What do the banks do with the deposits which they accept from the public? Explain

CBSE Class 10 CBSE Class 10 Social Science
,
1

What do the banks do with the deposits which they accept from the public? Explain.
OR
Explain any three loan activities of banks in India.

2

BANKS keep only a small proportion of their deposits as cash with themselves. Banks in India, these days hold about 15 per cent of their deposits as cash.

  • This is kept as a provision to the depositors who might come to withdraw money from the bank on any given day.
  • Banks use the major portion of the deposits to extend loans. There is a great demand for loans for various economic activities. In this way, banks mediate between those who have surplus funds and those who are in need of these funds.
  • Banks charge a higher interest rate on loans than what they offer on deposits.
  • The difference between what is charged from the borrowers and what is paid to depositors is their main source of income.