BUSINESS SERVICES 

Services are intangible in nature which provides satisfaction of wants. The basic  differences between services and goods are: 

i. Services is an activity or process, but goods are physical object 
ii. Services are intangible in nature, but goods are tangible in nature. 
iii. In services production and consumption are simultaneous, but in goods they are  separated. 
iv. Services cannot be kept in stock, while goods can be kept in stock…… 

Types of Services: 

1. Business services: It means those services which help in the successful running of a  business.
Eg: banking, insurance, transportation, communication …… 

2. Social services: Which are generally provided voluntarily to fulfill social goals.
Eg:  health services, charity…. 

3. Personal services: Which are experienced differently by different people. They are  not consistent in nature.
Eg: tourism, restaurants, tailoring …. 

Classification of Business services

BANKS: A bank is an institution, which is primarily engaged in receiving money from the  public by way of deposits and provides the same to those who are in need of it as loans and  advances. According to 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 withdrawable by cheque, draft or otherwise”.  

Banks can be classified into the following: 

1. Cooperative Banks: They are governed by the provisions of State Cooperative  Societies Act . They act as an important source of rural credit ie, agricultural finance.

2. Specialized banks: They are established for some specific purposes such as foreign  exchange, industrial credit, export-import….. 

3. Central Bank: They supervise, control and regulate the commercial banks and act as a  government banker. In India RBI is the central bank. 

4. Commercial Banks: They are governed by the Indian Banking Regulation Act, 1949.  They are further classified into public sector, private sector and foreign banks. 

Types of Commercial Banks: 

2. Private Sector Banks: They are owned and managed by private parties. The private sector  banks consist of 25 old commercial banks and 9 new generation banks( ICICI, HDFC…). Eg. Federal Banks, ICICI,South Indian Bank, Dhanalekshmi Bank …. 

3. Foreign Banks: Banks have a place of origin at foreign country but operate with in India  are called foreign banks. Eg.:Citi banks, Standard Chartered Banks, Bank of America, HSBC,…. 

Functions of Commercial Banks: 

A. To Accept Deposits: Deposits received from the public constitute the major resource  available to a bank. Four types of deposits are usually accepted by banks. They are: a. Fixed Deposits: Under this a fixed amount is deposited for a specific period. Normally it is  repayable on the maturity period. It carries a higher rate of interest. Banks issue FDR (Fixed  Deposit Receipts) when they accept fixed deposit. It is also known as ‘time deposits’ or ‘term  deposits’. 

b. Saving Bank Deposits: This types of deposits helps in the mobilization of savings of the  general public. It carries a lower rate of interest than fixed deposits. There are certain  restrictions on operating this account such as keeping a minimum balance in the account,  frequency and volume of withdrawals etc. 

c. Current Deposits: This type of account is usually operated by businessmen. There is no  restriction on the frequency and volume of deposits or withdrawals of money. This account  carries Over Draft (OD) facility. This deposit does not generally carry any interest. d. Recurring Deposits: In this type of account a fixed amount is to be deposited at regular  intervals for a fixed period of time. The amount deposited is repaid on the date of maturity  together with interest. This is mainly focused to encourage the saving habit of fixed income  group. 

B. To give Loans and Advances: This is the second important function of commercial  banks. Banks usually lend money in the form of cash credit, overdraft, loans and advances  and by discounting bills of exchange. 

a. Cash Credit: In this the banks open cash credit account in the name of the borrower and  permit his to withdraw money up to the sanctioned limit. Interest is to be paid on the  amount actually withdrawn by him. 

b. Overdraft (OD): It is an arrangement where customers are permitted to withdraw cash  up to a level over and above their deposits in the account. Interest is to be paid only on the  actual amount of OD. Generally OD is granted to businessmen against their current accounts.

c. Discounting bill of exchange: In this the banker will credit the amount of the commercial  bill in the customer’s account after deducting a small amount of discount.

d. Term loan: Banks also provide medium term and long term loans to their customers. The  amount of loan may vary depending upon the requirements of the borrower. 

C. Cheque facility: Bank collects customer’s cheque drawn on other bank. There are two  types of cheques mainly:
(a) bearer cheques (encashable immediately at bank counters) 
(b) crossed cheques (deposited only in the payees account). 

D. Remittance of funds: Bank provides the facility of fund transfer from one place to another.  The transfer of funds is administered by using bank drafts, pay orders or mail transfers, on  nominal commission charges. 

E. Other Services: It include various services such as bill payments, locker facilities,  underwriting services, payment of insurance premium, collection of dividend, buying and  selling of shares on behalf of customers……….



E. Electronic Banking/ Recent Trends in Banking: 
1. ATM Cards: ATMs (Automated Teller Machines) are known as mini banks. Customers  can withdraw cash from the account and get statements on their bank balance using  such machines. The media for accessing such a machine is an ATM Card. This  personalized plastic card bearing a number of each customer. This card is to be  inserted in to the machine and enter the Personal Identification Number (PIN), this  open your account and your can withdraw cash or get statements on banks balance.  ATM cards are giving its services for 24 hours a day and 365 days in a year. 
2. Debit Cards: The holder of debit card can buy goods from different approved shops  (POS-Point Of Sale) without paying cash but against the balance in his bank account.  Every purchase reduces bank balance. 
3. Credit Cards: Credit card is an instrument issued by a bank in the name of the  customer providing for credit up to a specific period. The person holding a valid credit  card uses it for making purchases from approved shops without paying cash. The  vendors get payment from the credit card issuing bank and the buyers pay for the  purchase amount to the bank with the credit period (normally 30 to n50 days) with  interest. ATM cards, Credit Cards and Debit Cards are collectively called ‘Plastic Money’.
4. CORE(Centralised Online Real-time Electronic) Banking: In this system a customer  by opening a bank account in one branch having CBS (Centralised Banking Solutions)  facility can operate the same account in all the CBS branch of the same bank all over  the country. 
5. EFTs (Electronic Fund Transfer system):Under this system money can be  transferred from one account to another account. 
6. Tele banking: Under this facility a customer can get information about the balance in  his account or information abut the latest transactions on the telephone.
7. NEFT ( National Electronic Fund Transfer): It is a nation wide system that facilitates  individuals to electronically transfer funds from any bank branch to any other bank  branch in the country. 
8. RTGS (Real Time Gross Settlement System): It is a specialist funds transfer systems  where transfer of money takes place from one bank to another on a “real time” and on  “gross” basis.  
9. Mobile Banking: It is a system that allows customers of a bank to conduct a number of  financial transactions through a mobile device such as a mobile phone or tablet. Advantages of E-Banking 

To Customers To the Bank
1. Continuous service 
2. Service available from every where
3. Ensure financial discipline 
4. Greater customer satisfaction
1. Building competitive strength 
2. Reduction of work load in branches
3. Unlimited net work of the bank.

INSURANCE: Insurance is an agreement between the insured and the insurer by which the  insurer undertakes to indemnify the loss caused to the insured as a result of the happening of  a certain event. 
Insurer: The person who undertakes the risk.  
Insured: The person whose risk is undertaken.  
Policy: The agreement or contract between insured and insurer.  
Premium: The amount paid by the insured t the insurer for undertaking the loss. 

Functions of Insurance: 
1. Providing certainty: Insurance provide certainty of payment for the risk of loss. 
2. Protection: It provide protection from probable chances of loss.  
3. Risk sharing: The share is obtained from every insured member by way of premium. 
4. Assist in capital formation: The fund received by insurance companies is invested in  various income generating schemes.  

Principles of Insurance: 
1. Principles of utmost good faith: Contract of insurance is a contract of  ‘uberrimaefidie’, ie, a contract which requires utmost good faith in the case of both the  parties. It means that both the parties are required to make full disclosure of all the  facts.  An ordinary contract of sale is based on the principle of Caveat Emptor (let the buyer  beware).  

2. Principle of insurable interest; Insurable interest means monetary interest. A person  is said to have insurable interest in the subject matter of insurance if he stands to gain  from its existence and will suffer a financial loss with its destruction. Even a non owner may have insurable interest.   In the case of life insurance, insurable interest must be present in the  person insured at the time of taking the policy. In the case of fire insurance, the  insured must have insurable interest at the time of taking the policy and at the time of  lodging the claim. In the case of other general insurances, the insurable interest must  exist at the time of happening the event.  

3. Principles of indemnity: It means that in the event of occurrence of loss, the insured  will be indemnified to the extent of actual value of his loss or the sum of insured  whichever is less. This principle is not applicable in life insurance, because the loss  due to death of the insured cannot be measured in terms of money and money cannot  be substituted as compensation for the loss of life.  

4. Principles of subrogation: According to the principle, the scrap or remains of the  damaged property will become the property of the insurance company after the  payment of compensation to the insured. Further, the insurer will be entitled to have  all the rights enjoyed by the insured against third parties on the subject matter of  insurance.  

5. Principle of Contribution: Under this principle, if the insured has taken a double  insurance, he is eligible to receive a claim only up to the amount of actual loss suffered  by him. If the insured claims full amount of loss from one insurer, he is not eligible to  get any amount from other insurers. This is not applicable in the case of life  insurance.

6. Principle of mitigation of loss: According to this principle, the insured should take all  reasonable steps to reduce the loss as a man of ordinary prudence would have taken in  his own case, if it were not insured. 

7. Principle of causa proxima: Under this principle, the insurance company will admit  the claim, only if it is established that the damage have resulted directly by an event  which is covered under insurance. 

Double insurance: When the same subject matter is insured with more than one  insurer, it is known as double insurance. But the insured cannot recover anything more  than the financial value of actual damage suffered due to the mishap (according to  principle of indemnity, it is not applied in life insurance). 

Re-insurance: It is a contract of insurance entered in to by the insurer with another  insurer with a view to spread a part or whole of the original risk. In this there is no  direct relationship between insured and re-insurer. 

Types of Insurance: 
I. Life Insurance: Life insurance is an agreement between the insurer and the  insured whereby the insurer assures to pay a certain sum of money wither on the  expiry of a fixed period or on the death of the insured in return of periodical payment  known as premium. It is a contract of assurance. The main elements of a life insurance  contract are: 

It is a contract of utmost good faith 
The insured must have insurable interest in the life assured. 
It is not a contract of indemnity. 
It must have all the essentials of a valid contract. 

Kinds of Life Insurance Policies: 
1) Whole life policy: The sum assured becomes payable only on the death of the  policy holder. The premium is to be paid for a specified period of time after  which the policy will become fully paid. It gives protection to the dependents. 
2) Endowment life policy: Here the sum assured become payable either at the  end of the stipulated period or on the premature death of the policyholder  whichever is earlier. 
3) Joint Life Policy: This policy is taken up by two or more persons. The premium  is paid jointly or by either of them. The assured sum or policy money is payable  upon the death of any one person to other survivor or survivors. 
4) Annuity Policy: Under this, the assured sum is payable after a specific period in  periodically ie, monthly/ quarterly/ half yearly/yearly. 
5) Children’s Endowment Policy: This policy is taken for children. The  agreement states that a certain sum will be paid by the insurer when the  children attain a particular age.

II. General Insurance: It includes the following; 
1. Fire Insurance: In this the insurer undertakes to indemnify the loss caused to  the insured due to fire. Two conditions must be satisfied for making a claim for  loss by fire: a. there must be a fire. b. the fire must be on accidental. The main  elements of a fire insurance contract are: 

Insurable interest must be present both at the time of insurance and at the  time of loss. 
It must be a contract of utmost good faith 
It is a contract of indemnity. 
The insurer is liable to compensate only when fire is the nearest cause of  damage or loss. 

The various types of fire insurance policies are valued policy, specific policy and  average policy. 

2. Marine Insurance: Loss covered incidental to marine adventures. It includes  Cargo Insurance, hull insurance and freight insurance. The main elements of  marine insurance are: 

It must be a contract of utmost good faith 
It is a contract of indemnity. 
⮚ The principle causa proxima will apply in it. 
⮚ Insurable interest must exist at the time loss but not necessary at the  time policy taken. 

3. Health insurance: It cover the expenses of hospitalization, doctors service,  income lost due to unable to work, nursing bill of elderly people ……. 4. Fidelity insurance: This type of policy is taken by employer of a business to cover  risks arising out of fraud and dishonesty of his employees….. 

5. Motor vehicle insurance 

6. Crop insurance 

7. Cattle insurance 

8. Burglary insurance ….

Difference between Life, Fire and Marine Insurance 

Basis Life Insurance Fire Insurance Marine Insurance
1. Subject  MatterHuman life Any physical  property/assetsShip, cargo or  freight
1. Element Protection and  investment or bothOnly the element of  protectionOnly the element  of protection
2. Insurable  interestMust be present at the  time of policy takenMust be present both  at the time of policy  taken as well as the  time of lossMust be present at  the time of loss.
3. Duration Long period Normally for one  yearNormally for one  year
4. Principle of  indemnityNot applicable Applicable Applicable
5. Measureme nt of lossNot possible Possible Possible
6. Surrender  of policyPossible Not possible Not possible
7. Nature of  riskCertain Uncertain Uncertain
8. Policy  amountNo limit Up to the value of  subject matterUp to the market  value of the  ship/cargo.

Examples of Insurable Risks:
1. Property Risks
2. Personal risks (premature death, physical  disability, old age …) Legal liability risks (use of automobiles, employment, production  process..) 

Examples of Non-insurable Risks;
1. Market risks (business cycle, change in fashion, taste  and preferences, competition ….)
2. Political risks (dismissal of govt., war, foreign exchanges  curbs…)
3. Production risks (labour problems, obsolescence…)
4.Personal risks (unemployment, poverty…). 

COMMUNICATION: The word communication is derived from the word, “Communis”  which means “in common”. The term communication refers to the flow of information, ideas,  feelings and emotions from one person to other or others. In case of business it helps in the  smooth running of various operations. There are two forms of communication available in  business; internal and external. 

Modes of Communication 

Postal Services Courier Services Electronic Media Telecom Services

A. Postal Services: Indian post provides various postal services across India. For  providing these services the whole country has been divided into 22 postal circles. The  various facilities provided by the postal department are: 
I. Mail facilities: It include transmission of letters and parcels from one place to  another. They provide facilities like Registered Post, Insured Post, Certificate of  Posting….. 
II. Financial facilities: They provide monthly income schemes, recurring deposits,  saving account, time deposit and money order facility. Post offices also provide  various saving schemes like National Saving Certificate, Kisan Vikas Patra and Public  Provident Fund etc. 
III. Other facilities: It include greeting post, media post, direct advertising, passport  services, International Money Transfer(collaboration with Western Union Financial  Services), Speed Post, E-payment, Instant Money Order, philately, issue of various  forms etc.. 

B. Courier Service: In it messenger carrying letters, documents and parcels from one  place to another through private operators known as couriers or courier companies.

C. Electronic Media: It include internet(global network of computers), Email(electronic  mail), Fax(enables transmission of documents, diagrams and photos from the sender’s  fax machine to the receiver’s. 

D. Telecom Services: It include telephone, mobile phone, voice mail, pager service,  DTH(Direct To Home) service, Cable services, VSAT(Very Small Aperture Terminal)  service etc. 

TRANSPORTAITON: It means movement of goods and passengers from one place to  another. It removes the hindrance of place. 

Functions of Transportation: 

1. Helps in movement of goods and passengers from one place to another.
2. Helps in large scale production. 
3. Helps in stabilization of prices. 
4. Helps in the growth of towns and cities. 
5. Links all parts of the world. 
6. Helps in economic, social and cultural development of the country. 

Types of Transport 

Land Water Air Road Rail Pipeline Inland Ocean Domestic International Coastal Overseas

WAREHOUSING; It is concerned with the establishment, maintenance and management of  warehouses for the storage of goods. It removes the hindrance of time. Storage enables goods  to be made available to the customers whenever and wherever it is demanded.

Functions of warehousing: 
1. Consolidation: In it the warehouse receives and consolidates goods from different  production plants. 
2. Break in bulk: They divide the bulk quantity of goods received from the production  plants into smaller quantities. 
3. Storage of goods: They store seasonal goods or materials. 
4. Value added services: They provide various value added services like grading,  packing, labeling….. 
5. Price stabilization: By adjusting the supply of goods with the demand situation,  warehousing performs the function of stabilizing prices. 
6. Financing: Warehouse owners advance money to the owners on security of goods and  further supply goods on credit terms to customers. 

Types of Warehouses; 
1. Private warehouses:-owned by large business firms or wholesalers.
2. Co-operative warehouses: owned by co-operative undertakings. 
3. Government warehouse: – owned by government or government agencies.
4. Public warehouse: – owned by some agencies and provide space against the payment  of some fees. It also known as duty-paid warehouses. 
5. Bonded warehouses: – These warehouses are used to keep the imported goods before  the payment of import duties. They are owned by dock authorities or by the private  parties. They are under the supervision and control of customs authorities.

Chapter – 5 : EMERGING MODES OF BUSINESS


E-Business: E-Business may be defined as the conduct of industry, trade and commerce
using the computer networks. Almost all types of business functions as well as managerial
activities like production, inventory management, product development, accounting and
finance, human resource management etc. can be carried out over computer networks.
E-Commerce: Commercial transactions conducted electronically on the internet is called E-
Commerce. It covers a firm’s interactions with its customers and suppliers over the internet. It
is only a part of e-Business.

Differences between Traditional and e-Business.
Basis
1. Ease of Formation Traditional Business
Difficult
e-Business
Simple
2. Physical presence Required Not required
3. Location requirement Important Not important
4. Cost of setting up High Low
Outsourcing
It means source from outside. In other words outsourcing refers to hiring out non-core
activities of business to third party specialists to take advantage of their experience, expertise
and efficiency in performing such activities.
The term outsourcing is popularly known as BPO (Business Process Outsourcing and the idea
behind this concept is that a business can concentrate in its core areas and leaving other
activities as BPOs.
Eg:
1. Canteen in a business organization to a hotel.
2. Transportation of raw materials in a factory to a transport agency.
3. Selection of employees to a recruitment agency etc.