1. Banks provide loans for various economic activities.2. Banks keep only a small propotions of the deposits with them as cash.3. These deposits are used to meet the loan requirement.4. The major portion of the deposits with the bank is used to extend loans to the general public for various economic requirements such as business, housing,\xa05. Deposits are used to meet the loan requirements of people wherein the bank charges interest rate on loans which is much higher than what it offers on deposits. In this way, the difference between what is charged from the borrowers and what is paid to the depositors is the bank\’s income.