CHAPTER-4

BUSINESS SERVICES
Services: Separately identifiable, essentially intangible activities that provide
satisfaction of wants, and are not necessarily linked to the sale of a product or another
service.
Nature of Services:
a. Intangibility: they cannot be touched. They are experiential in nature b.
Inconsistency: services have to be performed exclusively each time. Different
customers have different demands and expectations. Service providers need to have an
opportunity to alter their offer to closely meet the requirements of the customers. c.
Inseparability: simultaneous activity of production and consumption d. Inventory (less):
cannot be stored for a future use. That is, services are perishable and providers can, at
best, store some associated goods but not the service itself. e. Involvement:
participation of the customer in the service delivery process

Business Services: Used by business enterprises for the conduct of their

activities.

Examples of Business services:

• Banks for availability of funds;
• Insurance companies for getting their plant, machinery, goods,etc., insured; •
Transport companies for transporting raw material and finished goods; • Telecom
and postal services for being in touch with their vendors, suppliers and customers.

I. BANKING
The Banking Regulation Act,1949defines the term Banking as “The accepting for the
purpose of lending or investment in deposits of money from the public, repayable on
demand or otherwise and withdrawable by cheque, draft, order or otherwise.”

Functions of banking
1. Acceptance of deposits
It is the primary function. A bank accepts deposits from public who have surplus
money. People deposit their money in banks for the sake of safety and for
earning interest.
2. Lending of funds
Provide loans and advances out of the amount received through deposits. The
main forms of loans and advances made by the bank are overdrafts, cash
credits, term loans etc.
3. Cheque facility-
 Banks collect their customer’s cheques drawn on other banks. There are 2 types
of cheques:-
a. Bearer cheques – which is encashed immediately at bank counter. b.
Crossed cheques- which is to be deposited only in the payee’s account . 4.
Remittance of funds
Provide the facility of transfer from one place to another through instruments
such as bank drafts, pay order etc.
5. Allied services
Various allied services provided by bank are:-
a. Locker facility
b. Payment of bills such telephone and electricity bill.
c. Payment of insurance premium, taxes tc.
d. Acting as a trustee or executor.

Types of Bank accounts

A. Fixed Deposit Account –

• An account in which the amount is deposited by the bank for a fixed period of
time.
• It enables the individuals to earn a higher rate of interest on their surplus funds. •
It is also known as ‘Term deposit Account’ or ‘Time deposit Account’. • The period
of FD range from 15 days to 10 years.
• The money deposited in the fixed deposit account is repayable after a specified
period.
• In case of a emergency, a fixed deposit can be withdrawn before its maturity. In
this case, rate of interest is reduced.
B. Current Deposit Account

• It is opened by businessmen who have a number of regular transactions with the

bank, both deposit and withdrawals. There is no restriction on the number and
amount of deposits and withdrawals.
• It is of continuing nature and as such there is no fixed period.
• Banks do not pay any interest on these accounts. Rather, it imposes service
charges for running these accounts.
• Overdraft facility is also available.

C. Saving Deposit Account

• Savings account is meant for people who wish to save a part of their income to
 safeguard the future and earn interest on the savings.
• There is some restriction on maximum amount that can be deposited in this
account and also on withdrawals from this account.
• The rate of interest is less than that of fixed deposits..
• It helps the depositor to make payments by cheque.
• A pass book is also given to the depositor.

D. Recurring Deposit Account

• It is opened by those who want to save regularly for a certain period of time and
earn a higher interest rate.
• Certain fixed amount is accepted every month for a specified period and the total
amount is repaid with interest at the end of particular fixed period.
• The minimum period of deposit is 6 months and maximum is 10 years. •
Carry a high rate of interest than that of saving account.

E. Multiple Option Deposit Account

• A combination of Savings Bank Account and Fixed Deposits.

• MOD account interlinks the savings bank account with a deposit account and any
amount in excess of a pre-determined amount is automatically transferred to a
fixed deposit.
• The account holder has to predefine a ‘threshold limit’ and money up to that limit is
kept in form of cash in the savings account and any amount above this ‘limit’ is
automatically converted into FD.
• 2 benefits from this account:-
a. It enables account holder to earn more interest rates.
b. Lowers the risk of dishonouring a cheque.

BANKING SERVICES
A. Bank Draft :-
• It can be drawn by one bank against funds deposited into its account at
another bank, authorizing the second bank to make payment to the individual
whose name is written on the draft.
• Bank drafts a financial instrument with the help of which money can be
deposited from one person to another or from one place to another. • The
bank charges some commission in lieu of issuing bank draft. • The payee
can present the draft on the drawee bank at his place B. Bank Overdraft :-:
• The customer, who maintains a current account with the bank, takes
 permission from the bank to withdraw more money than deposited in his
account. The extra amount withdrawn is called overdraft.
• This facility is available to trustworthy customers for a small period. This facility
is usually given against the security of some assets or on the personal
security of the customer.
• Interest is charged on the actual amount overdrawn by the customer.
C. Cash Credit :-
• Under this arrangement, the bank advances cash loan up to a specified limit
against current assets and other securities.
• The bank opens an account in the name of the borrower and allows him to
withdraw the borrowed money from time to time subject to the sanctioned
limit. Interest is charged on the amount actually withdraw.

ELECTRONIC BANKING SERVICES/E-BANKING:

E-banking means banking using the electronic media.

It allows a customer to conduct banking transactions, such as managing savings,

checking accounts, applying for loans or paying bills over the internet using a
computer/mobile.

Ways of E-banking/ Types of digital payment/ Variouselectronic services are the

following.
1. Automatic Teller Machines (ATMs)
• ATM is an automatic machine with the help of which money can be withdrawn
or deposited by inserting the card and typing your personal Identification
Number (PIN).
• This machine operates for all the 24 hours.
• A customer also receives a receipt after the transactions which show the
remaining balance in the account.

2. Debit Card:
• A Debit Card is issued to customers in lieu of his money deposited in the bank. •
It is plastic card bearing bank’s name and customer’s name, identity. • The
customers can make immediate payment of goods purchased or services
obtained through debit card.
• With the help of debit card, the point of sale computer terminal would
automatically transfer money from the account of purchaser to the seller’s
account.
3. Credit Card:A bank issues a credit card to those of its customers who enjoy
good reputation. This is a sort of overdraft facility. With the help of this card the
 holder can buy goods or obtain services upto a certain amount even without
having sufficient deposit in their bank accounts. The credit card holder keeps on
depositing the money used according to the agreement with the bank.

4. Internet Banking:

• Banking services are provided by bank over internet.

• These include payment of bills, funds transfer, viewing account
statement,stopping a payment etc.
• It is performed through a computer site that can connect to the banking site via
the internet.
• Merits :-
a. Simple to open and easy to operate.
b. Convenient
c. Available all the time – 24X7
d. Fast and efficient
e. Eye on our truncations and account balance all the time. – keeps our account
safe

5. Mobile banking:
• Banking services are available on mobile phones using 3G/4G or wifi
connection.
• These include payment of bills, funds transfer, viewing account statement,etc. •
Merits:-
a. Highly secure - more control of our money. Security guarantee and Westpac
protect SMS code offer added security when banking on our mobile. b. Saves
times - checks account balances, schedule and manage payments, transfer
money between accounts, etc.
c. Convenience- we can do our everyday banking, anytime, anywhere.

6. Real Time Gross Settlement:

• It is an online system for transferring system for transferring funds in which
transfer of money takes place from the one bank to another on a real time
and on gross basis.
• ‘Real time’ means the processing of transactions at the time they are received
rather than at some time later.
• ‘Gross Settlement’ means the transaction is settled on one to one basis
without netting with any other transaction.
• Features of RTGS:-
 a. RTGS is maintained and operated by the RBI and provides a means of
efficient and faster fund transfer.
b. There is no physical exchange of money.
c. Suited for high value transactions, minimum value of transaction should be
Rs. 2,00,000. There is no higher limit for RTGS transcations.
d. The payment is taken as final and irrevocable.
e. Fees of RTGS vary from bank to bank. RBI has fixed upper limit of fees.
f. To use RTGS the bank must use core banking, core banking banks are
assigned an eleven digit code.

7. National Electronic Funds Transfer(NEFT)-

• Nationwide system that facilitates individuals and firms to electronically
transferfunds from one to another, any branch and any bankon net basis. •
This scheme is available in major cities of the country.
• The settlement takes place at regular intervals. Account holders can transfer
fund through this system by the internet facility provided by the bank.

The key difference between NEFT and RTGS is that RTGS is on gross settlement basis
whereas NEFT is net settlement basis. The minimum transaction value of RTGS is
2,00,000 whereas there is no value limit on the transactions of NEFT. RTGS facilities
are available in over 72,000 branches whereas NEFT is available in 75,000 branches of
banks.

BENEFITS OF e-banking to Customers

• It provides 24 hours, 365 days a year services to the customers of the bank. •

Customers can make the permitted transactions from any place.

• It inculcates a sense of financial discipline by recording each and every

transaction.

• By offering unlimited access to the bank, it provides greater satisfaction to the

customers.

• It provides greater security to the customers as they can avoid traveling with
cash.

BENEFITS OF e-banking to Banks

• It provides competitive advantage to the bank.
• The networks of banks are not limited to the number of branches. It expands
 far and wide due to the facility of internet banking.

• Load on branches is considerably reduced due to centralized data base. •

It reduces the cost of transaction.

II. INSURANCE
Insurance can be defined as:
• A device by which the loss likely to be caused by an uncertain event is
spread over a number of persons who are exposed to it and who are
prepared to insure themselves against such an event.
• It is a contract between two parties, whereby one party agrees to indemnify the
loss suffered by the other parties for a consideration of some money, known as
premium.
The party which promises to indemnify the loss is called ‘Insurer’.
The persons or property subject to risks is called ‘Insured’.
The agreement providing for insurance is called an
‘InsurancePolicy’. Functions of insurance

1. Providing Certainty: Insurance cannot remove the uncertainty involved in the

business. The insurer charges premium for providing certainty.

2. Protection: Insurance cannot stop the happening of a risk. However, it gives

protection against risk of a probable loss that may arise due to happening of an
uncertain event.

3. Risk Sharing: Insurance is an arrangement in which a large number of people who

are exposed to same risk contribute to a fund maintained by the in insurance
company. The premium paid by all of them is pooled and in case of loss, the
compensation is paid to him out of such fund.

4. Assist in Capital Formation: The funds collected by the insurance company in the
form of premium, are invested by them in various income generating schemes.

Principles of Insurance

1) UTMOST GOOD FAITH:

• A contract of insurance is a contract of ‘uberrimaefidei’i.e., a contract found on
utmostgood faith.
• Both the insurer and the insured should display good faith towards each other in
regard to the contract.
• It is the duty of the insured to voluntarily make full and accurate disclosure of all
facts, which can affect the mind of an insurer in deciding to accept the proposal
 of insurance or in fixing the rate of premium.
• Failure to make disclosure of material facts by the insured makes the contract
ofinsurance voidable at the discretion of the insurer.
• Example: A person must disclose the diseases suffered by him/her to the insurer
before taking an insurance policy.

2. INSURABLE INTEREST:
• The insured must have an insurable interest in the subject matter of insurance. •
Insurable interest means some pecuniary (financial) interest in the subject matter of
theinsurance contract.
• The insured must have an interest in the preservation (survival) of the thing or
lifeinsured, so that he/she will suffer financially on the happening of the event
againstwhich he/she is insured.
• For example, a person who had advanced money on the security of a house
(mortgage) can take fire insurance policy of that house though he is not the
owner of the house because he has financial interest in the house.
• In case of life insurance the insurable interest must exist at the time of taking
thepolicy, not necessarily at the time of taking the claim.(beginning only) • In fire
insurance contract, the insurable interest must exist both at the time oftaking
the policy and claiming the compensation(beginning and end both). • In marine
insurance contract, the insurable interest must exist at the time ofclaiming the
compensation(at the end).
3. INDEMNITY:
• All insurance contracts of fire or marine insurance are contracts of indemnity. •
According to it, the insurer undertakes to put the insured, in the event of loss, in
thesame position that he occupied immediately before the happening of the event.
• In other words, the insurer undertakes to compensate the insured for the loss
caused to him/her due to damage or destruction of property insured.The insured
is not allowed to make any profit on the happening of event
• The principle of indemnity is not applicable to life insurance.
4. PROXIMATE CAUSE:
• According to this principle, an insurance policy is designed to provide
compensationonly for such losses as are caused by the perils (causes) which are
stated in the policy.
• In other words, when the loss is the result of two or more causes, the proximate
causemeans the nearest cause of loss should be taken into account to determine
the liability of the insurer. If the nearest or proximate cause is insured, the insurer
is bound to pay compensation, otherwise not.
• For example, all passengers travelling by aeroplane are insured against death
caused by plane crash. If a passenger dies during the course of flight due to
heart attack, theinsurer is not liable to pay for the compensation for death of the
passenger under theprovisions of the air flight contract.
• A shoe manufacturing unit was insured against fire. During the year a fire broke
out and some stock of shoes were damaged due to fire. Due to chaos in the
 factory, someemployees, took advantage of the situation, and stole shoes. When
the claim was madethe insurance company agreed to pay only for the loss
caused by damage of the goodsdue to fire, not for the loss caused due to theft
caused by fire, not being a direct cause ofloss.
5. SUBROGATION:
• After the insured is compensated for the loss or damage to the property insured
by Him/her the right of ownership of such property passes on to the insurer. • This
is because the insured should not be allowed to make any profit, by selling
the damaged property or in the case of lost property being recovered. • Applies
to all insurance contracts which are contracts of indemnity. • Subrogation does not
apply to life, accident and sickness insurance as they are not covered by the
principle of indemnity.

5. CONTRIBUTION:
• When the same risk is insured with two or more insurers, then it is known as
‘Double Insurance’.
• It implies, that in case of double insurance (when insurance for same article is
taken from two different insurance companies), the insurers are to share the
losses in proportion to the amount assured by each of them.
• However in no case can the insured claim compensation more than the actual
loss Suffered.
• The liability of a particular insurer can be determined as: - sum assured with aa
particular insurer/total sum assured with all the insurers *Actual Loss. • Example:
suppose X has taken fire insurance policy ion the same property of the Following value
(compensation) from 3 different insurers.
Co. A: Rs. 50,000 ; Co. B: Rs. 30,000 and Co. C: Rs. 20,000
Total amount of insurance: Rs. 1,00,000
He suffers a loss of Rs. 50,000 due to fire. The liability of each insurer will be calculated
as follows:
Sum insured by each insurer x Amount of loss
Total sum insured by all insurers
Co. A: 50,000/1,00,000 x 50,000 = Rs. 25,000
Co. B: 30,000/1,00,000 x 50,000 = Rs. 15,000
Co. C: 20,000/1,00,000x 50,000 = Rs. 10,000
Thus the total amount of compensation received by X cannot be more than his actual
amount of loss, i. e. Rs. 50,000.
• The principle of contribution is not applicable to life insurance.

7. MITIGATION:
• This principle states that it is the duty of the insured to take reasonable steps to
minimise the loss or damage to the insured property in the same manner as he
would take care without taking the insurance policy.
• For example: goods kept in a store house catch fire, then the owner of the goods
should try to recover the goods and save them from fire to minimise the loss or
 damage.
• The insured must behave with great prudence and not be careless just because
there is an insurance cover.
• Example: if it is found that suitable fire safety devices are not installed in
crackersFactory, claim cannot be made if there is a fire.

Types Of Insurance
1. Life insurance:
A contract under which the insurance company(called insurer) undertakes to insure the
life of a person (called assured) in consideration of a sum of money called premium,
(which may be paid in one lump sum or monthly, quarterly, half-yearly or yearly) and
promises to pay a fixed sum of money on the death of the assured or on the expiry of a
specified period of time, whichever is earlier.
Importance of life Insurance:-
1. Provides protection to the family at premature death of an
individual.
2. Gives adequate amount at an old age when earning
capacities are reduced.
3. It promotes the habit of savings among people. A person,
who has taken out of a life policy, saves compulsorily for
payment of premium, as non-payment of premium might
lapse the policy.
4. It mobilises the public savings and channelizes them in
productive investments for the economic development of the
country.
5. Tax incentives are available to the persons taking out life
policies. A person can claim income tax rebate on the
premium paid by him on the life policies of self, spouse or
children under the provision of income tax act.
The main elements of a life insurance contract are:
a. All the essential elements of a valid contract must be present. E.g. offer acceptance,
lawful object, free consent etc.
b. It is a contract of utmost good faith.
c. The insured must have insurable interest in the life assured. Insurable interest must
exist at the time of taking the policy but not necessary at the time of maturity. d. It is
not a contract of indemnity.

2. Fire insurance:
The insurer, in consideration of the premium paid, undertakes to make good any loss or
damage caused by a fire during a specified period up to the amount specified in the
policy.
A claim for loss by fire must satisfy the following two conditions:-
a. There must be actual loss.
b. Fire must be accidental and non- intentional.
 The main elements of a fire insurance contract are:
(i) The insured must have insurable interest in the subject matter of the insurance. It is
essential that the insurable interest must be present both at the time when policy is
taken out and at the time of loss.
(ii) It is a contract of utmost good faith.
(iii) It is a contract of strict indemnity.
(iv) The insurer is liable to compensate only when fire is the proximate or nearest cause
of damage or loss.
(v) All the essential elements of a valid contract must be present in fire insurance. E.g.
offer acceptance, lawful object, free consent etc.

3. Marine insurance:
• An agreement whereby the insurer undertakes to indemnify the insured in the
manner and to the extent thereby agreed against marine losses
• Marine insurance provides protection against loss by marine perils or perils of the
sea like collision of one ship against another or against rocks, sinking of ship,
spoilage of the cargo by sea water, captured by pirates etc.

There are three types of Marine Insurance Policy:

1. Cargo Insurance: includes the cargo or the goods contained in the ship and the
personal belongings of the crew and passengers.
2. Ship or hull Insurance: the whole ship (i.e. the vessel and its equipment) is
insured. Assured for losses caused by damage to the vessel.
3. Freight Insurance: If the cargo does not reach the destination safely due to
damage or loss in transit, the shipping company (insured) is not paid freight
charges. Freight insurance is for reimbursing the loss of freight to the shipping
company.

The main elements of a marine insurance contract are:

(i) Marine insurance is a contract of indemnity.
(ii) Marine insurance is a contract of utmost good faith.
(iii) Insurable interest must exist at the time of loss but not necessary at the time when
the policy was taken.
(iv) The principle of causaproxima will apply to it.
(v) All the essential elements of a valid contract must be present in marine insurance.

Difference between life, fire and marine insurance

POSTAL SERVICES

Every business sends to outsiders and receives from outsiders several letters, market
reports, parcel, money order etc. every day. All these services are provided by the post
and telegraph offices scattered throughout the country.

Mail Services: The mail services offered by post offices includes transmission of
messages through postcards, Inland letters, envelops etc. The various mail services
are:

The postal department performs the following services:-

1. Under Postal Certificate (UPC) –

• If a sender wants to have a proof that he/she has actually posted the letters,
then a Certificate can be obtained from the post office on payment of
prescribed charge.
• UPC stands for ‘Under Postal Certificate‘. It may serve as an evidence of
posting in case of any dispute about communication.
2. Registered –
• It refers to that type of postal facility under which it is ensured that the mail is
delivered to the addressee otherwise it should come back to the sender. •
Registered post mails are handed over to the post office after affixing additional
postage as registration charge.
• All Registered post are super-scribed as ‘Registered Post’ on their face. • The
sender of a registered post may get acknowledgment of delivery signed by the
addressee.
3. Parcel –
• Transmission of articles (e.g. cellphones, books, garments etc.) from one place
to another in the form of parcels is known as parcel post. Postal charges vary
according to the weight of the parcels.
• Post office provides the facility of sending parcel weighing upto 20Kgs. By parcel
post. Parcels weighing 4kg or more have got to be registered.
4. Speed Post –
• It allows speedy transmission of articles (within 24 hours) to people in specified
cities.
• The sender of mail has to pay extra charges for the speed post in addition to
normal postal charges. The postal charges vary according to the distance. 5.
Courier Services –
• It is provided by private post offices. Letters, documents, parcels etc. can be sent
through the courier service.
• The service is cheaper as compared to the services provided by the post offices.