A is defined as a loan which is repaid throughregular periodic payments referred as Equated Monthly Installments or EMI, usuallyover a period of 1 to 10 years. If you approach a bank for a loan of one lac(1,00,000 INR), the bank after going through various calculations based on youreligibility criteria which mainly depends on your monthly income & your liabilitiesdecides to provide the amount. You get the loan and agree to repay it within aperiod of somewhere between 6 months to 4 years. This is an example of termloan. Failure to repay the loan within the stipulated period will only result inthe bank confiscating the security that you provided as a guarantee whiletaking the loan. Short term loans whether personal or commercial/business aretaken for shorter repayment duration hence making the repayment options all themore easier for the borrower. A short term personal loan is taken for personalusage such as home houserenovations, wedding, vacation planning etc. Short term business loans are mainlyprovided to raise working capital of your business. They are appropriate forboth new and existing businesses. When dealing with new businesses, most bankswill grant only shorter-term loans, because short-term loans are less riskythan loans with longer terms.

A is a deposit held at a financial instituteand has a fixed term. These are generally short-term depositswith maturities ranging anywhere from a month to a few years. When a termdeposit is made, the account holder can only withdraw the amount after theterm has ended or by giving a predetermined number of days notice. Termdeposits are an extremely safe investment and are therefore very appealing toconservative, low-risk investors. Currently banks also offer flexible-termdeposits (flexi deposits), which is a combination of a term-deposit facilityand a savings account. Here the account holder is asked to deposit a certainamount from his savings account as a term deposit. This amount can be withdrawnif the required withdrawal amount isn't available in your savings account. Oncethe amount that you withdraw from your term deposit is deposited in yoursavings account, the same amount that you withdrew is deducted from your savingsaccount and deposited to your term deposit account.

Now comes the big question??? How are these two major termsrelated to each other? Well a bit of common sense does provide the answer. Forinstance you make in a term deposit of a lac for 3 years. The bank agrees topay you an interest of 9% p.a. So at the end of 3 years going through theinterest rate the amount that will be provided to you will approximately bearound a lac and thirty thousand (1,30,000 INR). Now once you deposit theamount into a term deposit scheme for 3 years you will not be entitled tooperate through that account. So what the bank usually does is loan thisparticular amount for a period that is lesser then the period of deposit. Nowtake another case: Say the bank could have 1 lac loaned to a company orindividual for 3 years at 12% p.a, then at the end of the tenure the bank wouldre-collect an amount of  around a lac andforty thousand (1,40,000 INR).  So the bank profits by 10,000 INR. So the solepurpose of these two functions; i.e loans and deposits is financial regulation.You please a customer and at the same time you get business done for your bank.Most banks uses this theory to get a large part of their revenue streaming in.