After keeping a small proportion of their deposits in order to meet the daily withdrawal requirements of the customers, banks use their major portion to grant loans to the borrowers.
Banks act as an intermediary between two parties i.e. depositors and borrowers.
The major function of a bank is to give loans, particularly to businessman and entrepreneurs and thereby earn interest.
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.
