Answer to Question #155658 in Management for Prabhdeep

Question

Explain the statement with suitable examples " Lending is the main function of bank"? (Please Answer in 200 to 250 Words )

Answer 1

A bank executes different functions to its clients; however, lending seems its primary function. In this case, the operations of a bank are geared towards enhancing society. A bank accepts deposits, which could be savings, time deposits, or current. The essence of accepting these deposits is to increase its financial muscle to lend to other clients. It lends money to clients in the form of advances and loans, overdraft, and cash credit. These loans help the bank to improve its financial capability since it charges interest on the money it gives to clients. The interest charged is the primary source of income. Since a bank is a business establishment like any other company, its primary income forms the chief function. In this regard, interests received after issuing loans and advances to various corporations, industries, and persons are the bank’s main income source. The deposits that various clients make into the bank enable it to make short term investments and earn interest income. Some of the short term investments that a bank makes include investing in bonds or lending the government. The return from these short term investments enables a bank to reap immensely. Overall, the main source of income of a bank emanates from the interests it charges its customers after lending them money. Since this engagement forms the primary source of income for banks, it forms the institution's main function.