To lend money:

• Bank accepts deposits from various people. The deposited money remains with bank on which the bank pays some interest to the depositors.
• On the other hand people go to banks to borrow money in forms of loans. The bank lends the money to the borrowers at higher rates of interest. Thus, the bank earns profit from the difference of rate of interests.

The bank lends money in following ways:
(a) Through loans:

• Bank provides short term and long term loans to borrowers. In some cases it asks for hypothecation where as in some it doesn’t.
• Bank provides loan to individuals, businessman, industrialists, etc.
• Bank offers home loans, car loan, education loan, cash credit, machinery loan, gold loan, personal loan, etc.

(b) Through overdraft and cash credit:
Overdraft:
As per rule, one cannot withdraw more than the amount present i.e. deposited in one’s account. When a current account holder is allowed to withdraw more money than present in his account for a short duration it is said that the bank has lent him money through overdraft facility.

Cash credit:

• A cash credit is a drawing account for drawing money within a specific credit limit approved by the bank against some security.
• Overdraft and cash credit are similar except that for withdrawing under cash- credit one needs to provide some security like raw-material, finished goods, etc. as hypothecation.