how do the deposits with the bank become their source of income
Answers
Banks use a significant share of the deposits to provide mortgages to people for several commercial enterprises. The interest charges on mortgages are extremely costlier than what the bank commands on the collateral it has. Therefore, the distinction between what is imposed by the borrowers and what is given to the depositors is the source of revenue of the banks.
Answer:
Banks use the major portion of the deposits with them to extend loans. As there is a huge demand for loans for various economic activities, the banks make use of the deposits with them to meet the above loan requirements. In this way, the banks mediate between the depositors and the borrowers. Banks charge a higher interest rate on loans than what they pay on the deposits. The difference between interest rate charged from the borrowers and what is paid to the depositors is, thus, the main source of income for the banks.
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