The deposits that banks accept from the public is used by them in the following manner with the majority of the deposit money of the public to extend loans for various economic activities thus mediating between the depositors who have surplus funds and the borrowers who are in need of them. In India banks hold about 15% of deposits as cash to be able to pay the depositors on demand but will be unable to pay if all depositors wish to withdraw at the same time. Their main source of income is the difference between the interest rate charged on loans and that which is offered on deposits with the formal being higher.

Depositor and the Borrower

Some of the learners also asked:
What is the process of extending loans by banks ?