The age-old debate of whether to choose a private sector bank or a public sector bank continues even today. While the younger generation generally prefer private banks, the older generation tend to stick to public sector banks for their banking needs.
When it comes to loans, this choice needs to be made even more carefully, as it is not as easy to walk out of a bank loan as it is to close a savings bank account. This becomes especially true when long term loans like home loans or education loans are in question. Therefore, one has to carefully evaluate the positives and negatives of both private and public sector banks before making the choice.
Here is a broad guideline of factors to be considered.
The foremost consideration while taking a loan is the interest rate. It is generally believed that private banks charge a higher interest rate as compared to their pub lic sector counterparts. But, when there is a policy rate change by the Reserve Bank of India, it is believed that the public sector banks are quicker to respond to this and reduce their base rates.
It is true that private banks are more aggressive than public sector banks. So, many of them offer competitive rates too. But leading public sector banks increasingly tend to push themselves to stay abreast. So whether it is interest rates or revision of rates, leading public banks are right up there with private banks.
Charges and Fees
In addition to the interest rate of the loan, other fees levied by the banks can make a difference to your cash flows. For example, the loan processing fees, prepayment charges of loans, etc.
Public sector banks usually charge lower on these additional fees compared to private banks. One reason could be that private banks incur high overheads in the form of more expensive offices, higher salaries to employees and other costs. This will eventually be recovered from customers by charging a premium on the services rendered.
The speed of disbursing a loan is quite important for many customers. Private banks usually tend to score more on this factor compared to public sector banks. In many cases, customers of private banks are given a pre-approved loan, which reduces paperwork to a large extent
The speed of disbursing a loan is quite important for many customers. Private banks usually tend to score more on this factor compared to public sector banks. In many cases, customers of private banks are given a pre-approved loan, which reduces paperwork to a large extent. The turnaround time is quicker in private banks, as employees are driven by more efficient processes and technology is used at every stage.
Public sector banks also use technology, but in many cases it is archaic and employees are also sometimes slower on the draw. This could mean that public sector banks are slower when it comes to loan disbursal.
Ease of Banking
Technology has come to play in both private banks and public sector banks. Almost every other bank offers facilities of internet banking, use of ATMs and phone banking services. If one has to go by these factors, there is not much difference in what is offered by a private bank compared to a public sector bank.
However, private banks score here too as they are always keen to adopt new technology and innovative products as compared to public banks.
Customer service is an important factor especially for the younger generation. The youth generally do not have the time or patience to get a query solved or an instruction to be carried out. They therefore prefer private banks, where employees are more agile and proactive in catering to customer requests. Private banks also have dedicated customer service desks which can handle complaints or requests with greater speed.
In general, public sector bank employees are not compelled enough to expedite customer requests or handle customer complaints. But, one-to-one customer relationship is more in small branches of public sector banks than a private bank. higher loan amounts, flexible terms etc, based on the relationship they have with the branch.
Terms of the Loan
Terms of public sector banks are generally more stringent and favour the bank more than the customer. On the other hand, a private bank may not have such stipulations. But in certain cases, public banks are more flexible.
For example, a private sector bank may disallow prepayment of the loan before 18 months of the loan commencement and will charge a prepayment fee if done after this period. But many public sector banks do not have such rules. Whichever the bank you are choosing, it is important to read the fine print carefully before signing the dotted line.
Despite technology based banking, many customers still prefer to visit the bank to transact. Public sector banks have wider branch network, as compared to many private banks. It may therefore be easier to find a public sector bank in the neighbourhood rather than a private sector bank.
While the above points are generalizations, it must be remembered that there can be exceptions to the general trends witnessed in both private sector and public sector banks. Evaluate both the pros and cons of private and public banks on various factors and select one that best suits your specific needs.
Written By: Adhil Shetty