Question

The difference between interest collected on loans and interest paid on deposit is called

• A. capital
• B. yield
• C. margin
• D. spread

Answer 1

Answer:

C. margin

Profitability:

• Both Commercial Banks and Nationalized Banks are profit making institutions.
• They must use their funds profitably to earn enough income to pay interest to investors, pay salaries to employees, meet various other organizational expenses and distribute dividends to shareholders (Government in the case of Nationalized Banks).
• The bank should do business to earn sufficient profit.
• The difference between interest collected on loans and interest paid on deposit is called margin.
• From the amount of margin the bank deduct all their revenue expenditures to arrive profit.
• Bank should always reconcile the liquidity and profitability at the same time.