Question

What do banks do with the major portion of deposits that they accept from the public?

• A. Keep it as reserve with the RBI
• B. Keep it as reserve with the public
• C. Keep it with themselves
• D. Lend it to the public

Answer 1

The correct option is D Lend it to the public

Banks use the major portion of deposits to extend loans. These loans are then recovered with an interest. Banks charge a higher interest for credit than deposits. Hence, the amount they receive is greater than the amount that they lend. There is a huge demand for loans for various economic activities.