Loan activities of Banks
- Banks only keep a small portion of the deposits as cash with themselves to pay the depositors who might come to withdraw money from the bank on any given day.
- In India , banks hold about 15% (at present this ratio is at 5% ) of their deposits as cash reserves .
- Banks make use of the deposits to meet the loan requirement of the people.
- In this way, banks act as a mediator between those who have surplus funds (the depositors) and those who need those funds (the borrowers ).
- Banks charge higher interest rates on loans than what they offer on deposits .
- The difference between what is charged from borrowers and what is paid to depositors is their main source of income .
