Despite terrible service and security, I still opened an account few years ago. Why? Because statements from private banks are not a valid address for various purposes. I was hit hard because I needed a new passport, and they changed the rule last minute (barely any notice) that only nationalized banks are acceptable, and even if I made a new account I still needed multiple months of statements.[1]
So despite the fact I would rather not have a nationalized bank account at all, I'm forced to keep one just in cases something else changed in future without any notice. And that's one reason why many other people prefer to open at-least one (first) account there.
This is untrue. The list of documents that are valid as proof-of-address when applying for a passport [1] include electricity bill, water bill, telephone bill, gas connection, election ID, rent agreement among many others. If you're really keen on using your bank passbook for some reason, you'll be happy to know that ICICI and HDFC (the largest private banks) are also accepted [2].
I have an SBI bank account but I've never had to use it for anything in the past half a decade. So I would dispute your claim that it's indispensable.
I was like 20/21 then, without any kind of bills as they were all under parents name. I missed on elections, so didn't have election ID. I had an ICICI account though for years, and it was for a fact rejected back in 2014, and that is exactly why I opened SBI. Maybe they changed the rule now. And that is exactly the reason why I or some of my friends had an nationalized bank account back then. My complain here is that govt keeps changing rules, and SBI is kind of safe choice even though I don't use it for anything.
You could get address proof from local municipality or BDO (if rural area).
And you could get India Post's address proof. Very little known feature but excellent. I have used it once in a city where I was there just for 5 months.
So despite the fact I would rather not have a nationalized bank account at all, I'm forced to keep one just in cases something else changed in future without any notice. And that's one reason why many other people prefer to open at-least one (first) account there.
[1] https://timesofindia.indiatimes.com/city/bengaluru/Private-b... [apologies for this terrible website]