BUSINESS SERVICES ( UNIT – 4)

 UNIT – 4

BUSINESS SERVICES

Nature of Services – There is five basic features of service called five “I”s, they are as follows:

1. Intangibility – Services are intangible. We cannot touch or taste or feel them. E.g. one cannot taste a doctor’s treatment, only can experience it.

2. 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.

3. Inseparability – Services are produced and consumed at a time. But in case of goods it is not so.

4. Inventory – (No Inventory) since there are not tangible components in services, they cannot be stored for future use.

5. Involvement – It implies the participation of the customer in the service delivery process.

Types of Services

1. Business Services – Business includes trade and aids to trade. Banking, Insurance,

Transportation, Warehousing etc. are aids to trade or service sectors of business. They

provide services to business enterprises for the conduct of their activities.

2. 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.

3. Personal Services – these types of services differ depending upon the tastes and preferences of customers. E.g. tourism, recreation, resorts etc. Business Services

I. 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the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and may be withdrawn by cheque, draft or otherwise”.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 the institutions dealing in money and credit. They are governed by Indian Banking Regulation Act 1949.

Types of Commercial Banks:- Commercial banks are classified on the basis of their ownership.

a. Public Sector Banks: They are the banks which are owned and managed by the government with a view to channelize bank credit in line with national priorities. Government of India nationalized fourteen commercial banks in 1969 and another six commercial banks in 1980.

b. Private Sector Banks: They are owned and managed by private parties. Even though they are governed by the RBI, they are free to evolve their own policy decisions regarding the banking operations. About to be 34 private sector banks are their in India like IDBI, ICICI, Federal Bank, Catholic Syriyan Bank, Dhanalkshmi Bank etc. and ICICI Bank is the largest private sector bank in India.

2. Cooperative Banks – Banks organized based on cooperative principles. They are governed by the provision of State Cooperative Societies Act. It is an important source for rural credit.

3. Specialized Banks – Organized to render specific services to the public. Eg., Foreign Exchange Banks, Industrial Banks, Export-Import (EXIM) Banks etc.

4. Central bank – This is also known as bankers’ bank, which controls and regulates the operations of all commercial banks in the country. It acts as banker to the government and controls the currency and credit policy of the country. The Reserve Bank of India is the central bank of our country established in 1935.

Functions of Commercial Banks:

Banks perform a variety of functions. Some of them are the basic or primary functions of a bank while others are agency or general utility services in nature. The important functions are given below:

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.

c. 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).

d. Remittance of funds – Transfer of funds from one account to another is made possible by issuing demand drafs (DD).

e. 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 of E-Banking

a. Any time service – Providing round the clock service.

b. Any where banking is possible (either at home, or office)

c. Creates financial discipline.

d. Less risk and greater security (risk of handling cash may be eliminated)

e. Work load on branches reduced.

II. 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. Everyone contributes a small amount in order to pay out the affected who loses heavily.

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

1. Utmost Good Faith – While entering into a contract of insurance, all the material facts are to be disclosed, otherwise it will become void.

2. Insurable Interest – The insured must have an interest on the subject matter of insurance, otherwise the contract of insurance become void. E.g. a person who has advanced money on the security of a house, has an insurable interest on that house.

3. 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.

4. Causa Proxima (Proximate Cause) – It means the nearest cause. It says that an insured can recover the loss only when it is caused by any of the risk insured against.

5. 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.

6. 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

e.g. A house is insured against fire for Rs.50000 with A Co. and for Rs.25000 with B company. There is an actual loss of Rs.15000. Here the insured can recover the loss from both the companies as follows:

Liability of A Co. = 50000 / 75000 X 15000 = 10000

Liability of B Co. = 25000 / 75000 X 15000 = 5000

Total 25000

7. 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

1. Life Insurance – In this case a person can take a life policy on his own life or on the life

of another person eg. Husband on the life of his wife.

The person who insures his life is called the assured. Here a specified amount of

money is payable on the death of insured or on the expiry of the specified period.

LIC enjoyed monopoly of life insurance business till the end of 2000. Now we have a lot

of private insurance companies.

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.

Ajith Kanthi @ Ajith P P SKMJ HSS Kalpetta Business Studies I Ch – 4 Page 4

5. 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.

6. 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

e.g. A house is insured against fire for Rs.50000 with A Co. and for Rs.25000 with B

company. There is an actual loss of Rs.15000. Here the insured can recover the loss

from both the companies as follows:

Liability of A Co. = 50000 / 75000 X 15000 = 10000

Liability of B Co. = 25000 / 75000 X 15000 = 5000

Total 25000 =====

7. 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.

(Acronym: CIMICUS)

Types of Insurance

1. Life Insurance – In this case a person can take a life policy on his own life or on the life of another person eg. Husband on the life of his wife. The person who insures his life is called the assured. Here a specified amount of money is payable on the death of insured or on the expiry of the specified period. LIC enjoyed monopoly of life insurance business till the end of 2000. Now we have a lot of private insurance companies.

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 assuredat 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 particularage 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 (pension plan). The premium is paid either in installment for a definite period or as a single premium.

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 (goods in the ship) is insured.

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

Other Insurance / Miscellaneous Insurance:

i. Health Insurance – for reimbursement of expenses due to hospitalization because of illness. amage, which must be covered by the policy.

ii. Motor Vehicle Insurance – for protection against loss to vehicle, passenger or third parties due to motor accident.

iii. Burglary Insurance – provide protection against loss by theft or house breaking. It covers the risk of loss to stock, cash in safe and properties in the business premises.

iv. Cattle Insurance – To cover the loss due to death of animals like bulls, buffaloes, cows etc.

v. Crop Insurance – To support the farmers due to crop failures due to draught or flood.

vi. Sports Insurance – To give protection for amateur sportsmen by covering their sports equipments, legal liability and personal accident.

vii. Third Party Insurance – This policy covers the risk of liability that may arise because of damage to the property of a third party and the risk of personal injury to such persons.

viii. Employer’s Liability Insurance – It is intended to protect an employer against any liability due to death or injury to his employees during the course of employment.

ix. Fidelity Insurance – to cover the risk of loss due to fraud or malpractices by the employees.

x. Personal Accident Insurance – to compensate the loss due to accident (death or injury).

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 – Post office savings schemes like PPF (Public Provident Fund), Kisan Vikas Patra and NSC (National Savings Certificates). They also provide retail banking services like RD (Recurring Deposits), savings account, time deposits and money order facility.

Mail facilities – It includes parcel services, registration facilities (security for transmitted articles) and insurance facilities (coverage of risks in the course of transmission). 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.

Telecom Services:

1. Cellular mobile services (Mobile phone service provider)

2. Radio Paging services

3. Fixed line services (Land Line)

4. Cable services (leased lines for banks etc.)

5. VSAT (Very Small Aperture Terminal) services – Satellite based communication service

most reliable in urban and rural areas.

6. DTH (Direct to Home) services

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 is 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 ownstock.

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

1. Consolidation – Receives goods from various plants and dispatch them to a particular

customer on a single consignment.

2. Breaking the bulk – Here the bulk quantity of goods from various plants may be divided into small quantity and send the same to the needy customers.

3. Stock piling – Storage of surplus products. 4. Value added services – Packaging, labeling, grading etc.

5. Price stabilization – Stabilize prices by equalizing supplies. 6. Financing – Financial assistance may be available by pledging commodities to the warehouse keeper either from himself or from a bank on the warehouse receipt.