Social Science (087) — CBSE Class 10 board question

A bank acts as a key component of the financial system by mediating between depositors and borrowers.

• Banks accept deposits from the public and pay interest on them.
• They keep only a small proportion (~5%) of deposits as cash reserve for withdrawals.
• The remaining major portion is used to extend loans to those who need funds for various economic activities.
• Banks charge a higher interest rate on loans than what they pay on deposits; this difference is their main source of income.

Thus, banks channel surplus funds from savers to borrowers, supporting economic activities.

Source: Chapter 3 – Money and Credit, Loan Activities of Banks

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Examiners look for three clear points (1 mark each): (1) accepting deposits, (2) keeping a cash reserve and lending the rest, and (3) the interest rate difference as income/mediation role. Avoid writing a vague general answer — use the specific detail about ~5% cash reserve from the textbook to show precision. The diagram in the textbook (depositors → bank → borrowers) captures the core idea perfectly.