Banks keep only a small portion of their deposits (about 15 per cent),as cash.
(ii) This is kept as provision to pay the depositors who might come to withdraw
money from the bank on any given day.
(iii) Banks use the major portion of the deposits to extend
(iv) There is a huge demand for loans for various economic
activities. Banks make use of the deposits to meet the loan requirements of the
(v) In, this way, banks mediate between those who have
surplus funds (depositors) and those who are in need of these funds,
(vi) Banks charge a higher rate of interest on loans than
what they offer on deposits.
(vii) The difference between what is charged from
borrowers and what is paid to depositors is their main source .of income,
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