1. Banks accept money in the form of deposits from people who have surplus cash. These deposits are used by the banks in giving loans to people for various purposes.
2. The bank after accepting the deposits also pays a certain amount of interest on the deposit and charges a certain rate of interest on the amount given to a particular borrower. Such deposits with the bank are beneficial in extending loans for various economic activities such as setting up of industries, small-scale businesses and so on.
3. The extension of loans to people at low rates of interest, in the long run, contribute towards the healthy growth and well being of people as their cash incomes rise. Rise in income, in turn, contributes to the better standards of living and towards the overall economic development of the country’s economy in a positive direction.
NOTE – Credit (loan) refers to the agreement wherein the lender provides the borrower with money or goods and services with a promise of repayment in future.
Rate this question :