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