Class 10 Economics Solutions English Medium

NCERT Solutions Class 10 Economics English Medium

Chapter 3. Money and Credit

Topic: Banks and Credit

Chapter 3. Money and Credit

Banks play an important role in the modern economy by accepting deposits from people and providing loans to individuals and businesses. Credit helps increase production, income, and employment. However, the benefits of credit depend on its proper use and the terms on which it is provided.

Part 2 – Banks and Credit

This section explains the functions of banks, bank deposits, lending activities, credit, and the important terms related to loans.

Role of Banks

Banks act as financial institutions that mobilise savings and provide loans for various economic activities.

• Banks accept deposits from the public.
• They provide loans to individuals and businesses.
• They promote saving habits.
• They facilitate payments and money transfers.
• They contribute to economic development.

Bank Deposits

People deposit their surplus money in banks to keep it safe and earn interest.

• Deposits are secure and easily accessible.
• Banks pay interest on deposits.
• Demand deposits can be withdrawn at any time.
• Deposits help banks provide loans.
• Depositors can make payments through cheques and digital banking.

How Banks Provide Loans

Banks use a major portion of deposited money to provide loans to borrowers.

• Only a small portion of deposits is kept as cash reserves.
• The remaining amount is used for lending.
• Loans are provided to farmers, traders, industries, and households.
• Borrowers repay the loan with interest.
• Lending is one of the main sources of bank income.

Meaning of Credit

Credit is an agreement in which a lender provides money or goods to a borrower with the promise of repayment in the future.

• Credit helps people meet financial needs.
• It supports business and production activities.
• It increases investment and employment.
• Credit may be beneficial or harmful depending on its use.
• Proper use of credit promotes economic development.

Terms of Credit

The conditions on which a loan is provided are known as the terms of credit.

• Rate of interest.
• Collateral or security.
• Loan repayment period.
• Mode of repayment.
• Required documents and conditions.

Collateral

Collateral is an asset pledged as security against a loan.

• It reduces the risk for lenders.
• Land, buildings, jewellery, and fixed deposits may be used as collateral.
• If the borrower fails to repay the loan, the lender can claim the collateral.
• Collateral is generally required for large loans.
• Small loans may sometimes be given without collateral.

Importance of Credit

Credit plays a significant role in economic development when used productively.

• It helps farmers purchase seeds and fertilisers.
• It enables industries to expand production.
• It supports self-employment and entrepreneurship.
• It creates employment opportunities.
• It contributes to national income and economic growth.

When Credit Becomes a Burden

Credit can create financial problems if loans are not used properly or cannot be repaid.

• Crop failure may make it difficult for farmers to repay loans.
• Business losses may increase debt.
• High interest rates increase the repayment burden.
• Failure to repay loans may lead to financial distress.
• Borrowers should use credit carefully and responsibly.

CBSE Exam Points

• Banks accept deposits and provide loans.
• Credit is an agreement between the lender and the borrower.
• Collateral is a security kept against a loan.
• The terms of credit include interest rate, collateral, repayment period, and mode of repayment.
• Productive use of credit promotes economic development.

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