Private sector banks
Also called: Private banks · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Class 11, Ch 3 "Liberalisation, Privatisation and Globalisation: An Appraisal"
Meaning
Private sector banks are banks owned mostly by private shareholders, not by the government. New private banks were licensed after the 1991 reforms, under guidelines issued in 1993. In 2016, India started "on-tap" licensing for universal banks, which means a group can apply for a licence at any time instead of waiting for a fixed window. Foreign investment of up to 74% is allowed in these banks. They added competition, new technology and better service to a banking system that public sector banks had dominated.
Example
A bank started by private promoters under the 1993 guidelines, with most of its shares held by private investors, is a private sector bank. Foreign investors together can hold up to 74% of it.
Don't confuse with
- Public sector banks: in these, the government holds the majority of the shares.
- Foreign banks: these are banks set up outside India that run branches here. A private sector bank is an Indian bank, even when foreign investors own part of it.
Related concepts
- Financial infrastructure
- Financial sector
- Financial intermediation
- Commercial banks
- Development finance institution