What are the loan activities of bank and explain about the process of bank?
Answers
Answer:
(i)Banks keep only a small proportion of their deposits as cash with themselves. This is kept as provision to pay the depositors who might come to withdraw money from the bank on any given day.
(ii)Since, on any particular day, only some of its many depositors come to withdraw cash, the bank is able to manage with this cash.
(iii)Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities.
(iv)Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers).
(v)Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.