is, money they have received, and are to repay, in some distant place, at a future time.

 These disposable means are employed –

  • First, in discounting bills.
  • Second, in advances of money in the form of cash credits, loans, or overdrawn accounts.
  • Third, in the purchase of government or other securities.
  • Fourth, a part is kept in the banker’s till, to meet the current demands. 

Of these four ways of employing the capital of a bank, three are productive, and one is unproductive. The discounting of bills yields interest; the loans, and the cash credits, and the overdrawn accounts, yield interest; the government securities yield interest; the money in the till yields no interest. 
The expenses of a bank may be classified thus: Rent, taxes, and repairs of the building or premises in which the business is carried on; salaries of the officers; stationers’ bills for books, paper, notes, stamps, etc.; incidental expenses, as postage, light, heat, etc. The profits of a bank are that portion of its total 
receipts – including discount, interest, dividends, and commission – which exceeds the amount of the expenses. 

A public bank is generally regulated by certain laws, enacted by the government of the nation or state, which constitute its charter, limit its capital, and establish the rules by which it is to conduct business. A private bank, on the other hand, is merely a contract among individuals, for carrying on a trade in money and bills; and the responsibility of the partners is usually the only security of those who transact business with it. Banks then are properly commercial institutions which by affording credits, or issuing notes, as the representative of money, enable merchants, with greater facility, to buy and sell commodities, at home or abroad. The produce of one country is thus exchanged with that of another, by means of a medium to which an ideal value is attached; hence the great utility of banking establishments in all commercial countries.

The discussion therefore should focus on what we wish to do in a bank:

  • Cash collection : I know of many nationalized banks who also collect cash.  Nationalized banks also have cash management services.  It is basically the bank staff who are either cooperative or hostile
  • Loans : Private banks have loan products.  If you meet the checklist, your work is done.  public sector banks are yet to take that route.  Alternatively, if you have a good manager, you are in safest hands.
  • Temporary facilities : Private sector banks cannot just deviate from the loan product.  This is a big handicap with them
  • Share trading and loan against shares : The biggest danger in a private bank is their margin requirements.  They are ruthless at times.  If you don’t meet the margin requirement, they may even sell it.  You can perhaps reason with a public sector bank manager.

Now after all these discussions the choice of picking up the bank of your preference lies on your requirements and a little bit of experience. Good Luck!

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