A bank may be defined as a institution which deals in money. Banks draw surplus money from the people who are not using it at the time and lend to those who are in a position to use it for productive purposes. Banker is not merely a money lender. He lends what he has borrowed from others.
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The banks pay a certain amount of money as interest, on the money they have borrowed. Similarly they charge interest on the money lent. Interest is always calculated at a certain rate percent per-annum. The rate of interest on loans advanced is always greater than that on deposits. The difference between the two rates is the bank’s margin of income.