business servicesall major towns across india (warehousing services). petrol pump owners use postal,...

CHAPTER 4

BUSINESS SERVICES

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

• state the characteristics of services;

• distinguish services from goods;

• classify different types of business services;

• explain the concept of e-banking;

• identify and classify different types of insurance policies; and

• describe different types of warehouses.

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4.1 INTRODUCTION

You must all have, at some time or theother experienced the effect of businessactivities on your lives. Let us examinefew examples of business activity i.e.,purchasing ice cream from a store andeating ice cream in a restaurant,watching a movie in a cinema hall orpurchasing a video cassette/CD,purchasing a school bus and leasing itfrom a transporter. If you analyse allthese activities, you will observe thatthere is a difference between purchasingand eating, purchasing and watchingand purchasing and leasing. What iscommon in all of them is that one ispurchasing an item and the other is

experiencing a service. But there isdefinitely a difference between the itemor good and the service performed.

For a layperson, services areessentially intangibles. Their purchasedoes not result in the ownership ofanything physical. For example, you canonly seek advice from the doctor, youcannot purchase him. Services are allthose economic activities that areintangible and imply an interaction tobe realised between the service providerand the consumer.

Services are those separatelyidentifiable, essentially intangibleactivities that provides satisfaction ofwants, and are not necessarily linked tothe sale of a product or another service.

All of us have seen a petrol pump. Have your ever thought how a petrol pump

owner does his business in a village? How he gets the petrol and diesel to the

villages in the interior? How he gets the money to purchase large quantities of

petrol and diesel? How he communicates to petrol depots for requirement and

also to customers? How he safeguards himself from various risks associated

with this business? The answer to all the above questions lies in the

understanding of business services. The transportation of petrol and diesel

from oil refineries to petrol pumps is carried out by train and tankers (transport

services). They are then stored at various depots of oil companies situated in

all major towns across India (warehousing services). Petrol pump owners use

postal, mail and telephone facilities to be in touch with customers, banks and

the depots for the availability of their requirements on regular basis

(communication services). As oil companies always sell the petrol and diesel

on advance payment, the owners have to take loans and advances from banks

to fund their purchases (banking services). Petrol and diesel being highly risky

products, the owners have to safeguard themselves from various risks by getting

the business, the products, the life of people working there, etc., insure

(insurance services). Thus, we see that a single business of providing petrol

and diesel at a petrol pump is actually a collective outcome of various business

services. These services are being utilised in the entire process of shipment of

petrol and diesel from oil refineries to the point of sale at petrol pumps, spread

across the length and breath of India.

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A good is a physical productcapable of being delivered to apurchaser and involves the transfer ofownership from seller to customer.Goods are also generally used to referto commodities or items of all types,except services, involved in trade orcommerce.

4.2 NATURE OF SERVICES

There are five basic features of services.These features also distinguish themfrom goods and are known as the five Isof services. These are discussed asbelow:(i) Intangibility: Services areintangible, i.e., they cannot be touched.They are experiential in nature. Onecannot taste a doctor’s treatment, ortouch entertainment. One can onlyexperience it. An important implicationof this is that quality of the offer canoften not be determined beforeconsumption and, therefore, purchase.It is, therefore, important for the serviceproviders that they consciously workon creating a desired service so that thecustomer undergoes a favourableexperience. For example, treatment by adoctor should be a favourable experience.(ii) Inconsistency: The secondimportant characteristic of services isinconsistency. Since there is nostandard tangible product, serviceshave to be performed exclusively eachtime. Different customers have differentdemands and expectations. Serviceproviders need to have an opportunityto alter their offer to closely meet therequirements of the customers. This is

happening, for example, in the case ofmobile services.

(iii) Inseparability: Anotherimportant characteristic of services is

the simultaneous activity of productionand consumption being performed.This makes the production and

consumption of services seem to beinseparable. While we can manufacturea car today and sell it after, say, a

month; this is often not possible withservices that have to be consumed asand when they are produced. Service

providers may design a substitute forthe person by using appropriatetechnology but the interaction with the

customer remains a key feature ofservices. Automated Teller Machines(ATMs) may replace the banking clerk

for the front office activities like cashwithdrawal and cheque deposit. But,at the same time, the presence of the

customer, is required and his/herinteraction with the process has to bemanaged.

(iv) Inventory (Less): Services havelittle or no tangible components and,

therefore, cannot be stored for a futureuse. That is, services are perishableand providers can, at best, store some

associated goods but not the serviceitself. This means that the demand andsupply needs to be managed as the

service has to be performed as andwhen the customer asks for it. Theycannot be performed earlier to be

consumed at a later date. For example,a railway ticket can be stored but therailway journey will be experienced

only when the railways provides it.

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(v) Involvement: One of the mostimportant characteristics of services is

the participation of the customer in theservice delivery process. A customerhas the opportunity to get the services

modified according to specificrequirements.

4.2.1 Difference between Services

and Goods

From the above, it is clear that the twomain differentiating characteristics of

services and goods are non-transferability of ownership andpresence of both provider as well as

consumer. While goods are produced,services are performed. A service is anact which cannot be taken home. Whatwe can take home is the effect of the

services. And as the services are sold

at the consumption point, there are noinventories. On the basis of abovefeatures, we can have followingpoints of distinction between goodsand services.

4.3 TYPES OF SERVICES

When speaking of the service sector,services can be classified into threebroad categories, viz., businessservices, social services and personalservices. These have been explained inthe following pages.

(i) Business Services: Businessservices are those services which areused by business enterprises for theconduct of their activities. Forexample, banking, insurance,transportation, warehousing and

communication services.

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Difference between Services and Goods

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(ii) Social Services: Social services

are those services that are generally

provided voluntarily in pursuit ofcertain social goals. These social goals

may be to improve the standard of

living for weaker sections of society, to

provide educational services to theirchildren, or to provide health care and

hygienic conditions in slum areas.

These services are usually provided

voluntarily but for some considerationto cover their costs. For example,

health care and education services

provided by certain Non-government

organisations (NGOs) and governmentagencies.

(iii) Personal Services: Personal

services are those services which are

experienced differently by differentcustomers. These services cannot be

consistent in nature. They will differ

depending upon the service provider.

They will also depend uponcustomer’s preferences and demands.

For example, tourism, recreational

services, restaurants.

In the context of betterunderstanding of the business

world, we will be limiting our

further discussions to the first

category of the service sector i.e.,business services.

4.3.1 Business Services

Today’s world is of tough competition,where the survival of the fittest is therule. There is no room for non-performance, and hence companiestend to stick to what they can do best.In order to be competitive, business

enterprises, are becoming more andmore dependant on specialisedbusiness services. Business enterpriseslook towards banks for availability offunds; insurance companies for gettingtheir plant, machinery, goods, etc.,insured; transport companies fortransporting raw material; and finishedgoods, and telecom and postal servicesfor being in touch with their vendors,suppliers and customers. Today’sglobalised world has ushered in a rapidchange in the service industry in India.India has been gaining a highlycompetitive edge over other countrieswhen it comes to providing services tothe developed economies of the world.Many foreign companies are looking toIndia for performing a host of businessservices. They are even transferring apart of their business operations to beperformed in India. We will discussthese in detail in the next chapter.

4.4 BANKING

Commercial banks are an importantinstitution of the economy for providinginstitutional credit to its customers. Abanking company in India is the onewhich transacts the business ofbanking which means accepting, for thepurpose of lending and investment ofdeposits of money from the public,repayable on demand or otherwise andwithdrawable by cheques, draft, orderor otherwise. In simple terms, a bankaccepts money on deposits, repayableon demand and also earns a margin ofprofit by lending money. A bankstimulates economic activity in themarket by dealing in money. It mobilises

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Banking and Social Objectives

In the recent past there has been a concerted effort by the policy makers inreorienting banking towards achieving social objectives. There has been a majorshift in the banking policy of the country:

from to(i) Urban orientation — Rural orientation(ii) Class banking — Mass banking(iii) Traditional — Innovative practices(iv) Short term objectives — Development objectives

the savings of people and makes fundsavailable to business financing theircapital and revenue expenditure. Italso deals in financial instruments andprovides financial services for a price,

i.e., interest, discount, commission, etc.

stake and they usually need toemphasise on social objectives than onprofitability. Private sector banks areowned, managed and controlled byprivate promoters and they are freeto operate as per market forces. There

4.4.1 Type of Banks

The focus of banking is varied, theneeds diverse and methods different.Thus, we need distinctive kinds ofbanks to cater to the above mentionedcomplexities.

Banks can be classified into thefollowing:

1. Commercial banks

2. Cooperative banks

3. Specialised banks

4. Central bank

(i) Commercial Banks: Commercialbanks are institutions dealing inmoney. These are governed by IndianBanking Regulation Act 1949 andaccording to it banking meansaccepting deposits of money from thepublic for the purpose of lending orinvestment. There are two types ofcommercial banks, public sector andprivate sector banks.

Public sectors banks are those inwhich the government has a major

are a number of public sector bankslike SBI, PNB, IOB etc., and otherprivate sector banks represented byHDFC Bank, ICICI Bank, KotakMahindra Bank and Jammu andKashmir Bank.(ii) Cooperative Banks: CooperativeBanks are governed by the provisionsof State Cooperative Societies Act andmeant essentially for providing cheapcredit to their members. It is animportant source of rural credit, i.e.,agricultural financing in India.(iii) Specialised Banks: Specialisedbanks are foreign exchange banks,industrial banks, development banks,export-import banks catering tospecific needs of these unique activities.These banks provide financial aid toindustries, heavy turnkey projects andforeign trade.(iv) Central Bank: The Central bankof any country supervises, controls andregulates the activities of all thecommercial banks of that country. It

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also acts as a government banker. Itcontrols and coordinates currency andcredit policies of any country. TheReserve Bank of India is the centralbank of our country.

4.4.2 Functions of CommercialBanks

Banks perform a variety of functions.Some of them are the basic or primaryfunctions of a bank while others areagency or general utility services innature. The important functions arebriefly discussed below:(i) Acceptance of deposits: Depositsare the basis of the loan operationssince banks are both borrowers andlenders of money. As borrowers theypay interest and as lenders they grantloans and get interest. These depositsare generally taken through currentaccount, savings account and fixeddeposits. Current account deposits canbe withdrawn to the extent of thebalance at any time without any priornotice.

Savings accounts are forencouraging savings by individuals.Banks pay rate of interest as decidedby RBI on these deposits. Withdrawalfrom these accounts has somerestrictions in relation to the amountas well as number of times in a givenperiod. Fixed accounts are timedeposits with higher rate of interest ascompared to the savings accounts. Apremature withdrawal is permissiblewith a percentage of interest beingforfeited.(ii) Lending of funds: Second majoractivity of commercial banks is to

provide loans and advances out of themoney received through deposits.

These advances can be made in the formof overdrafts, cash credits, discountingtrade bills, term loans, consumer credits

and other miscellaneous advances. Thefunds lent out by banks contribute agreat deal to trade, industry, transport

and other business activities.(iii) Cheque facility: Banks render avery important service to their

customers by collecting their chequesdrawn on other banks. The cheque isthe most developed credit instrument,

a unique feature and function of banksfor the withdrawal of deposits. It is themost convenient and an inexpensive

medium of exchange. There are twotypes of cheques mainly (a) bearercheques, which are encashableimmediately at bank counters and

(b) crossed cheques which are to bedeposited only in the payees account.(iv) Remittance of funds: Another

salient function of commercial banksis of providing the facility of fundtransfer from one place to another, on

account of the interconnectivity ofbranches. The transfer of funds isadministered by using bank drafts, pay

orders or mail transfers, on nominalcommission charges. The bank issuesa draft for the amount on its own

branches at other places or other banksat those places. The payee can presentthe draft on the drawee bank at his

place and collect the amount.(v) Allied services: In addition toabove functions, banks also provide

allied services such as bill payments,locker facilities, underwriting services.

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They also perform other services like buyingand selling of shares and debentureson instructions and other personalservices like payment of insurancepremium, collection of dividend etc.

4.4.3 e-Banking

The growth of Internet and e-commerceis dramatically changing everydaylife, with the world wide web ande-commerce transforming the worldinto a digital global village. The latestwave in information technology isinternet banking. It is a part of virtualbanking and another delivery channelfor customers.

In simple terms, Internet bankingmeans any user with a PC and abrowser can get connected to the bankswebsite to perform any of the virtualbanking functions and avail of any ofthe bank’s services. There is no humanoperator to respond to the needs of thecustomer. The bank has a centraliseddata base that is web-enabled. All theservices that the bank has permittedon the internet are displayed on amenu. Any service can be selected andfurther interaction is dictated by thenature of service.

In this new digital market placebanks and financial institutions havestarted providing services over theinternet. These type of services providedby the banks on the internet, callede-banking, lowers the transaction cost,adds value to the banking relationshipand empowers customers. e-banking iselectronic banking or banking usingelectronic media. Thus, e-banking is aservice provided by many banks, that

allows, a customer to conduct bankingtransactions, such as managing savings,checking accounts, applying for loansor paying bills over the internet using apersonal computer, mobile telephone orhandheld computer (personal digitalassistant) The range of services offeredby e-banking are: Automated TellerMachines (ATM) and Point of Sales (PoS),Electronic Data Interchange (EDI) andCredit Cards Electronic orDigital cash and Electronic banktransfer (EFT). The two ways in whichEFT can be done are: NEFT (NationalElectronic Fund Transfer) and RTGS(Real Time Gross Settlement).

Benefits

There are various benefits of e-bankingprovided to customers which are:(i) E-banking facilitates digital

payments and promotestransparency in financialstatements.

(ii) e-banking provides 24 hours,365 days a year services to thecustomers of the bank;

(iii) Customers can make some of thepermitted transactions from officeor house or while travelling viamobile telephone;

(iv) It inculcates a sense of financialdiscipline by recording each andevery transaction;

(v) Greater customer satisfaction byoffering unlimited access to thebank, not limited by the walls of thebranch and less risk and greatersecurity to the customer as theycan avoid travelling with cash.

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Types of Digital Payments

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The banks also stand to gain bye-banking. The benefits are:(i) e-banking provides competitive

advantage to the bank;(ii) e-banking provides unlimited

network to the bank and is notlimited to the number of branches,Any PC connected to a modem anda telephone having an internetconnection can provide cashwithdrawl needs of the customer;

(iii) Load on branches can beconsiderably reduced byestablishing centralised data baseand by taking over some of theaccounting functions.

4.5 INSURANCE

Life is full of uncertainties. The chancesof occurrence of an event causing lossesare quite uncertain. There are risks ofdeath and disability for human life; fireand burglary risk for property; perils ofthe sea for shipment of goods and, soon. If any of these takes place, theindividuals and/or, organisations maysuffer a great loss, sometimes beyondtheir capacities to bear the same. Itis to minimise the impact of suchuncertainties that there is a need forinsurance. Investment in factorybuildings or heavy equipments or otherassets is not possible unless there isarrangement for covering the risks, withthe help of insurance. Keeping this inmind, people facing common risks cometogether and make small contributionsto a common fund, which helps tospread the loss caused to an individualby a particular risk over a number of

persons who are exposed to it.

Insurance is thus a device by whichthe loss likely to be caused by anuncertain event is spread over anumber of persons who are exposed toit and who prepare to insure themselvesagainst such an event. It is a contractor agreement under which one partyagrees in return for a consideration topay an agreed amount of money toanother party to make a loss, damageor injury to something of value inwhich the insured has a pecuniaryinterest as a result of some uncertainevent. The agreement/contract is putin writing and is known as ‘policy’. Theperson whose risk is insured is called‘insured’ and the firm which insures therisk of loss is known as insurer/assurance underwriter.

4.5.1 Fundamental principle of

Insurance

The basic principle of insurance is thatan individual or a business concernchooses to spend a definitely knownsum in place of a possible huge amountinvolved in an indefinite future loss.Thus insurance is the substitution ofa small periodic payment (premium) fora risk of large possible loss. The loss ofrisk still remains but the loss is spreadover a large number of policyholdersexposed to the same risk. The premiumpaid by them are pooled out of whichthe loss sustained by any policy holderis compensated. Thus, risks are sharedwith others. From the analysis of pastevents the insurer (an insurancecompany or an underwriter) knows theprobable losses caused by each type

of risk covered by insurance.

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Insurance, therefore, is a form of risk

management primarily used to safe

guard against the risk of potential

financial loss. Ideally, insurance is

defined as the equitable transfer of the risk

of a potential loss, from one entity to

another, in exchange for a reasonable

fee. Insurance company, therefore, is

an association, corporation or an

organisation engaged in the business

of paying all legitimate claims that may

arise, in exchange for a fee (known as

premium).

Insurance is a social device in which

a group of individuals (insured)

transfers risk to another party (insurer)

in order to combine loss experience, which

provides for payment of losses from

funds contributed (premium) by all

members. Insurance is meant to protect

the insured, against uncertain events,which may cause disadvantage to him.

Sector of Economy and GDP of India

The Indian economy is classified in three sectors — Agriculture and allied,industry, and services. The services sector is the largest sector of India. TheGross Value Added (GVA) at current prices for the services sector is estimated at92.26 lakh crore INR in 2018-19. The services sector accounts for 54.40% ofIndia’s total GVA of Rs. 169.61 lakh crore. With GVA of Rs. 50.43 lakh crore, theindustry sector contributes 29.73%. While, agriculture and allied sector shares15.37%. At 2011-12 prices, the composition of agriculture and allied, industry,and services sector are 14.39%, 31.46%, and 54.15%, respectively.

Source: http://statisticstimes.com/economy/sectorwisegdpcalculationofindia.php

4.5.2 Functions of Insurance

The various functions of insurance areas follows:(i) Providing certainty: Insurance

provides certainity of payment for therisk of loss. There are uncertainties ofhappenings of time and amount of loss.

Insurance removes these uncertaintiesand the assured receives payment ofloss. The insurer charges premium for

providing the certainity.(ii) Protection: The second mainfunction of insurance is to provide

protection from probable chances ofloss. Insurance cannot stop thehappening of a risk or event but can

compensate for losses arising out of it.

(iii) Risk sharing: On the happeningof a risk event, the loss is shared by allthe persons exposed to it. The share isobtained from every insured memberby way of premiums.(iv) Assist in capital formation: Theaccumulated funds of the insurerreceived by way of premium paymentsmade by the insured are invested invarious income generating schemes.

4.5.3 Principles of Insurance

The principles of insurance are the

rules of action or conduct adopted by

the stakeholders involved in theinsurance business. The specific

principles of utmost significance to a

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valid insurance contract consists of the

following:

(i) 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 thecontract. 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 tomake clear all the terms and conditions

in the insurance contract. Thus, it is

binding on the proposer to disclose all

material facts about the subject matterof the proposed insurance. Any fact,

which is likely to affect the mind of a

prudent insurer in deciding to acceptthe proposal of insurance or in fixing

the rate of premium is material for this

purpose. Failure to make disclosure of

material facts by the insured makes thecontract of insurance voidable at the

discretion of the insurer.

(ii) Insurable Interest: The insuredmust have an insurable interest in thesubject matter of insurance. Onefundamental fact of this principle isthat ‘it is not the house, ship,machinery, potential liability of life thatis insured, but it is the pecuniaryinterest of the insured in them, whichis insured.’ Insurable interest meanssome pecuniary interest in the subjectmatter of the insurance contract. Theinsured must have an interest in thepreservation of the thing or life insured,so that he/she will suffer financially onthe happening of the event against

which he/she is insured. In case ofinsurance of property, insurableinterest of the insured in the subjectmatter of the insurance must exist atthe time of happening of the event. Inorder to name insurable interesthowever, it is not necessary that oneshould be the owner of the property.For example, a trustee holdingproperty on behalf of others has aninsurable interest in the property.(iii) Indemnity: All insurancecontracts of fire or marine insuranceare contracts of indemnity. Accordingto it, the insurer undertakes to put theinsured, in the event of loss, in the sameposition that he occupied immediatelybefore the happening of the eventinsured against. In other words theinsurer undertakes to compensate theinsured for the loss caused to him/herdue to damage or destruction ofproperty insured. The compensationpayable and the loss suffered are to bemeasured in terms of money. Theprinciple of indemnity is not applicableto life insurance.(iv) Proximate Cause: According tothis principle, an insurance policy isdesigned to provide compensation onlyfor such losses as are caused by theperils which are stated in the policy.When the loss is the result of two ormore causes, the proximate causemeans the direct, the most dominantand most effective cause of which theloss is the natural consequence. In caseof loss arising out of any mishap, themost proximate cause of the mishapshould be taken into consideration.(v) Subrogation: It refers to the rightof the insurer to stand in the place of

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the insured, after settlement of a claim,as far as the right of insured in respectof recovery from an alternative sourceis involved. After the insured iscompensated for the loss or damage tothe property insured by him/her theright of ownership of such propertypasses on to the insurer. This isbecause the insured should not beallowed to make any profit, by sellingthe damaged property or in the case oflost property being recovered.(vi) Contribution: As per this principleit is the right of an insurer who has paidclaim under an insurance, to call uponother liable insurers to contribute forthe loss of payment. It implies, that incase of double insurance, the insurersare to share the losses in proportion tothe amount assured by each of them.In case there is a loss, when there ismore than one policy on the sameproperty, the insured will have no rightto recover more than the full amountof his actual loss. If the full amount isrecovered from one insurer the right toobtain further payment from the otherinsurer will cease.(vii) Mitigation: This principle statesthat it is the duty of the insured to takereasonable steps to minimise the lossor damage to the insured property.Suppose goods kept in a store housecatch fire then the owner of the goodsshould try to recover the goods and savethem from fire to minimise the loss ordamage. The insured must behave withgreat prudence and not be careless justbecause there is an insurance cover. Ifreasonable care is not taken like any

prudent person then the claim from the

insurance company may be lost.

4.5.4 Types of Insurance

Various types of insurance exist byvirtue of practice of insurancecompanies and the influence of legalenactments controlling the insurancebusiness. Broadly speaking, insurance

may be classified as follows:

LIFE INSURANCE

Since life itself is uncertain, allindividuals try to assure themselves ofa certain sum of money in the future totake care of unforeseen events orhappenings. Individuals in the courseof their life are always exposed to somekind of risks.

The risk may be of an event whichis certain that is death. In that case,what will happen to the other members

of the family who are dependent on aparticular individuals income. Theother risk may be living too long in

which an individual may become tooold to earn i.e., retirement. In this casealso, the earnings will decline or end.

Under such circumstances, individualsseek protection against these risksand life insurance companies offer

protection against such risks.A life insurance policy was

introduced as a protection against the

uncertainity of life. But gradually itsscope has widened and there arevarious types of insurance policies

available to suit the requirements of an

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individual. For example, disabilityinsurance, health/medical insurance,annuity insurance and life insurance

proper.

Life insurance may be defined as acontract in which the insurer inconsideration of a certain premium,either in a lump sum or by otherperiodical payments, agrees to pay tothe assured, or to the person for whosebenefit the policy is taken, the assuredsum of money, on the happening of aspecified event contingent on thehuman life or at the expiry of certainperiod. Thus, the insurance companyundertakes to insure the life of a personin exchange for a sum of money calledpremium. This premium may be paidin one lump sum, or periodically i.e.,monthly, quarterly, half yearly oryearly. At the same time, the companypromises to pay a certain sum of moneyeither on the death of the person or onhis attaining a certain age (i.e., theexpiry of certain period). Thus, theperson is sure that a specified amountwill be given to him when he attains acertain age or that his dependents willget that sum in the event of his death.

This agreement or contract whichcontains all the terms and conditionsis put in writing and such document is

called the policy. The person whose lifeis insured is called the assured. Theinsurance company is the insurer andthe consideration paid by the assuredis the premium. The premium can bepaid periodically in instalments.

This insurance provides protectionto the family at the premature death orgives adequate amount at old age whenearning capacities are reduced. Theinsurance is not only a protection butis a sort of investment because a certainsum is returnable to the insured atthe time of death or at the expiry of acertain period.

Life insurance also encouragessavings as the amount of premium hasto be paid regularly. It thus, providesa sense of security to the insured andhis dependents.

The general principles of insurancediscussed in the previous section applyto life insurance also with a fewexceptions. The main elements of a lifeinsurance contract are:(i) The life insurance contract must

have all the essentials of a validcontract. Certain elements like offerand acceptance, free consent,capacity to enter into a contract,lawful consideration and lawfulobject must be present for thecontract to be valid;

Examples of facts to be disclosed

Fire insurance: Construction of building, fire detection and fire fighting

equipment; nature of its use.

Motor insurance: Type of vehicle; driver details.

Personal Accident insurance: Age, height, weight, occupation, previous medical

history.

Life insurance: Age, previous medical history, smoking/drinking habits.

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(ii) The contract of life insurance is acontract of utmost good faith. Theassured should be honest andtruthful in giving information to theinsurance company. He mustdisclose all material facts about hishealth to the insurer. It is his dutyto disclose accurately all materialfacts known to him even if theinsurer does not ask him;

(iii) In life insurance, the insuredmust have insurable interest inthe life assured. Without insurable

interest the contract of insuranceis void. In case of life insurance,insurable interest must be presentat the time when the insurance isaffected. It is not necessary thatthe assured should have insurableinterest at the time of maturityalso. For example, a person ispresumed to have an interest inhis own life and every part of it, acreditor has an insurable interestin the life of his debtor, and aproprietor of a drama company

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has an insurable interest in thelives of the actors;

(iv) Life insurance contract is not acontract of indemnity. The lifeof a human being cannot be

compensated and only a specified

sum of money is paid. That is why

the amount payable in life

insurance on the happening of the

event is fixed in advance. The sum

of money payable is fixed, at the

time of entering into the contract.

A contract of life insurance,

therefore, is not a contract of

indemnity.

Types of life insurance policies

The document containing the writtencontract between the insurer and theinsured alongwith the terms andconditions of insurance is called thePolicy. After the proposal form is filledby the insured (or the proposer) andthe insurer (insurance company)accepts the form and the premium, apolicy is issued to the insurer.

People have different requirementsand therefore they would like a policyto fulfill all their needs. The needs ofpeople for life insurance can be familyneeds, children’s needs, old age andspecial needs. To meet the needs ofpeople the insurers have developeddifferent types of products such asWhole Life Assurance, Endowmenttype plans, combination of Whole Lifeand Endowment type plans,Children’s Assurance plans andAnnuity plans. Some of these areexplained below:

(i) Whole Life Policy: In this kind ofpolicy, the amount payable to theinsured will not be paid before thedeath of the assured. The sum thenbecomes payable only to thebeneficiaries or heir of the deceased.

The premium will be payable for afixed period (20 or 30 years) or for thewhole life of the assured. If the premiumis payable for a fixed period, the policy willcontinue till the death of the assured.(ii) Endowment Life AssurancePolicy: The insurer (InsuranceCompany) undertakes to pay a specifiedsum when the insured attains aparticular age or on his death whichever is earlier. The sum is payable to hislegal heir/s or nominee named thereinin case of death of the assured.Otherwise, the sum will be paid to theassured after a fixed period i.e., till he/she attains a particular age. Thus, theendowment policy matures after alimted number of years.(iii) Joint Life Policy: This policy istaken up by two or more persons. Thepremium is paid jointly or by either ofthem in instalments or lump sum. Theassured sum or policy money is payableupon the death of any one person to theother survivor or survivors. Usually thispolicy is taken up by husband and wifejointly or by two partners in apartnership firm where the amount ispayable to the survivor on the death ofeither of the two.(iv) Annuity Policy: Under this policy,the assured sum or policy money ispayable after the assured attains a

certain age in monthly, quarterly, half

yearly or annual instalments. The

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97BUSINESS SERVICES

premium is paid in instalments over a

certain period or single premium may be

paid by the assured. This is useful tothose who prefer a regular income after

a certain age.

(v) Children’s Endowment Policy:This policy is taken by a person for his/her children to meet the expenses of

their education or marriage. Theagreement states that a certain sum willbe paid by the insurer when the

children attain a particular age. Thepremium is paid by the person enteringinto the contract. However, no premium

wil be paid, if he dies before the maturityof the policy.

FIRE INSURANCE

Fire insurance is a contract whereby

the insurer, in consideration of thepremium paid, undertakes to makegood any loss or damage caused by fire

during a specified period upto theamount specified in the policy.Normally, the fire insurance policy is

for a period of one year after which it isto be renewed from time to time. Thepremium may be paid either in lump

sum or instalments. A claim for lossby fire must satisfy the two followingconditions:

(i) There must be actual loss; and(ii) Fire must be accidental and non-

intentional.The risk covered by a fire insurance

contract is the loss resulting from fireor some other cause, and which is theproximate cause of the loss. Ifoverheating without ignition causesdamage, it will not be regarded as a fire

loss within the meaning of fireinsurance and the loss will not berecoverable from the insurer.

A fire insurance contract is basedon certain fundamental principleswhich have been discussed in generalprinciples. The main elements of a fireinsurance contract are:(i) In fire insurance, the insured must

have insurable interest in the subjectmatter of the insurance. Withoutinsurable interest the contract ofinsurance is void. In case of fireinsurance, unlike life insuranceinsurable interest must be presentboth at the time of insurance and atthe time of loss. For example, aperson has insurable interest in theproperty he owns, a businessmanhas insurable interest in his stock,plant, machinery and building, anagent has an insurable interest inthe property of his principal, apartner has insurable interest in theproperty of a partnership firm, anda mortgagee has insurable interest

in the property, which is mortgaged.(ii) Similar to the life insurance

contract, the contract of fireinsurance is a contract of utmostgood faith i.e., uberrimae fidei. Theinsured should be truthful andhonest in giving information to theinsurance company regarding thesubject matter of the insurance. Heis duty-bound to discloseaccurately all facts regarding thenature of property and risksattached to it. The insurancecompany should also disclose thefacts of the policy to the proposer.

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98 BUSINESS STUDIES

(iii) The contract of fire insurance is acontract of strict indemnity. Theinsured can, in the event of loss,recover the actual amount of lossfrom the insurer. This is subject tothe maximum amount for which thesubject matter is insured. Forexample, if a person has insured hishouse for ̀ 4,00,000 the insurer isnot necessarily liable to pay thatamount, although the house mayhave been totally destroyed by fire;but he will pay the actual loss afterdeducting depreciation within themaximum limit of ` 4,00,000. Thepurpose being that a person shouldnot be allowed to gain by insurance.

(iv) The insurer is liable to compensateonly when fire is the proximatecause of damage or loss.

MARINE INSURANCE

A marine insurance contract is anagreement whereby the insurerundertakes to indemnify the insuredin the manner and to the extent therebyagreed against marine losses. Marineinsurance provides protection againstloss by marine perils or perils of the sea.Marine perils are collision of ship withthe rock, or ship attacked by theenemies, fire and captured by piratesand actions of the captains and crew ofthe ship. These perils cause damage,destruction or disappearance of theship and cargo and non-payment offreight. So, marine insurance insuresship hull, cargo and freight. Thus, it isa device wherein the insurer undertakesto compensate the owner of a ship or

cargo for complete or partial loss at sea.The insurer gurantees to make good thelosses due to damage to the ship or cargoarising out of the risks incidental to seavoyages. The insurer in this case is knownas the underwriter and a certain sum ofmoney is paid by the insured inconsideration for the guarantee/protection he gets. Marine insurance isslightly different from other types. There

are three things involved i.e., ship or hull,cargo or goods, and freight.

(a) Ship or hull insurance: Since theship is exposed to many dangers at

sea, the insurance policy is forindemnifying the insured for lossescaused by damage to the ship.

(b) Cargo insurance: The cargo whilebeing transported by ship is subjectto many risks. These may be at porti.e., risk of theft, lost goods or on

voyage etc. Thus, an insurancepolicy can be issued to cover againstsuch risks to cargo.

(c) Freight insurance: If the cargo doesnot reach the destination due todamage or loss in transit, theshipping company is not paid freightcharges. Freight insurance is forreimbursing the loss of freight to theshipping company i.e., the insured.

The fundamental principles ofmarine insurance are the same as thegeneral principles. The main elementsof a marine insurance contract are:(i) Unlike life insurance, the contract

of marine insurance is a contract ofindemnity. The insured can, in theevent of loss recover the actualamount of loss from the insurer.

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99BUSINESS SERVICES

Difference between Life, Fire and Marine Insurance

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100 BUSINESS STUDIES

Under no circumstances, theinsured is allowed to make profitout of the marine insurancecontract. But cargo policies providecommercial indemnity rather thanstrict indemnity. The insurerspromise to indemnify the insured“in the manner and to the extent

agreed.” In case of ‘Hull Policy’, theamount insured is fixed at a levelabove the current market value;

(ii) Similar to life and fire insurance, thecontract of marine insurance is acontract of utmost good faith. Boththe insured and insurer mustdisclose everything, which is in theirknowledge and can affect theinsurance contract. The insured isduty-bound to accurately discloseall facts which include the natureof shipment and the risk of damageit is exposed to;

(iii) Insurable interest must exist at thetime of loss but not necessary at thetime when the policy was taken;

(iv) The principle of causa proxima willapply to it. The insurance companywill be liable to pay only if thatparticular or nearest cause iscovered by the policy. For example,if a loss is caused by severalreasons then nearest cause of losswill be considered. Refer to page105 for types of insurance andsocial secuirty scheme.

4.6 COMMUNICATION SERVICES

Communication services are helpful tothe business for establishing links withthe outside world viz., suppliers,customers, competitors etc. Businessdoes not exist in isolation, it has to

communicate with others for

transmission of ideas and information.

Communication services need to be

very efficient, accurate and fast for them

to be effective. In this fast moving and

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101BUSINESS SERVICES

exchange of information. The electronicmedia is mainly responsible for thistransformation. The main serviceswhich help business can be classifiedinto postal and telecom.

Postal Services

Indian post and telegraph departmentprovides various postal services acrossIndia. For providing these services thewhole country has been divided into 22postal circles. These circles manage theday-to-day functioning of the varioushead post offices, sub-post offices andbranch post offices. Through theirregional and divisional levelarrangements the various facilitiesprovided by postal department arebroadly categorised into:

(i) Financial facilities: These facilitiesare provided through the post office’ssavings schemes l ike PublicProvident Fund (PPF), Kisan Vikas

Patra, and National SavingCertificates in addition to normalretail banking functions of monthlyincome schemes, recurring deposits,savings account, time deposits andmoney order facility.(ii) Mail facilities: Mail services consistof parcel facilities that is transmissionof articles from one place to another;registration facility to provide securityof the transmitted articles andinsurance facility to provide insurancecover for all risks in the course oftransmission by post.

Postal department also offers alliedfacilities of the following types:

1. Greeting post — A range of

delightful greeting cards forevery occasion.

2. Media post — An innovativeand ef fect ive vehicle forIndian corporates to advertisetheir brand through postcards,envelopes, aerograms, tele-grams, and also throughletterboxes.

3. Direct post is for direct advertising.It can be both addressed as wellas unaddressed.

4. International Money Transferthrough collaboration withWestern Union financial services,USA, which enables remittance ofmoney from 185 countries to India.

5. Passport facilities — A uniquepartnership with the ministry ofexternal affairs for facilitatingpassport application.

6. Speed Post: It has over 1000destinations in India and links with97 major countries across the globe.

7. e-bill post is the latest offering ofthe department to collect billpayment across the counter forBSNL and Bharti Airtel.

Telecom Services

World class telecommunicationsinfrastructure is the key to rapideconomic and social development of thecountry. It is in fact the backbone ofevery business activity. In today’s worldthe dream of doing business acrosscontinents will remain a dream in theabsence of telecom infrastructure.There have been far reachingdevelopments in the convergence of

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telecom, IT, consumer electronics andmedia industries worldwide.Recognising the potential in enhancingquality of life and to facilitate India’svision of becoming IT super power bythe year 2025, new Telecom PolicyFramework 1999 and BroadbandPolicy 2004 were developed by theGovernment of India. Through thisframework the government intends toprovide both universal services toall uncovered areas and high-levelservices for meeting the needs of thecountry’s economy.

The various types of telecomservices are:

(i) Cellular mobile services: These areall types of mobile telecom servicesincluding voice and non-voicemessages, data services and PCOservices utilising any type of networkequipment within their service area.They can also provide direct interconnectivity with any other type oftelecom service provider.(ii) Fixed line services: These are alltypes of fixed services including voiceand non-voice messages and dataservices to establish linkages for longdistance traffic. These utilise any typeof network equipment primarilyconnected through fiber optic cableslaid across the length and breadth ofthe country. The also provide interconnectivity with other types of telecomservices.(iii ) Cable services: These arelinkages and switched services withina licensed area of operation to operatemedia services, which are essentiallyone-way entertainment related

services. The two-way communicationincluding voice, data and informationservices through cable network wouldemerge significantly in the future.Offering services through the cablenetwork would be similar to providingfixed services.(iv) VSAT services: VSAT (Very SmallAperture Terminal) is a satellite-basedcommunications service. It offersbusinesses and government agenciesa highly flexible and reliablecommunication solution in bothurban and rural areas. Compared toland-based services, VSAT offersthe assurance of reliable anduninterrupted service that is equal toor better than land-based services. Itcan be used to provide innovativeapplications such as tele-medicine,newspapers-on-line, market rates andtele-education even in the most remoteareas of our country.(v) DTH services: DTH (Direct toHome) is again a satellite-based mediaservices provided by cellularcompanies. One can receive mediaservices directly through a satellite withthe help of a small dish antenna and aset top box. The service provider of DTHservices provides a bouquet of multiplechannels. It can be viewed on ourtelevision without being dependent onthe services provided by the cablenetwork services provider.

4.7 TRANSPORTATION

Transportation comprises freightservices together with supporting andauxiliary services by all modes oftransportation i.e., rail, road, air and

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sea for the movement of goods andinternational carriage of passengers.You have already studied thecomparative advantages anddisadvantages of different modes oftransportation in earlier classes. Theirservices are considered to be importantfor business since speed is of essencein any business transaction. Alsotransportation removes the hindranceof place, i.e., it makes goods availableto the consumer from the place ofproduction. We need to develop our

transportation system to keep pacewith the requirements of our economy.We need better infrastructure of roadswith sufficient width and high quality.We have few ports and they too arecongested. Both government andindustry needs to be proactive and viewthe effective functioning of this serviceas a necessity for providing a lifeline toa business services. In sectors likeagriculture and food, there are massivelosses of product in the process oftransportation and storage.

Different Types of Insurance

1. Health InsuranceHealth Insurance is a safeguard against rising medical costs. A health insurancepolicy is a contract between an insurer and an individual or group, in which theinsurer agrees to provide specified health insurance at an agreed-upon price(the premium). Depending upon the policy, premium may be payable either in alump sum or in instalments. Health insurance usually provides either directpayment or reimbursement for expenses associated with illness and injuries.The cost and range of protection provided by health insurance depends on theprovider and the policy purchased. In India, presently the health insuranceexists primarily in the form of Mediclaim policy offered to an individual or to any

group, association or corporate bodies.

2. Motor Vehicle Insurance

Motor Vehicle Insurance falls under the classification of General Insurance.This insurance is becoming very popular and its importance increasing day-by-day. In motor insurance the owner’s liability to compensate people who werekilled or insured through negligence of the motorists or drivers is passed on tothe insurance company. The rate of premium under motor insurance is

standardised.

3. Burglary Insurance

Burglary insurance falls under the classification of insurance of property. Incase of burglary policy, the loss of damages of household goods and propertiesand personal effects due to theft, larceny, burglary, house-breaking and acts ofsuch nature are covered. The actual loss is compensated.(i) Insurable interest must exist at the time of loss but not necessarily at the

time when the policy was taken.

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(ii) The principle of causa proxima will apply to it. The insurance company will

be liable to pay only that particular or nearest cause that is covered by the

policy. For example, if a loss is caused by several reasons then the nearest

cause of loss will be considered.

4. Cattle Insurance

A contract of cattle insurance is a contract whereby a sum of money is secured to

the assured in the event of death of animals like bulls, buffaloes, cows and heifers.

It is a contract against death resulting from accident, disease, or pregnant

condition as the case may be. The insurer usually undertakes to pay the excess

in the event of loss.

5. Crop Insurance

A contract of crop insurance is a contract to provide a measure of financial

support to farmers in the event of a crop failure due to drought or flood. This

insurance covers against all risks of loss or damages relating to production of

rice, wheat, millets, oil seeds and pulses etc.

6. Sports Insurance

This policy assures a comprehensive cover available to amateur sportsmen

covering their sporting equipment, personal effects, legal liability and personal

accident risks. If desired the cover can also be made available in respect of the

named member of insured’s family residing with him. This cover is not available

to professional sportsmen. The cover is available in respect of any one or more of

the following sports: angling, badminton, cricket, golf, lawn tennis, squash, use of

sporting guns.

7. Amartya Sen Siksha Yojana

This policy offered by the General Insurance Company secures the education of

dependent children. If the insured parent/legal guardian sustains any bodily

injury resulting solely and directly from an accident, caused by external, violent

and visible means and if such injury shall within twelve calendar months of its

occurrence be the sole and direct cause of his/her death or permanent total

disablement, the insurer shall indemnify the insured student, in respect of all

covered expenses to be incurred from the date of occurrence of such accident till

the expiry date of policy or completion of the duration of covered course whichever

occurs first and such indemnity shall not exceed the sum insured as stated in the

policy schedule.

8. Rajeswari Mahila Kalyan Bima Yojana

This policy has been designed to provide relief to the family members of insured

women in case of their death or disablement arising due to all kinds of accidents

and/or death and/or disablement arising out of problems incidental to women only.

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Warehousing

Storage has always been an important

aspect of economic development. The

warehouse was initially viewed as a

static unit for keeping and storing

goods in a scientific and systematic

manner so as to maintain their original

quality, value and usefulness.

The typical warehouse received

merchandise by rail, truck or bullock

cart. The items were moved manually

to a storage within the warehouse and

hand piled in stacks on the floor. They

are used by manufacturers, importers,

exporters, wholesalers, transport

business, customs etc., in India.

Today’s warehouses have ceased to

be a mere storage service providers and

have really become logistical service

providers in a cost efficient manner.

That is making available the right

quantity, at the right place, in the right

time, in the right physical form at the

right cost. Modern warehouses are

automated with automatic conveyors,

computer operated cranes and forklifts

for moving goods and also usage of

logistics automation software’s for

warehouse management.

Types of Warehouses

(i) Private warehouses: Private

warehouses are operated, owned or

leased by a company handling their

own goods, such as retail chain

stores or multi-brand multi-product

companies. As a general rule an efficient

warehouse is planned around a

material handling system in order to

encourage maximum efficiency of

product movement. The benefit of

private warehousing includes control,

flexibility, and other benefits like

improved dealer relations.

Social Security Schemes

1. Atal Pension Yojana : This scheme is offered to individuals in the age group

of 18 to 40 years. The individual is expected to contribute in the scheme

until he/she attains the age of 60 years. The scheme acts as an investment

for availing old-age pension.

2. Pradhan Mantri Suraksha Bima Yojana : This scheme offers accidental

and disability cover of Rs. 2 lakh at a premium of Rs. 12 per year. Any

individual holding a savings account can be enrolled under this scheme.

3. Pradhan Mantri Jan Dhan Yojana : The scheme offers savings account

with no minimum balance. The Rupay ATM-cum-Debit card has in-built

accident and life cover of Rs. 1,00,000 and Rs. 30,000, respectively. The

scheme, suitable for economically weaker sections of society.

4. Pradhan Mantri Jeevan Jyoti Bima Yojana : The scheme offers a protection

term insurance cover of Rs 2,00,000 to the dependents of the policy holder in

the event of his/her death at a premium of Rs. 330 per year. Any individual in

the age group of 18-70 years having a savings account can opt for this scheme.

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(ii) Public warehouses: Publicwarehouses can be used for storage ofgoods by traders, manufacturers or

any member of the public after thepayment of a storage fee or charges.The government regulates the operation

of these warehouses by issuing licencesfor them to private parties.

The owner of the warehouse standsas an agent of the owner of the goodsand is expected to take appropriate careof the goods.

These warehouses provide otherfacilities also, like transportation by railand road. They are responsible for thesafety of the goods. Small manufacturersfind it convenient as they cannot affordto construct their own warehouses.

The other benefits include flexibilityin the number of locations, no fixed cost

and capability of offering value addedservices, like packaging and labelling.(iii) Bonded warehouses: Bondedwarehouses are licensed by thegovernment to accept imported goods

prior to payment of tax and customs duty.These are goods which are imported fromother countries. Importers are notpermitted to remove goods from the docksor the airport till customs duty is paid.

At times, importers are not in aposition to pay the duty in full or doesnot require all the goods immediately.The goods are kept in bondedwarehouses by the customs authoritiestill the customs duty is paid. Thesegoods are said to be in bond.

These warehouses have facilities forbranding, packaging, grading andblending. Importers may bring theirbuyers for inspection of goods andrepackage them according to theirrequirements. Thus, it facilitatesmarketing of goods.

Goods can be removed in part asand when required by the importersand buyers, and import duty can bepaid in instalments.

The importer need not block fundsfor payment of import duties before thegoods are sold or used. Even if he

Infrastructure in Transportation

In the first 50 years of independence, India saw the construction of around13, 000 kilometers of national highways. The ambitious NHAI, Government ofIndia’s project consisting of Golden Quadrilateral connecting Delhi-Kolkata-Chennai-Mumbai and the North-South, East-West corridors linking Srinagar toKanyakumari and Silchar to Porbandar will see the construction of 13,151 kmsof National Highways within a span of eight years. This project will not onlychange the face of road transport in India, but it will also have a lasting impacton our economy. The Ministry of Railways have also done massive innovationsin their movement and monitoring of goods trains to facilitate the needs of thebusiness community.

The Government of India is also serious in ensuring better and more facilities atthe seaports and airports to provide an impetus to business activities. Thegovernment plans not only to enhance capacities of existing ports but also todevelop modern and new ports at strategic locations.

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wishes to export the goods kept in thebonded warehouse he may do sowithout payment of customs duty.Thus, bonded warehouses facilitateentrepot trade.(iv) Government warehouses: Thesewarehouses are fully owned andmanaged by the government. Thegovernment manages them throughorganisations set up in the publicsector. For example, Food Corporationof India, State Trading Corporation,

and Central Warehousing Corporation.

(v) Cooperative warehouses: Some

marketing cooperative societies oragricultural cooperative socities haveset up their own warehouses formembers of their cooperative society.

Functions of Warehousing

The functions of warehousing arediscussed as follows:(a) Consolidation: In this function

the warehouse receives andconsolidates, materials/goods fromdifferent production plants anddispatches the same to a particularcustomer on a single transportationshipment.

(b) Break the bulk: The warehouseperforms the function of dividing the

bulk quantity of goods receivedfrom the production plants intosmaller quantities. These smallerquantities are then transportedaccording to the requirements of

clients to their places of business.(c) Stock piling: The next function of

warehousing is the seasonal storageof goods to select businesses. Goodsor raw materials, which are notrequired immediately for sale ormanufacturing, are stored inwarehouses. They are made availableto business depending on customers’demand. Agricultural productswhich are harvested at specific timeswith subsequent consumption

throughout the year also need to be

stored and released in lots.

(d) Value added services: Certain

value added services are also

provided by the warehouses, such

as in transit mixing, packaging and

labelling. Goods sometimes need to

be opened and repackaged and

labelled again at the time of

inspection by prospective buyers.

Grading according to quantity and

dividing goods in smaller lots is

another function.(e) Price stablisation: By adjusting

the supply of goods with thedemand situation, warehousing

Plant B

Plant A

Consolidation

WarehousesA / B / C

Plant C

PLANT ABreak-Bulk

WarehouseCustomer B

Customer C

Customer A

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Key Terms

Business services Insurance Subrogation Fire insurance

Banking Insurable interest Contribution Marine insurance

e-Banking Indemnity Mitigation Telecom services

Commercial banks Proximate cause Life insurance Warehousing

SUMMARY

Nature of services: Services are those separately identifiable, essentiallyintangible activities that provide satisfaction of wants, and are notnecessarily linked to the sale of a product or another service. There are fivebasic features of services. These features also distinguish them from goodsand are known as the five Is of services i.e., Intangibility, Inconsistency,Inseparability, Inventory (less), Involvement.

Difference between services and goods: While goods are produced,services are performed. A service is an act which cannot be taken home.What we can take home is the effect of the services. And as the services aresold at the consumption point, there are no inventories.

Types of services: Business Services, Social Services, Personal Services.

Business services: In order to be competitive, business enterprises arebecoming more and more dependent on specialised business services.Business enterprises look towards banks for availability of funds; insurance

performs the function of stabilisingprices. Thus, prices are controlledwhen supply is increasing anddemand is slack and vice versa.

(f) Financing: Warehouse ownersadvance money to the owners onsecurity of goods and further supplygoods on credit terms to customers.

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companies for getting their plant, machinery, goods, etc., insured; transportcompanies for transporting raw material and finished goods; and telecomand postal services for being in touch with their vendors, suppliers andcustomers.

Banking: A banking company in India is one which transacts the businessof banking which means accepting, for the purpose of lending and investmentof deposits of money from the public, repayable on demand or otherwise andwithdrawable by cheques, draft, order or otherwise.

Type of banks: Banks can be classified into the following i.e., commercialbanks, cooperative banks, specialised banks, central bank.

Functions of commercial bank: Some of them are the basic or primaryfunctions of a bank while others are agency services or general utility servicesin nature. Acceptance of deposits, lending of funds, cheque facility, remittanceof funds, allied services.

e-Banking: The latest wave in information technology is internet banking. Itis a part of virtual banking and another delivery channel for customers.e-banking is electronic banking or banking using the electronic media. Thus,e-banking is a service provided by many banks, that allows a customer toconduct banking transactions, such as managing savings, checkingaccounts, applying for loans or paying bills over the internet using a personalcomputer, mobile telephone or handheld computer (personal digital assistant)

Insurance: Insurance is thus a device by which the loss likely to be causedby an uncertain event is spread over a number of persons who are exposedto it and who are prepared to insure themselves against such an event. It isa contract or agreement under which one party agrees in return for aconsideration to pay an agreed amount of money to another party to makegood a loss, damage or injury to something of value in which the insured hasa pecuniary interest as a result of some uncertain event.

Fundamental principle of insurance: The basic principle of insurance isthat an individual or a business concern chooses to spend a definitely knownsum in place of a possible huge amount involved in an indefinite future loss.Insurance, therefore, is a form of risk management primarily used to safeguard against the risk of potential financial loss.

Functions of insurance: Providing certainty, Protection, Risk sharing, Assistin capital formation.

Principles of Insurance

Utmost good faith: A contract of insurance is a contract of uberrimae fideii.e., a contract found on utmost good faith. Both the insurer and the insureddisplay good faith towards each other in regard to the contract.

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Insurable interest: The insured must have an insurable interest in thesubject matter of insurance.

Insurable interest means some pecuniary interest in the subject matter ofthe insurance contract.

Indemnity: According to it, the insurer undertakes to put the insured, inthe event of loss, in the same position that he occupied immediately beforethe happening of the event insured against.

Proximate cause: When the loss is the result of two or more causes, theproximate cause means the direct, the most dominant and most effectivecause of which the loss is a natural consequence.

Subrogation: It refers to the right of the insurer to stand in the place of theinsured, after settlement of a claim, as far as the right of the insured inrespect of recovery from an alternative source is involved.

Contribution: As per this principle it is the right of an insurer who has paidclaim under an insurance, to call upon other liable insurers to contributefor the loss payment.

Mitigation: This principles states that it is the duty of the insured to takereasonable steps to minimise the loss or damage to the insured property.

Types of Insurance

Life insurance: Life insurance may be defined as a contract in which theinsurer, in consideration of a certain premium, either in a lump sum or byother periodical payments, agrees to pay to the assured, or to the personfor whose benefit the policy is taken, the assured sum of money, on thehappening of a specified event contingent on the human life or at the expiryof a certain period.

This insurance provides protection to the family at premature death of anindividual or gives adequate amount at an old age when earning capacitiesare reduced. The insurance is not only a protection but is a sort of investmentbecause a certain sum is returnable to the insured at the time of death or atthe expiry of a certain period.

The main elements of a life insurance contract are:

(i) The life insurance contract must have all the essentials of a validcontract.

(ii) The contract of life insurance is a contract of utmost good faith.

(iii) In life insurance, the insured must have insurable interest in the lifeassured.

(iv) Life insurance contract is not a contract of indemnity.

Types of life insurance policies: People have different requirements andtherefore they would like a policy to fulfill all their needs. The needs of people

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for life insurance can be family needs, children’s needs, old age and specialneeds. To meet the needs of people the insurer’s have developed differenttypes of products such as Whole Life Assurance, Endowment type plans,combination of Whole Life and Endowment type plans, Children’s Assuranceplans and Annuity plans.

Fire insurance: Fire insurance is a contract whereby the insurer, inconsideration of the premium paid, undertakes to make good any loss ordamage caused by a fire during a specified period upto the amount specifiedin the policy.

The main elements of a fire insurance contract are:

(i) In fire insurance, the insured must have insurable interest in thesubject matter of the insurance.

(ii) Similar to the life insurance contract, the contract of fire insurance is acontract of utmost good faith i.e., uberrimae fidei.

(iii) The contract of fire insurance is a contract of strict indemnity.

(iv) The insurer is liable to compensate only when fire is the proximatecause of damage or loss.

Marine insurance: A marine insurance contract is an agreement wherebythe insurer undertakes to indemnify the insured in the manner and to theextent thereby agreed against marine losses. Marine insurance providesprotection against loss by marine perils or perils of the sea. Marine insuranceis slightly different from other types. There are three things involved i.e.,ship or hull, cargo or goods and freight.

The main elements of a marine insurance contract are:

(i) Unlike life insurance, the contract of marine insurance is a contractof indemnity.

(ii) Similar to life and fire insurance, the contract of marine insurance isa contract of utmost good faith.

(iii) Insurable interest must exist at the time of loss.

(iv) The principle of causa proxima will apply to it.

Communication services: Communication services are helpful to businessfor establishing links with the outside world viz., suppliers, customers,competitors etc. The main services which help business can be classifiedinto postal and telecom.

Postal services: Various facilities provided by postal department are broadlycategorised into financial facilities, mail facilities.

Telecom services: The various types of telecom services are of the followingtypes: Cellular Mobile Services, Radio Paging Services, Fixed line services,Cable Services, VSAT Services, DTH services.

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Transportation: Transportation comprises freight services together withsupporting and auxiliary services by all modes of transportation i.e., rail,road, air and sea for the movement of goods and international carriage ofpassengers.

Warehousing: The warehouse was initially viewed as a static unit for keepingand storing goods in a scientific and systematic manner so as to maintaintheir original quality, value and usefulness.

Today’s warehouses have ceased to be mere storage service providers andhave really become logistical service providers in a cost efficient manner.

Types of warehouses: private warehouses, public warehouses,bondedwarehouses, government warehouses, cooperative warehouses.

Functions of warehousing: The functions of warehousing are normallydiscussed as follows : consolidation, break the bulk, stock piling, value addedservices, price stablisation, financing.

EXERCISES

Short Answer Questions

1. Define services and goods.

2. What is e-banking. What are the advantages of e-banking?

3. Write a note on various telecom services available for enhancing business.

4. Explain briefly the principles of insurance with suitable examples.

5. Explain warehousing and its functions.

Long Answer Questions

1. What are services? Explain their distinct characteristics.

2. Explain the functions of commercial banks with an example of each.

3. Write a detailed note on various facilities offered by Indian PostalDepartment.

4. Describe various types of insurance and examine the nature of risksprotected by each type of insurance.

5. Explain in detail the warehousing services.

Projects/Assignments

1. Identify a list of various services you use on a regular basis and identifytheir distinct characteristics.

2. Do a project on banking services. Approach a nearby bank and collectinformation about various services offered by them and also collectleaflets about salient features of different schemes. Compile and suggestwhat extra services you may like to propose.

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S. No. Column A Column B

It is a temporary pass through account held by a thirdparty during the process of a transaction between twoparties unless the transaction is completed.

Multiple OptionDeposit

1.

Savings Account2. A kind of deposit scheme introduced by different banks,where the excess amount in the savings bank accountis transferred to fixed deposit account and the accountholder earns more rate of interest. If the bank receivesa cheque for this account and the balance is notsufficient, the amount will be transferred from fixeddeposit account to savings bank account to clear thecheque. In short, it gives the account holder the interestof a term deposit with the flexibility of partial withdrawal,whereas, the remaining cash will get better interest.

3. Visit a nearby bank branch in your locality and collect informationabout various types of account available for customers to open as pertheir requirement.

In the second part of the activity match the information given in column Awith the information given in Column B.

3. Current Account It is also called cumulative deposit scheme. Anyresident, individual, association, club, institution/agency is eligible to open this account in single/jointnames. The account can be opened for any periodranging from 6 months to 120 months, in multiple of 1month for monthly installment. The amount selectedfor installment at the start of the scheme is payableevery month and the number of installments once fixed,cannot be changed. The rate of interest is compoundedquarterly and the final amount is paid on maturity.

Fixed DepositAccount

4. Any resident, individual, association, club, etc., iseligible for this account. It is a kind of modest creditoption available to the depositor. Two free chequebooks will be issued each year. Internet bankingfacility will be provided without any charge. Balanceenquiry, NEFT, bill payment, mobile recharge, etc.,

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5. Demat Account This account can be opened by any resident,individual, association, limited company, religiousinstitution, educational institution, charitableinstitution, club, etc. Payments can be done unlimitednumber of times. Funds can be remitted from any partof the country to the corresponding account. Overdraftfacility and Internet banking facility are available.

6. Escrow Account It is classified as short deposit receipt and fixeddeposit receipta. Short Deposit Receipt

(i) Banks accept deposits from customersvarying from 7 days to a maximumof 10 years.

(ii) The period for ‘short deposits’ can vary from7 days to 179 days.

(iii) The minimum amount that can bedeposited under this scheme is Rs. 5lakh for a period of 7-14 days.

b. Fixed Deposit Receipt

(i) Any resident, individual, association,minor, society, club, etc., is eligiblefor this account.

(ii) The minimum FDR in metro and Urbanbranches is Rs. 10,000 and in ruraland semi-urban and for senior citizensis Rs. 5000.

(iii) Interest rate differs from bank to bankdepending upon the tenure of thedeposits and as bank changes the rate.

(iv) Additional interest of 0.50% is offered tosenior citizens on deposits placed for ayear and above.

are provided through mobile phones. Students canopen this account with zero balance by providingthe required documents.

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7. Recurring DepositAccount

(i) This account offers stress-free transactionson the shares.

(ii) An individual, Non-Resident Indian,foreign institutional investor, foreignnational, corporate, trusts, clearinghouses, financial institution, clearingmember, mutual funds, banks and otherdepository account.

(iii) For opening this account, an applicantrequires to fill a form, submit his/her photoalong with a photocopy of Voter ID/Passport/Aadhar Card/Driving Licence and aDemat account number will be provided tothe applicant immediately after thecompletion of processing of the application.

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business servicesall major towns across india (warehousing services). petrol pump owners use postal,...

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