Banks mediate between those who have surplus money and those who need money in a very systematic way and in order to manage both of them it:

(i) Only keeps a very small amount of their deposits with them in form of cash so that they can pay to the depositors in case they wanted to withdraw the money at any point of time.

(ii) Keeps major proportions of deposits to use in extending the area of loan provided.

(iii) Charges higher rate of interest while providing loans than what they provide depositors at the time of deposits.

(iv) Differentiates between what is charged from borrowers and what is paid to depositors. This is the main source of their income earning.