Question

How do banks play an imporant role in economy pf india ?Explain.

Answer 1

banks hold 15 percentage of their deposits as cash this is kept as provision to pay the depositors who might come to withdraw money from the bank on any given day

banks use the major proportion of the deposit to extend loan

banks make use of the deposits to meet the loan requirement of the people in this way banks mediate between those who have surplus funds and those who are in need of funds

banks charge a higher interest rate on loan than what they offer on deposits

the difference between what is charged on the borrower and what is paid to depositors is the income of commercial bank

Answer 2

Banks play an important role in the economy:  

1. They only keep about 15% of the deposits as cash. The rest is used to give loans to various people.

2. Loans are required for various economic activities as well as investments, Banks mediate between people having surplus cash and those in need of it.  

3. They give interest to the depositors and they charge interest on those taking loans from the banks. The difference between the interest rates is the main income of the bank.  

4. Banks encourage depositing money by giving an interest This contributes to savings in the economy.  

5. By providing credit at reasonable interest rates, they encourage investment and prevent exploitation from the informal sector.