Business Services Ch-4 11th PDF

**Chapter-4** **Business Services** **Business Services: Meaning and types** Business services refers to those services which are used by business enterprises to conduct their activities. For example, banking, insurance, communication, transportation, and warehousing services. **Types of Busines...

**Chapter-4** **Business Services** **Business Services: Meaning and types** Business services refers to those services which are used by business enterprises to conduct their activities. For example, banking, insurance, communication, transportation, and warehousing services. **Types of Business Services** **1.Banking-** Every business enterprise needs to finance to carry on its operations. Banks provide funds to the business. **2.Insurance-** In order to protect the businessman from damage or risk, there is a need to get the plant, machinery, goods, etc insured. **3.Communication-** Communication is needed to educate the consumer or potential user about the availability and utility of the product. **4.Transportation-** Transportation is required to carry raw material and finished goods on time. **5.Warehousing-** Warehousing is needed to store the goods from the time of their production or purchase until they are sold or consumed. **[CHARACTERISTICS /FEATURES/ NATURE OF SERVICES]** **1.Intagibility-** Unlike goods, services are intangible, i.e. they do not have any physical existence and cannot be touched. They can only be felt or experienced. For instance, one cannot touch or taste a doctor's treatment. **2.Inconsistency-** As services are intangible, they have to be performed exclusively each time. Different customers have different requirements and expectations. The service provider should modify his offer to meet the requirements of each customer. For example- the banking services provided by nationalized banks are quite different from the banking services provided by private sector or foreign banks. **3.Inventory (loss)-** The main feature of services is that consumed at the same time, when they produced. So, there is no need to maintain inventory or stock of services. **4.Inseparability-** The services cannot be separated from the provider of services. These are produced and consumed at the same place only. For example- Doctors and his services are inseparable. **5.Involvement-** To experience a service the participation of the customer is essential. **[DIFFERENCE BETWEEN GOODS AND SERVICES]** **Basis of difference** **Services** **Goods** ------------------------- ------------------------------------------------------ ---------------------------------------------- Intangible Services are intangible. Goods are intangible. Inventory No requirement to maintain inventory. Inventory must be maintained. Inseparable Services can't be separated from providers. Goods can be separated from provider. Standardisation It is difficult to standardize and maintain quality. Goods can be standardized. Nature It is an activity or process, e.g. watching a movie. It is a physical object , e.g. car, TV, etc. Type Heterogenous Homogenous Transfer of ownership Ownership cannot be transferred. Ownership can be transferred. **[BANKING]** The Banking Regulation Act, 1949 defines the term banking as "The accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise". **[TYPES OF BANKS ACCOUNT]** **1.Saving account-** Saving account is the account meant for people who wish to save a part of their income to safeguard the future and earn interest on the savings. - The main objective of savings account is to promote savings. - Savings account can be opened with a minimum initial deposits that varies from bank to bank. - There is no restriction on number and amount of deposits. - Banks generally put certain restrictions on number of withdrawals from this account. - The rate of interest payable is very nominal on savings account. **2.Current Account-** Current account is opened by businessmen who have a number of regular transactions with the bank, both deposits and withdrawals. In current account, there is no restriction on the number and amount of deposits and withdrawals. Banks do not pay any interest on these accounts. Rather, it imposes service charges for running these accounts. Current account is also known as 'Demand deposit'. **3.Fixed Deposit Account-** Fixed Deposit Account is an account in which the amount is deposited with the bank for a fixed period of time. The amount can be deposited only once in a fixed deposit account. The period of fixed deposits range between 15days to 10 years. These deposits carry a high rate of interest. The money deposited in the fixed deposit account is repayable after a specified period. It is also known as 'Term Deposit Account' or 'Time Deposit Account'. **4.Recurring Deposit Account-** Recurring Deposit Account is opened by those who want to save regularly for a certain period of time and earn a higher interest rate. In this account, certain fixed amount is accepted every month for a specified period and the total amount is repaid with interest at the end of the particular fixed period. The main objective is to develop regular savings habit among the public. **Multiple Option Deposit Account-** Multiple Option Deposit (MOD) account is a combination of savings bank account and fixed deposits. MOD account interlinks the savings bank account with a deposit account and any amount in excess of pre-determined amount is automatically transferred to a fixed deposit (FD). It enables the account holder to earn better interest on the money. The account holder has to predefine limit and money up to that limit is kept in the form of cash in the savings account and any amount above 'limit' is automatically converted into a fixed deposit (FD) and the account holder will start earning normal FD returns on that part of the money. **[BANKING SERVICES]** Some of the services offered by banks are: **1. Bank draft-** Bank draft is an order issued by a bank on any branch of the same bank to pay the specified amount to the person named in it. A requisition slip has to be filled in by the customer (drawer) for the issue of bank draft. When the customer requests a bank draft, the issuing bank withdraws the bank draft amount from his account (or collects draft amount in cash) and issuing the bank draft. It is drawn by one bank on the another branch of the same bank at some other place. There is full guarantee by the issuing bank branch about the payment of the draft to the payee. So, there is no risk of bank draft getting dishonoured. The customer is charged a fee or commission for issuing the bank draft. It is also known as 'Demand Draft' or 'Banker draft'. **2. Banker's Cheque (Pay order)-** Banker's cheque is almost like a bank draft. It refers to that bank which is payable within the town. Like a bank draft, there is full guarantee by the drawee bank about the payment of the banker's cheque to the payee. So, there is no risk of being dishonoured. The commission charged on banker's cheque is less than that on a bank draft. It is also known as 'pay order'. **3. Real Time Gross Settlement (RTGS)** Real time gross settlement (RTGS) system is an online system for transferring funds in which transfer of money takes place from one bank to another on a real time and on gross basis. RTGS system is maintained and operated by the RBI and provides a means of efficient and faster funds transfer among banks. Real time means the processing of instructions at the time they are received rather than at some later time. Gross Settlement means the transaction is settled on one to one basis without netting with any other transaction. As the funds settlement takes place in the books of the Reserve Bank of India (RBI) the payments are final and irrevocable. The minimum amount to be remitted through RTGS is Rs.2lakh. There is no upper ceiling for RTGS transactions. **4. National Electronic Funds transfer (NEFT)-** National Electronic Funds transfer system is an online system for transferring funds in which transfer of money takes place from one bank to another on net basis. Complete details such as the receiver's name, bank account number, account type (savings or current account), bank name, city, branch name, etc. has to be furnished to the bank at the time of requesting for such transfers so that the amount reaches the beneficiary account correctly and faster. There is no value limit no minimum or maximum on the transactions of NEFT. Funds transfer normally takes place on the same day or at the most the next working day, depending upon the time of requesting such funds transfer. **5. BANK OVERDRAFT** It refers to a facility in which a customer is allowed to overdraw his current account upto an agreed limit. This overdraft is a kind of temporary loan and bank charges interest on actual amount which is overdrawn by the account holder. **6. CASH CREDITS** Cash Credit refers to a loan given to the borrower against his current assets like shares, stocks, bonds , etc. **[ELECTRONIC BANKING OR E-BANKING]** The customer can conduct banking activities like managing savings, checking accounts, applying for loans or paying bills. E-banking lowers the transaction cost, adds value to the banking relationship and empowers customers. **[Benefits of e-banking to customers]** **1.Digital payment and Transparency:** With e-banking there is possibility of digital payment it promotes transparency in financial statements. **2. 24 \* 7-** E-banking provides twenty --four hours 365 days a year services to the customer of the bank. **3.Convenience-** Customer can make some of the permitted transactions from office or house or while travelling through mobile phones. **4.Financial Discipline-** E-banking inculcates a sense of financial discipline by recording each and every transaction **5.Unlimited Access-** E-banking leads to greater customer's satisfaction by offering unlimited access to the bank not limited by the walls of the branch. **6.Less risk-** There is greater security to the customers as they can avoid travelling with cash. **[BENEFITS TO BANKS]** 1.Competitive Advantage- e-banking provides competitive advantage to the bank. 2.Unlimited Network- e-banking provides unlimited network to the bank and is not limited to the number of branches. Any PC connected to a modern and a telephone can provide cash withdrawal neds of the customer. 3.Reduced Load on Branches- The load on branches can be reduced by establishing centralized data base and by taking over some of the accounting functions. **[INSURANCE]** Insurance is a contact between two parties, whereby one party agrees to (cover) the loss suffered by the other party for a consideration of some money, known as Premium. Insurer- It is the individual or firm known as the Insurance Company which promises to indemnify or compensate the loss of the insured. Insured- It is the individual or firm whose insurance is done, i.e. who gets compensation in the event of loss. **[FUNCTIONS OF INSURANCE]** The various functions performed by insurance are: 1.Providing Certainity- Insurance cannot remove the uncertainity involved in the business. However, it provides certainity of payment for the risk of loss. The insurer charges premium for providing the certainity. 2.Protection- Insurance cannot stop the happening of a risk. However, it gives protection against risk of a probable loss that may arise due to happening of an uncertain event, like fire, theft, natural calamaties, etc. 3.Risk Sharing- The premium paid by all of them is pooled and in case of loss to any person, the compensation is paid to him out of such fund. Thus, by insurance, risk is shared by large number of people. 4.Assist in Capital Formation- The funds collected by the insurance company in the form of premium, are invested by them in various income generation schemes. It leads to capital formation in the economy. **[PRINCIPLES OF INSURANCE]** **1.Utmost good faith-** A contract of insurance is a contract of 'uberrimae fidei' i.e. a contract found on utmost good faith. Both the parties , the insurer and the insured should display good faith towards each other in regard to the contact. If the insured hides anything from the insurance company and later on the insurer comes to know about it, then he can refuse to pay compensation. Similarly, the insurer must also clear all the terms and conditions in the insurance contract. For example- if people has taken a life insurance policy by hiding the fact that he is a heart patient and later on if the insured dies of a heart attack then the insurance company can refuse to pay the compensation because a material fact was hidden by the insured. **2.Insurable Interest-** The insured must have an insurable interest in the subject matter of insurance. Insurable interest means some pecuniary (economic) interest in the subject matter of insurance contract. For example- If a person has taken loan against the security of a factory premises then the lender can take fire insurance policy of that factory without being the owner of that factory, because he has financial interest in the factory premise**s.** **3.Indemnity-** The term 'indemnity' means security against loss. The purpose of this principle is to put the insured, in the event of loss, in the same position that he occupied immediately before the happening of the event. The insured is not allowed to make any profit on the happening of an event. For example, a person insured his factory for Rs.2lakh against fire. Due to fire he suffered a loss of Rs.1 lakh, then the insurance company will compensate him Rs. 1 lakh only and not the policy amount that is Rs.2 lakh, because the purpose of insurance is to compensate for loss and not for earning profit. **4.Principle of Contribution-** According to this principle, if a person has taken more that one insurance policy for the same subject matter then all the insurers will contribute the amount of loss and compensate him for the actual amount of loss. Separately he cannot claim total loss from each insurer. For example- a person gets his house insured against fire for Rs.1 lakh with insurer A and for Rs.50,000 with insurer B. A loss of Rs.75000 occurred. Then A is liable to pay Rs.50,000 and B is liable to pay Rs.25000. **5.Principle of Subrogation-** According to this principle, after paying the compensation, the insurer steps into the shoes of the insured. In other words, when the insured is compensated for the loss or damage to the property insured by her/him, the right of the ownership of such property passes on the insurer. For example- if a person has taken fire insurance policy for his factory, due to fire he suffered a loss of Rs.1,00,000 and he gets the compensation for the same. Later on, half burnt goods were sold for Rs.10,000 then these Rs.10,000 will be kept by insurance company and not by insured because insured has already got full compensation for the loss. **6.Principle of Cause proxima-** According to the principle, the cause or reason for the loss must be related to the subject matter of the insurance contract. If loss is due to some other cause then the insured can deny to pay the compensation. For example, if a person has taken marine insurance policy for sending the wheat bags and on the way if a rat spoiled the wheat then no compensation will be given because under marine insurance the cause of loss should be sea perils and not the rat. On the other hand, if the rat makes a hole in the ship through which water enters and spoils the wheat bags then compensation will be given because the loss of wheat is due to sea water. **7.Principle of Mitigation of Loss-** According to this principle, the insured must take care of his property or subject matter of insurance in the same way as he would take care without taking the insurance policy. The insured should not become careless of his property after taking insurance policy. It is the duty of the insured to make a reasonable effort and take all available precautions to save the insured property. For example, if a person has taken fire insurance policy for his house and when fire breaks out he should take all the measures to stop the fire and minimise the loss rather than watching the fire because he will get compensation from insurance company. **[TYPES OF DIGITAL PAYMENT]** **Banking Cards** **(i) Debit Cards-** Debit card is an electronic card issued by a bank which allows the bank client access to his account to withdraw cash or pay for goods and services. \* Through debit cards, the account holder is not required to visit bank to withdraw cash as he/ she can now just go to an ATM or pay electronically at merchant locations. \* When a customers makes a payment using debit card, his/ her account balance is automatically reduced. \* The limit of withdrawal or payment through debit card ends at the minimum account balance in the bank account. **(ii) Credit cards-** Credit card is a plastic card which is used to buy goods and services without making any immediate payment. \*Payment for goods or services can be made to the extent of credit allowed by the bank. \*Credit facility allowed by the banks depends upon the credit worthiness of the customers. **[Functions of Commercial Banks-]** **1.Acceptance of Deposits-** The basic or the primary function of a commercial bank is to accept deposits from the customers. These deposits are accepted through current account, savings account, fixed deposits, recurring deposits and multiple option deposit account. **2. Lending of funds-** Another important function of the banks is to provide loans and advances out of the amounts received through deposits. Overdrafts, cash credits, discounting trade bills, consumer credit, etc. are the main form of loans and advances made by the banks. **3. Remittance of funds-** The banks facilitates transfers of funds from one place to another through bank drafts, pay orders or mail transfers, on nominal commission charges. **4. Allied Services-** Apart from the above mentioned functions, following are the various allied services provided by the banks: 1. Payment of bills, locker facility and underwriting services. 2. Buying and selling of securities 3. Payment of insurance premium, collection of dividend, etc. **[TYPES OF BANKS]** **1.Commercial Banks-** Commercial Banks are the banks which are governed by the Indian Banking Regulation Act, 1949. The main function of these banks is to accept deposits from the public with the aim of lending or investment. They are of two types (i) Public Sector Banks and (ii)Private sector banks (a)Public Sector Banks- The commercial banks in which the government has a major stake are Public sector banks. They emphasise more on social objectives than on profitability. There are about 20 such banks in India. For example, State Bank of India, Canara Bank, Punjab National Bank, etc. (b)Private Sector Bank- These commercial banks are owned, managed and controlled by private promoters. These banks are free to operate as per market forces. For example- HDFC, ICICI, IDBI, Axis Bank, etc. **2.Cooperate Banks-** These are the banks which are governed by the state cooperative societies Act. The main aim of such banks is to provide cheap credit to their members. These banks constitute an important source of agricultural financing in India. **3.Specialised Banks-** These are the banks which are established for meeting some specific needs. For example, industrial bank is a specialized bank which provides financial aid for promoting industrial growth. Similarly, export-import banks provide financial aid for promoting foreign trade. **4.Central Bank-** It is a government bank which supervises, controls and regulates the activities of all commercial banks in the country. Apart from this, this bank also controls and coordinates currency and credit policies of a country. In India, Reserve Bank of India (RBI) acts as central banks. **[TYPES OF INSURANCE]** **LIFE INSURANCE-** Life of all individual is uncertain as it is always exposed to some kind of risks. There may be risk of dying too early or dying too late. As a result, there is a need for life insurance policy to provide financial support to the family in case of death old age. Life insurance can be defined as a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person (i.e. assured) or on the expiry of a certain fixed period (i.e. maturity time), whichever is earlier. **ESSENTIAL ELEMENTS OF LIFE INSURANCE CONTRACT** The main elements of a life insurance contract are: 1.It must have all the essentials of a valid contract- Elements like free consent of the parties to that agreement, competence of the parties to contract and lawful consideration are necessary for a life insurance contract. 2.It is a contract of utmost good faith- The assured must disclose all material facts about his health to the insurer, even if the insurer does not ask him. He should be honest and truthful. 3.The insured must have insurable interest at the time of making the contract- However, presence of insurable interest is not necessary at the time of maturity. 4.It is not a contract of indemnity- As loss arising on death of the assured cannot be measured in terms of money. That is why the amount payable is fixed, at the time of entering into the contract. **FIRE INSURANCE-** Fire insurance is a contract whereby the insurer, in consideration of the premium paid, undertakes to compensate the insured for any loss that may result due to occurrence of fire. Normally, the fire insurance policy is for a period of one year, after which it is to be renewed from time to time. The premium may be paid either in lump sum or installments. The document containing the terms and conditions of the contract is known as 'Fire insurance Policy'. **ESSENTIAL ELEMENTS OF FIRE INSURANCE CONTRACT** The main elements are: 1.The insured must have insurable interest both at the time of insurance and at the time of loss- The contract of fire insurance is also a utmost good faith so insured must disclose all materials facts related to the property for which insurance is taken. 2.It is based on the principle of strict indemnity- In the event of loss, the insured can recover the actual amount of loss from the insurer, subject to the limit of amount covered by the policy. Under no circumstances, the insured is allowed to make profit out of the contract. 3.The insurer is liable to compensate for the loss only when the proximate cause of loss is fire. **MARINE INSURANCE-** Marine insurance is a contract of insured under which the insurer undertakes to indemnify compensate the insured in the manner and to extent thereby agreed against marine losses. Marine profits can be collision of ship with the rock, fire, ship, attacked by the enemies, etc. These perils cause damage, destruction or disappearance of the ship and cargo. **ESENTIAL ELEMENTS OF MARINE INSURANCE CONTRACT** The main elements of a marine insurance contract are: 1.The Principle of Indemnity is strictly applicable on marine insurance as insured gets only loss amount or policy amount whichever is less. 2.The compensation is paid only when the loss is due to sea peril. So, doctrine of causa proxima is also strictly followed. 3.The contract is based on utmost good faith. The insured must be honest and truthful and should disclose all material facts about the subject matter and risks attached to it. 4.The insurable interest must exist at the time of loss, but not necessary at the time when the policy was taken. Difference between LIFE INSURANCE , FIRE INSURANCE AND MARINE INSURANCE - Basis Life Insurance Fire Insurance Marine Insurance ---------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- Subject Matter The subject matter of insurance is human life. The subject matter is any physical property or assets. The subject matter is ship, cargo or freight. Element/ Aim It aims to cover the elements of protection and investment of both. It aims to cover the element of protection only. It aims to cover the element of protection only. Insurable Interest It must be present at time of acquiring the policy and is not necessary at the time of maturity. It must exist at the time of contract and also when the claim falls due. It must be present at the time when the claim falls due. Duration It is generally taken for longer periods ranging from 5 to 30 years or whole life. It is generally taken for one year. It is for one year or for fixed period of voyage or mixed. Indemnity It is not based on the principle of indemnity. The sum assured is paid either on the happening of certain event or on maturity of the policy. It is a contract of indemnity. The insured can claim only the actual amount of loss, subject to maximum limit of the policy amount. It is a contract of indemnity. The insured can claim the market value of property destroyed. Loss Measurement The loss cannot be measured. The loss can be measured. The loss can be measured. Surrender value or paid up value It has a surrender value as it can be surrendered before maturity. It does not have a surrender value as it cannot be surrendered. It does not have a surrender value as it cannot be surrendered. Policy amount The policy amount can be taken for any amount. The policy amount cannot be more that the value of subject matter. The policy amount can be the market value of subject matter. Contingency of risk The element of risk is certain. The amount of policy has to be paid either on death or on maturity, whichever is earlier. The element of risk is uncertain. There may be no claim as loss by fire may not happen. The element of risk is uncertain. There may be no claim as loss at sea may not occur. **[POSTAL SERVICES] --** Postal services are important for a modern business. Indian post and telegraph department provides various postal services across the postal department performs the following services: Financial Facilities- Postal department provides financing facilities to numerous people due to its vast coverage. People can invest in post saving schemes through Public Provident Fund (PPF), Kisan Vikas Patra and National Saving Certificates. It also performs banking functions of monthly income schemes, recurring deposits, savings account, time deposits and money order facility. **UNDER POSTAL CERTIFICATE (UPC)** Under Postal Certificate (UPC) is a certificate issued by the post office on payment of prescribed fee, when the sender wants to have a proof that he has actually posted the letters. **REGISTERED POST** Registered Post is a postal service in which mail is registered by the post office at the time of sending, in order to assure safe delivery. 1\. Under this service, mails are handed over to the post office after affixing additional postage as registration charge. 2\. On receiving the mail, the post office immediately issues a receipt to the sender, which also serves as a proof that the mail has been posted. 3\. The location of registered post can be traced at any stage as record regarding movement of the article is maintained from booking till the time of its delivery. In case of loss or damage of the article, the sender is eligible for compensation. **PARCEL** Parcel Post is a service of a postal administration for sending article from one place to another through the post. 1.It is one of the less expensive ways to send packages through post that are too heavy to be sent by regular letter post and is usually a slower method of transportation. 2.Under parcel post services, parcels of specified size and weight can be sent across the country as well as outside the country. 3.The postal charges vary according to the weight of the parcel. **SPEED POST** Speed post is a postal service which provides for time-bound and express delivery of letters, documents and parcels across the nation and around the world. 1\. The charges for speed post are relatively more than that of ordinary mail. 2\. Post office provides time-bound as well as guaranteed mail delivery through its Speed Post Service. 3\. This service is available 24 hours at specific speed post centres. **COURIER** Courier is a mail service provided by private operators in which they collect letters and parcels from the doorstep of senders and delivers them at the place of the addressee. 1\. It provides a quick means of communication. No postage is required to be affixed on letters and parcels sent through couriers. 2\. The charges payable for private courier service are generally higher in comparison to post office. 3\. Courier company uses railway, roadways and airways for carriage of articles. 4\. It undertakes full responsibility of safe and timely delivery of articles. 5\. Overnite Express, Blue Dart Express, Blazeflash, DTDC, etc. are some of the private carriers operating in our country. **[TELECOM SERVICES]** Telecom services involve use of electronic devices for exchange of information. It provides faster, cheaper and more reliable means of communication. **[TYPES OF TELECOM SERVICES]** The various types of telecom services are: **1.Cellular Mobile Services:** These are used to provide voice and non-voice messages, data services. Some of the main operators providing cellular phone services in India are Airtel, Vodafone, Idea, Reliance, etc. **2.Fixed Line Service:** The various areas are connected through fibre optic cables to provide network for sending and receiving phone calls. **3. Cable services:** It is a one-way transmission of entertainment related services to the subscribers within a licensed area of operation. In future, cable network services are expected to become two-way. **4. VSAT Services(Very Small Aperture terminal):** VSAT is a satellite- based communication service. It offers business and government agencies a highly flexible and reliable communication solution in urban as well as rural areas. It can be used to provide newspaper online, market rates and tele-education even in most remote areas of our country. **5.Direct to Home(DTH) Services:** It is a satellite based media services, which is received through a satellite with the help of a small dish antenna and a set top box. DTH service provider offers a various channels depending on the plan selected by the subscriber.