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 .
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Davneet Singh

Davneet Singh has done his B.Tech from Indian Institute of Technology, Kanpur. He has been teaching from the past 14 years. He provides courses for Maths, Science, Social Science, Physics, Chemistry, Computer Science at Teachoo.