Loan Activities of Banks
A small portion of deposits is kept as deposits by banks. In India, for example, banks now keep about 15% of their deposits in cash. This is kept as a reserve to compensate depositors who come to the bank to withdraw money on any given day. Because just a small percentage of the bank’s many depositors come to withdraw cash on any given day, the bank is able to handle this cash.
Banks use the majority of deposits to provide loans. Loans for a wide range of economic activities are in high demand. Deposits are used by banks to address the needs of consumers who need loans. Banks act as a middleman between individuals who have excess funds (depositors) and those who require these monies (the borrowers). A higher rate is charged on loans than they do on deposits. The difference between what they charge borrowers and what they pay depositors is their principal source of income.
Crop production is the principal source of credit in rural communities. Crop cultivation entails significant costs for seeds, fertilizers, pesticides, water, energy, and equipment repair, among other things. Between the time the farmers purchase these inputs and the time they sell the harvest, there is a minimum of three to four months. Crop loans are typically taken at the start of the season and repaid after harvest. The amount of money needed to repay the loan is mostly determined by the amount of money earned from farming.
A debt trap is a scenario in which it is difficult or impossible to repay a debt, usually due to high-interest payments that prevent principal repayment. In this circumstance, credit forces the borrower into a situation from which he or she will have a difficult time recovering. In one case, credit aids in the increase of earnings, making the person better off than before. In another case, credit is used to force a person into a debt trap due to crop failure.
Loan Activities of Banks
Loan Activities of Banks: Money is an enthralling subject full of enigmas. For the pupils, it is critical to capture this element. The evolution of money and how different forms were employed at different times is a fascinating topic. Modern money is intertwined with the banking system. Credit is a critical component of economic life, thus it’s vital to grasp the notion first. Another important aspect of credit is that it is available to everyone, including the poor, and on reasonable terms. We must emphasize that this is a people’s right and that without it, a big portion of the population would be excluded from the development process.