Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsBANKING AND MONETARY POLICY3 Marks
Question
Explain credit facilities as a function of banks.
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Answer
Primary functions:
Accepting deposits:
A bank acts as a custodian by accepting people s’ savings in the form of deposits and gives interest in return.Types of deposits a bank accepts:
There are four different ways in which a bank accepts deposits. They are:
Current Account Deposits,
Savings Account Deposits,
Recurring Deposit Account and
Fixed Deposits.
A customer may deposit money in banks by opening any of these accounts.
Providing credit facilities:
Banks provide credit facilities to different individuals such as farmers, different professionals, etc. who are in need of money.
Under this system, the needy ones borrow from the bank and the bank charges interest for the credit facility that it provides. The interest charges depends on the purpose of credit i.e. whether the credit is used for personal use, agricultural activity or business activity.
The credit can be for short term $($up to $1$ year$),$ medium term $(1$ year $–\ 5$ years$),$ or long term $(5$ years $–\ 15$ years$).$
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