Why Do People Prefer Private Banks Over Public Sector Banks for Savings Accounts?
Introduction
The choice between private and public sector banks for opening savings accounts can be influenced by a variety of factors, including service quality, interest rates, facilitation of transactional ease, and overall customer experience. This article explores the reasons why individuals often opt for private banks over traditional public sector banks like SBI.
The Significance of Superior Service
Service and Personalized Attention
One of the key reasons people prefer private banks is the superior service they offer. Private banks cater to high net-worth individuals and business magnates with their personalized attention and door-to-door services. They often go the extra mile to fulfill customer requests and expedite loan approval within predefined norms. Additionally, private banks handle NEFT (National Electronic Funds Transfer) and RTGS (Real Time Gross Settlement) transactions even late into the night, ensuring convenience for their clients.
Flexibility in Dollars and Sense
Despite offering these premium services, private banks have tended to deviate from the instructions of regulatory bodies such as the Reserve Bank of India (RBI). However, such deviations can be subject to penalties, as highlighted in recent news reports. For instance, the RBI has charged penalties on banks for non-compliance with rules and regulations. This flexibility comes at a cost, but it allows private banks to offer more tailored services to their clients.
Economic Constraints
While private banks can handle deposits of 5,000 to 10,000 for Savings Bank (SB) accounts, the question arises whether this is feasible for rural and middle-class people, as well as small business owners. Private sector banks often focus on class banking rather than mass banking, meaning they cater primarily to higher-end clients. In contrast, public sector banks have a greater focus on public transactions and small size accounts, making them more accessible to a wider segment of the population.
Interest Rates and Convenience
Competitive Interest Rates
Another significant factor in opting for private banks is the higher interest rates they offer for savings accounts. Private banks often offer nearly double the interest rates compared to public sector banks, making them an attractive option for those seeking better returns on their savings. This competitive edge is a powerful motivator for individuals and businesses to choose private banks for their savings needs.
Efficient Account Opening Procedures
The process of opening a savings account with a private bank is significantly streamlined. Digital technology plays a crucial role in this efficiency. Most private banks offer online or mobile app-based account opening, eliminating the need for paper-based verification processes. From creating an account to conducting full KYC (Know Your Customer) verification, the entire process is seamless and often takes only a few minutes, providing a convenient experience for the customers.
Marketing and Infrastructure
Multifaceted Marketing Strategies
Private banks invest heavily in marketing and have implemented innovative strategies to attract and retain customers. Unlike public sector banks, which rely on directly employed staff, private banks often have agents and franchises on a commission basis who actively canvas for business. This decentralized and focused approach allows private banks to reach a wider audience and capture more customers.
Banking Without Government Influence
Private banks operate without government business, such as Treasury, tax collection, and pension schemes, which tend to be less remunerative. They do not provide low-cost loans like educational or agricultural loans, which are also less profitable. Consequently, private banks can focus more on high-value, fee-based services, such as mutual funds, insurance, and health insurances, to achieve broader diversification in their revenue streams.
Operating Hours and Staff Flexibility
In terms of operational hours, private banks are often more flexible. Since their employees are not unionized, they are not bound by restrictive agreements that public sector bank employees are subject to. This flexibility allows private banks to operate longer hours, providing more convenience for their customers. However, this also means that private banks may have higher incidental charges, including penalties for cheque bounces, maintenance of minimum balances, and hidden service charges, which are not always transparent to customers.
Conclusion
Choosing a private bank over a public sector bank for a savings account is a decision influenced by a combination of superior services, higher interest rates, convenience, and targeted marketing. While private banks offer a more personalized and technologically advanced experience, it is important for customers to carefully weigh the pros and cons, including the cost of higher incidental charges, before making a final decision.