CHAPTER 4

BUSINESS SERVICES
NATURE OF SERVICES
(i) Intangibility - Services are intangible, i.e., they cannot be touched. They
are experiential in nature.
(ii) Inconsistency – Services are provided depending upon the demands and
expectations of different customers as and when it is needed. Service
providers should adjust their offer to closely meet the requirements of
the consumers. E.g. Service given by the mobile service providers.
(iii) Inseparability – Services are produced and consumed at a time. But in
case of goods it is not so.
(iv) Inventory – (No Inventory) since there are not tangible components in
services, they cannot be stored for future use.
(v) Involvement – It implies the participation of the customer in the service
delivery process.

Differences between Services and Goods

TYPES OF SERVICES
(i) Business Services: Business services are those services which are
used by business enterprises for the conduct of their activities.
 For example, banking, insurance, transportation, warehousing and
communication services.
(ii) Social Services: Services rendered voluntarily to achieve certain
social goals are called social services. They are meant for
improving the standard of living of weaker section of society or
providing education, healthcare etc.
(iii) Personal Services: Personal services are those services which are
experienced differently by different customers. These services
cannot be consistent in nature. They will also depend upon
customer’s preferences and demands. For example, tourism,
recreational services, restaurants.

Business Services
1 BANKING
According to the Banking Regulations Act 1949, banking means “accepting for
the purpose of lending or investment of deposits of money from the public,
repayable on demand or otherwise and may be withdrawn by cheque, draft or
otherwise”.

Types of Banks
1. Commercial Banks
2. Co-operative Banks
3. Specialized Banks
4. Central Bank
1. Commercial Banks
These are governed by Indian Banking Regulation Act 1949 and according to it
banking means accepting deposits of money from the public for the purpose of
lending or investment. There are two types of commercial banks, public sector
and private sector banks.
Public sectors banks are those in which the government has a major stake and
they usually need to emphasise on social objectives than on profitability. Private
sector banks are owned, managed and controlled by private promoters and they
are free to operate as per market forces. There are a number of public sector
banks like SBI, PNB, IOB etc., and other private sector banks represented by HDFC
Bank, ICICI Bank, Kotak Mahindra Bank and Jammu and Kashmir Bank.
2. Co-operative Banks
Cooperative Banks are governed by the provisions of State Cooperative Societies
Act and meant essentially for providing cheap credit to their members.
3. Specialized Banks
Specialised banks are foreign exchange banks, industrial banks, development
banks, export-import banks catering to specific needs of these unique activities.
These banks provide financial aid to industries, heavy turnkey projects and foreign
trade.
4. Central Bank
The Central bank of any country supervises, controls and regulates the activities
of all the commercial banks of that country. It also acts as a government banker. It
controls and coordinates currency and credit policies of any country. The Reserve
Bank of India is the central bank of our country.
Functions of Commercial Banks:
PRIMARY FUNCTIONS –
a. Accepting Deposits: It accepts deposits from the public in the form Fixed
Deposits, Savings Bank Deposits, Current Deposits, Recurring Deposits etc.
b. Lending of Funds: Lending of money is the main business of commercial
banks and the interest charged on such advances is the main source of
income. It may be in the form of cash credit, overdraft, discounting of bills,
term loans etc.
SECONDARY FUNCTIONS –
It include agency services and general utility services. Agency services are
offered to the customers and general utility services to the public.
 a. Cheque facility - Collection of cheques is an important service provided
by the bank to its customers. It may be crossed cheques (encashed through
account only) and bearer cheques (encashable at the bank counters).
b. Remittance of funds – Transfer of funds from one account to another is
made possible by issuing demand drafs (DD).
c. Allied services (Personal Services) – It include Payment of insurance
premium, telephone charges etc. and the collection of dividend, interest
etc.

E – Banking – Electronic banking or internet banking means that, any user

can get connected to the bank’s website to perform banking operations
and services with help of a computer or mobile phone.
E-Banking Services
a. Automated Teller Machine (ATM)
b. Electronic Funds Transfer (EFT)
c. Point of Sale (Pos)
d. Electronic Data Interchange (EDI) – Business documents like invoices, shipping
bills etc. can be sent to the parties in electronic format.
e. Credit Cards
Benefits
Benefits to Customer
(i) E-banking facilitates digital payments and promotes transparency in
financial statements.
(ii) e-banking provides 24 hours, 365 days a year services to the customers
of the bank;
(iii) Customers can make some of the permitted transactions from office or
house or while travelling via mobile telephone;
(iv) It inculcates a sense of financial discipline by recording each and every
transaction;
(v) Greater customer satisfaction by offering unlimited access to the bank,
not limited by the walls of the branch and less risk and greater security
to the customer as they can avoid travelling with cash.
Benefits to Bank
(i) e-banking provides competitive advantage to the bank;
(ii) e-banking provides unlimited network to the bank and is not limited to
the number of branches, Any PC connected to a modem and a
telephone having an internet connection can provide cash withdrawl
needs of the customer;
(iii) Load on branches can be considerably reduced by establishing
centralised data base and by taking over some of the accounting
functions.

INSURANCE
Insurance can be defined as a contract in writing whereby one party,
called the insurer agrees in consideration of either a single or a
periodical payment called the premium to indemnify another party
called the insured against loss or damage resulting on the happening of
a specified event or events. The document containing the terms of
contract of insurance is known as the Policy. Insurance is a method of
averaging risks.

Functions of Insurance
1. Providing certainty – Insurance provides certainty of payment when
loss occurs.
2. Protection – Insurance creates a sense of security to the insured.
3. Risk sharing – The risk of loss can be shared among all the policy
holders.
4. Assist in capital formation – The fund collected by way of premium
can be invested in various income generating schemes. This results in
capital formation

Principles of Insurance
Utmost good faith: A contract of insurance is a contract of uberrimae
fidei i.e., a contract found on utmost good faith. Both the insurer and
the insured should display good faith towards each other in regard to
the contract. It is the duty of the insured to voluntarily make full,
accurate disclosure of all facts, material to the risk being proposed and
the insurer to make clear all the terms and conditions in the insurance
contract. Failure to make disclosure of material facts by the insured
makes the contract of insurance voidable at the discretion of the
insurer.
Insurable Interest: The insured must have an insurable interest in the
subject matter of insurance. Insurable interest means some pecuniary
interest in the subject matter of the insurance contract. E.g. a person
who has advanced money on the security of a house, has an insurable
interest on that house.
Indemnity : All insurance except life insurance and personal accident
insurance are based on the principle of indemnity. Here the insured is
entitled to get only the actual amount of loss suffered by him and it will
not be a source of profit.
Proximate Cause: According to this principle, an insurance policy is
designed to provide compensation only for such losses as are caused by
the perils which are stated in the policy. When the loss is the result of
two or more causes, the proximate cause means the direct, the most
dominant and most effective cause of which the loss is the natural
consequence. In case of loss arising out of any mishap, the most
proximate cause of the mishap should be taken into consideration.
Subrogation : This principle states that, after the payment of loss to the
insured on the property, the whole right of such property is entitled
with the insurer. This right is exercised by the insurer to earn any
compensation for the damages on the property either from the party
who were responsible for such damages or by the sale of such property
to some others. This is because the insured should not make profit by
selling the damaged property.
Contribution : This principle applies only when the same subject matter
is insured with different insurers, here the actual amount of loss is
 divided among various insurers. In this case the contribution of each
insurer can be calculated by the following equation:
Liability of one insurer = Sum insured with that insurer / Total sum
insured X Loss
Mitigation of Loss : It is the duty of the insured to take preventive
measures to minimize the loss of the property. If any expenses are
incurred by him for such activities, he is entitled to get that much of
amount along with the compensation from the insurance company.

Types of Insurance

LIFE INSURANCE
Life insurance may be defined as a contract in which the insurer in
consideration of a certain premium, either in a lump sum or by other
periodical payments, agrees to pay to the assured, or to the person for
whose benefit the policy is taken, the assured sum of money, on the
happening of a specified event contingent on the human life or at the
expiry of certain period.

Elements of Life Insurance

a. Valid contract – Life insurance contract must fulfill all the essential
conditions of a
valid contract.
b. Utmost good faith – The insurer and the insured must disclose all
material facts to each other.
c. Insurable interest – The insured must have insurable interest in the
life of assured at the time of taking policy, it is not needed at the time of
maturity.
d. Not a contract of Indemnity – The life of a human being cannot
be compensated in terms of money. That is why the amount payable to the
insured on the happening of the event is fixed in advance.

Types of Life Insurance Policies

a. Whole life Policy - This policy taken for one’s whole life and the
payment will be made
to the legal heirs. If premium is payable for a fixed period, say 20 years, the
policy will
continue till the death of the assured.
b. Endowment Policy – This policy taken for a specified period e.g. 20 yrs. 15yrs.
Etc.
Insurance company undertakes to pay a fixed sum when the assured attains a particular
age or on his death whichever is earlier.
c. Joint Life Policy – Policy taken out jointly by two or more persons. Premium can
be
paid jointly or by any of them in installment or lump sum. This policy matures either on
the death of any of the assured or at the expiry of the period.
d. Annuity Policy – In this policy, the assured gets a regular payment after he
attains a
particular age
e. Children’s Endowment Policy – This policy is taken by a person to provide
funds for
the education or marriage of his / her children. If the parent dies before the maturity,
the policy will continue to exist even without the payment of further premium.

2. Fire Insurance – Fire insurance policy is a contract in which the insurer agrees to
pay the loss or damage caused by fire to the insured and this contract exists only for
one year. The claim for compensation should satisfy the following:
a. There must be an actual loss, and
b. The fire is accidental and non-intentional.
Elements of Fire Insurance
a. Insurable interest – The insured must have insurable interest on the subject
matter of insurance. It must be present both at the time taking policy and at the time of
loss. Eg. A house property mortgaged to a bank.
b. Utmost good faith - The insurer and the insured must disclose all material facts
to each other.
c. Indemnity – Indemnity is the protection against loss. In the event of loss the
insured can recover only the actual loss and not the policy amount.
d. Proximate cause – The insurer is liable to compensate only when the loss is due
to fire.
3. Marine Insurance – It is a contract whereby the insurer agrees to indemnify the
owner of a ship or cargo against risks which are incidental to marine adventure in
consideration of premium. It covers a variety of risks like sinking or burning of the ship,
spoilage of the cargo, freight loss etc. The subject matter of the insurance may be the
ship, the cargo and the freight.
Types of Marine Insurance
a. Ship or Hull Insurance – The subject matter of insurance in this case is the hull
or ship.
b. Cargo Insurance – Here the cargo event of loss or destruction of goods.
c. Freight Insurance – It covers the risk of loss of freight by shipping companies in
the event of loss or destruction of goods.
Elements of Marine Insurance
a. Contract of indemnity – The insured can recover the actual loss if occurred.
b. Utmost good faith - The insurer and the insured must disclose all material facts
to each other.
c. Insurable interest – Insurable interest need not be present at the time of taking
policy, but must exist at the time of loss.
d. Proximate cause – The insurer should compensate the insured by considering
the nearest cause for damage, which must be covered by the policy.
Differences between Life Insurance, Fire Insurance and Marine
Insurance

4. Other Insurance / Miscellaneous Insurance:

i. Health Insurance
ii. Motor Vehicle Insurance
iii. Burglary Insurance
iv. Cattle Insurance
v. Crop Insurance
vi. Sports Insurance
vii. Third Party Insurance
viii. Employer’s Liability Insurance
ix. Fidelity Insurance
x. Personal Accident Insurance
III. COMMUNICATION SERVICES
The term communication refers to the flow of information, ideas, feelings and emotions
from one person to another. In order to co-ordinate the activities of different
departments or personnel in an organization communication is very necessary.
Communication may be either Internal Communication or External Communication.
Internal Communication consists of company mail service, messenger system,
intercom, CCTV etc. External Communication includes postal services, courier,
Telegrams, network, telephone, e-mail etc.
Postal and Telecom Services
Postal Services – The Government of India provides postal services on a national
and international level. It has 22 postal circles. Though it is reliable, they lack speed.
To overcome the competition from courier services it has started speed post services.
Facilities provided by postal services are financial facilities and mail facilities.

Financial facilities – These facilities are provided through the post office’s savings
schemes like Public Provident Fund (PPF), Kisan Vikas Patra, and National Saving Certificates in
addition to normal retail banking functions of monthly income schemes, recurring deposits,
savings account, time deposits and money order facility.
Mail facilities
It includes parcel services, registration facilities and insurance facilities. Postal
services also include allied facilities such as:
1. Greeting Post – greeting cards on every occasion.
2. Media Post – Advertisements through post cards, envelops etc.
3. International Money Transfer – in collaboration with Western Union Financial
Services USA.
4. Passport facilities – Partnership with ministry of external affairs.
5. Speed post – More than 1000 destinations in Indian and links with 97 major
countries.
6. E-bill post – For collecting bill payments for BSNL and Bharati Airtel.

V. TRANSPORTATION
Transport means the movement of goods and persons from one place to another.
Importance of Transport
1. It helps to widen the market
2. Creates place utility and time utility
3. Helps in large scale production
4. Division of labour and specialization is possible
5. Helps in stabilizing prices
6. Standard of living can be improved
7. Providing direct and indirect employment
8. Helps in national defense
9. Development of education and culture
10. Promoting national unity.

VI. WAREHOUSING
As the production is carried out on the anticipation of future demand, the finished goods
are to be stored until it is being utilized in a good condition in a well equipped godown.
“A warehouse s an establishment for the storage and accumulation of goods”

Types of Warehouses

1. Private Warehouses – These are owned by large business houses to store their own stock.
2. Public Warehouses - They are also known as duty-paid warehouses. They are owned and
managed by some agencies whose main occupation is to provide storage space against the
payment of certain fees. They have to obtain a license and their working is subject to some
government regulations.
3. Bonded Warehouses – It may be owned by dock authorities or private individuals under the
strict supervision of customs authorities. They are licensed by the government to accept
imported goods for storage before the payment of customs duty by the importers of such goods.
It is the duty of the owner of the warehouse to collect the customs duty of the goods removed
from the warehouse by the importer. Goods stored in such a warehouse is said to be ‘in a bond’
and therefore the warehouse is known as “Bonded Warehouses”.
4. Government Warehouses – They are owned by Government . E.g. Central and State
Warehouses, FCI, STC etc.
5. Co-operative Warehouses – They are owned by co-operative undertakings such as National
Co-operative Development Corporation, Co-operative Marketing Federations etc.

Functions of Warehousing
Consolidation: In this function the warehouse receives and consolidates, materials/goods from
different production plants and dispatches the same to a particular customer on a single
transportation shipment.
Break the bulk: The warehouse performs the function of dividing the bulk quantity of goods
received from the production plants into smaller quantities. These smaller quantities are then
transported according to the requirements of clients to their places of business.
Stock piling: The next function of warehousing is the seasonal storage of goods to select
businesses. Goods or raw materials, which are not required immediately for sale or
manufacturing, are stored in warehouses. They are made available to business depending on
customers’ demand.
Value added services: Certain value added services are also provided by the warehouses, such
as in transit mixing, packaging and labelling. Grading according to quantity and dividing goods
in smaller lots is another function.
Price stabilization : Stabilize prices by equalizing supplies.
Financing : Financial assistance may be available by pledging commodities to the warehouse
keeper either from himself or from a bank on the warehouse receipt.