How does a Bank earns money?
A bank takes money from public at low rate of interest
It gives loan to Public and businessman at high rate of interest
Remaining is its income
What is borrowing Rate of Bank in this case?
Borrowing Rate of banks is Rate of Interest offered by banks to deposit holder
Borrowing Rate in our example = 6%
What is Lending Rate of Bank in this case?
Lending Rate is the Rate charged by bank on lending money
Lending Rate in our example = 11%
What is Spread?
Spread means Difference between Lending Rate and borrowing Rate
Spread in our case = 11% - 6% = 5%
More the spread, more the profit of bank
What does bank check while giving loans?
Credit worthiness of person (whether person will be able to repay loan)
Collateral (Security in form of property offered)