The private sector banks play a vital role in the Indian economy. They indirectly motivate the public sector banks by offering a healthy competition to them. The following are their importance:
(i) Offering high degree of Professional Management:
The private sector banks help in introducing a high degree of professional management and marketing concept into banking. It helps the public sector banks as well to develop similar skill and technology.
(ii) Creates healthy competition:
The private sector banks provide a healthy competition on general efficiency levels in the banking system.
(iii) Encourages Foreign Investment:
The private sector banks especially the foreign banks have much influence on the foreign investment in the country.
(iv) Helps to access foreign capital markets:
The foreign banks in the private sector help the Indian companies and the government agencies to meet out their financial requirements from international capital markets. This service becomes easier for them because of the presence of their head offices/other branches in important foreign centres. In this way they help a large extent in the promotion of trade and industry in the country.
(v) Helps to develop innovation and achieve expertise:
The private sector banks are always trying to innovate new products avenues (new schemes, services, etc.) and make the industries to achieve expertise in their respective fields by offering quality service and guidance.
They introduce new technology in the banking service. Thus, they lead the other banks in various new fields. For example, introduction of computerised operations, credit card business, ATM service, etc.