CHAPTER 4

Business Services
It has already been stated that commerce consists of trade and auxiliaries to
trade. Auxiliaries or aids to trade refer to the activities incidental to the buying
and selling of goods and services. These auxiliaries to trade are also known as
business services or facilities. These services are essential and indispensable to
the smooth flow of trade and industry. The examples of business services are
Banking, insurance, transport, warehousing and communication.

NATURE OF BUSINESS SERVICES :

1. Intangibility : Cannot be seen, touched or smelled. Just can only be felt, yet
their benifits can be availed of e.g. Treatment by doctor.
2. Inconsistency : Different customers have different demands & expectation.
e.g. Mobile services/Beauty parlour.
3. In Separability : Production and consumption are performed simultaneously
e.g. ATM may replace clerk but presence of customer is a must.
4. Inventory Loss : Services cannot be stored for future use or performed
earlier to be consumed at a later date. e.g. underutilised capacity of hotels
and airlines during slack demand cannot be stored for future when there
will be a peak demand.
5. Involvement : Participation of the customer in the service delivery is a must
e.g. A cutomer can get the service modified according to specific
requirement.
Type of Services :-
1. Social Services :- Provided voluntarily to achieve certain goals e.g. health
care and education services provided by NGOs.
2. Personal Services :- Services which are experienced differently by different
customers.
e.g. tourism, restaurants etc.

38 XI – Business Studies

AK
3. Business Services :- Services used by business enterprises for the conduct of
their activities.
e.g. Banking, Insurance, communication, warehousing and transportation.

Banks
Banks occupy an important position in the modern business world. No country
can make commercial and industrial progress without a well organised banking
system. Banks encourage the habit of saving among the public. They mobilise
small savings and chennelise them into productive uses.
Meaning of Bank A bank is an institution which deals in money and credit. It
collects deposits from the public and supplies credit, thereby facilitating
exchange. It also performs many other function like credit creation, agency
functions, general services etc Hence a Bank is an organisation which accepts
deposits, lends money and perform other agency functions.
FUNCTIONS OF COMMERCIAL BANK

Primary Functions :
1. Accepting Deposits Accepting deposits is the main function of commercial
banks. Banks offer diffrent types of Bank accounts to suit the requirements
and needs of different customers. Different types of Bank accounts are as
follows :
A. Fixed Deposit Account Money is deposited in the account for a fixed
period. After expiry of specified period person can claim his money from the
bank. Usually the rate of interest is maximum in this account. The longer the
period of deposit, the higher will be the rate of interest on deposit.
B. Current Deposit Account Current deposit Accounts are opened by
businessman. The account holder can deposit and withdraw money

39 XI – Business Studies

AK
 whenever desired. As the deposit is repayable on demand, it is also known
as demand deposit Withdrawals are always made by cheque. No interest is
paid on current accounts. Rather charges are taken by bank for services
rendered by it.
C. Saving Deposit Account The aim of a saving account is to mobilise savings
of the public. A person can open this a/c by depositing a small sum of money.
He can withdraw money from his account and make additional deposits at
will. Account holder also gets interest on his deposit in this account though
the rate of interest is lower than the rate of interest on fixed deposit
account.
D. Recurring Deposit Account The aim of recurring deposit is to encourage
regular savings by the people. A depositer can deposit a fixed amount, say
Rs. 100 every month for a fixed period. The amount together with interest is
repaid on maturity. The interest rate on this account is higher than that on
saving deposits.
E. Multiple Option Deposit Account It is a type of saving Bank A/c in which
deposit in excess of a particular limit gets automatically transferred into
Fixed Deposit. On the other hand, in case adequate fund is not available in
our saving Bank Account so as to honour a cheque that we have issued the
required amount gets automatically transferred from fixed deposit to the
saving bank account. Therefore, the account holder has twin benefits from
this amount (i) he can earn more interest and (ii) It lowers the risk of
dishonouring a cheque.
2. Lending Money With the help of money collected through various types of
deposits, commercial banks lend finance to businessman, farmers, and
others. The main ways of lending money are as follows :
A. Term Loans These loans are provided by the banks to their customers for
a fixed period to purchases Machinery, Truck, Scooter, House etc. The
borrowers repay there loans in Monthly/Quarterly/Half Yearly/ Annual
instalments.
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.

40 XI – Business Studies

AK
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.
D. Discounting of Bill of Exchange Under this, a bank gives money to its
customers on the security of a bill of exchange before the expiry of the bill in
case a customers needs it. For this service bank charges discount for the
remaining period of the bill.

Secondary Functions
The secondary functions of commercial banks are as under :
1. Ageny Functions
As an agent of its customers, a commercial bank provides the following
services :
(a) Collecting bills of exchanges, promissory notes and cheques
(b) Collecting dividends, interest, rent etc.
(c) Buying and selling shares, debentures and other securities
(d) Payment of interest, insurance premium, etc
(e) Transferring funds from one branch to another and from one place to
another
(f) Acting as an agent or representative while dealing with other banks
and financial institutions.
A commercial bank performs the above functions on behalf of and as per the
instructions of its customers.
2. General Utility Functions
Commercial banks also perform the following miscellaneous functions.
(a) Providing lockers for safe custody of jewellery and others valuables of
customers.
(b) Giving references about the financial position of customers.
(c) Providing information to a customer about the credit worthiness of
other customers.
(d) Supplying various types of trade information useful to customers

41 XI – Business Studies

AK
 (e) Issuing letter of credit, pay orders, bank draft, credit cards, traveller s
cheques to customers.
(f) Underwriting issues of shares and debentures.
(g) Providing foreign exchange to importers and travellers going abroad.
Bank Draft It is a financial instrument with the help of which money can be
remitted from one place to another. Anyone can obtain a bank draft after
depositing the amount in the bank.
The bank issues a draft for the amount in its own branch at other places or
other banks (only in case of tie up with those banks) on those places. The payee
can present the draft on the drawee bank at his place and collect the money. Bank
charges some commission for issuing a bank draft.
**Banker s cheque or Pay Order It is almost like a bank draft. It refers to that
bank draft which is payable within the town. In other words banks issue pay
order for local purpose and issue bank draft for outstations.

ELECTRONIC BANKING SERVICES/E-BANKING

Using computers and internet in the functioning of the banks is called electronic
banking. Because of these services the customers do not need to go to the bank
every time he has to transact with bank. He can make transactions with the bank
at any time and from any place. The chief electronic services are the following.
1. Electronic Fund Transfer Under it, a bank transfers wages and salaries
directly from the company s account to the accounts of employees of the
company. The other examples of EFTs are on line payment of electricity bill,
water bill, insurance premium, house tax etc.
2. 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 Identity Number (PIN). This machine operates for
all the 24 hours.
3. Debit Card A Debit Card is issued to a customers in lieu of his money
deposited in the bank. The customers can make immediate payment of
goods purchased or services obtained on the basis of his debit card
provided the terminal facility is available with the seller.
4. 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 sufficent deposit in their bank accounts.
42 XI – Business Studies

AK
5. Tele Banking Under this facilty, a customer can get information about the
balance in his account or information about the latest transactions on the
telephone.
6. Core Banking Solution/Centralised Banking Solution In this system a
customer by opening a bank account in one branch (which has CBS facility)
can operate the same account in all CBS branches of the same bank
anywhere across the country. It is immaterial with which branch of the bank
the customer deals with when he/she is a CBS branch customer.
7. National Electronic Fund Transfer : NEFT refers to a nation wide system
that facilitate individuals, firms and companies to electronically transfer
funds from any branch to any individual, firm or company having an
account with any other bank branch in the country. NEFT settles
transactions in batches. The settlement takes place at a particular point of
time for example, NEFT settlement takes place 6 times a day during the
week days (9.30am, 10.30 am, 12.00 noon, 1.00 pm, 3.00 pm & 4.00 pm) and 3
times during Saturday 9.30 am, 10.30 am and 12.00 noon) Any transaction
initiated after a designated settlement time is settled on the next fixed
settlement time.
8. Real Time Gross Settlement RTGS refers to a funds transfer system where
transfer of funds takes place from one bank to another on a Real time and
on Gross basis. Settlement in Real time means transactions are settled as
soon as they are processed and are not subject to any waiting period.
Gross settlement means the transaction is settled on one to one basis
without bunching or netting with any other transaction. This is the fastest
possible money transfer system through the banking channel.
The RTGS service for customers is available from 9.00 am to 3.00 pm on
week days and from 9.00 am to 12.00 noon on saturdays.
The basic difference between RTGS and NEFT is that while RTGS
transactions are processed continuously, NEFT settles transactions in
batches.
Meaning of insurance : Insurance is a form of contract under which one
party (Insurer or Insurance Compnay) agrees in return of a consideration
(Insurance premium) to pay an agreed sum of money to another party
(Insured) to make good for a loss, damage or injury to something of value in
which the insured has financial interest as a result of some uncertain event.
Principles of Insurance : These principles are :
1. Utmost Good Faith : Insurance contracts are based upon mutual trust and
confidence between the insurer and the insured. It is a condition of every
insurance contract that both the parties insurer and the insured must
disclose each fact and information related to insurance contract to each
other.

43 XI – Business Studies

AK
2. Insurable Interest : It means some pecuniary interest in the subject matter of
insurance contract. The insured must have insurable interest in the subject
matter of insurance i.e., life or property insured, the insured will have to
incur loss due to this damage and insured will be benefitted if full security is
being provided. A businessman has insurable interest in his house, stock, his
own life and that of his wife, children etc.
3. Indemnity Principle of indemnity applies to all contracts except the
contract of life insurance because estimation regarding loss of life cannot be
made. The objective of contract of insurance is to compensate to the insured
for the actual loss he has incurred. These contracts provide security from
loss and no profit can be made out of these contracts.
4. Proximate Cause : The insurance company will compensate for the loss
incurred by the insured due to reasons mentioned in insurance policy. But if
losses are incurred due to reasons not mentioned in insurance policy than
principle of proximate cause or the nearest cause is followed.
5. Subrogation This principle applies to all insurance contracts which are
contracts of indemnity. As per this principle, when any insurance company
compensates the insured for loss of any of his property, then all rights
related to that property automatically get transferred to insurance company.
6. Contribution According to this principle if a person has taken more than
one insurance policy for the same risk then all the insurers will contribute
the amount of loss in proportion to the amount assured by each of them and
compensate him for the actual amount of loss because he has no right to
recover more than the full amount of his actual loss.
7. Mitigation According to this principle the insured must take reasonable
steps to minimise the loss or damage to the insured property otherwise the
claim from the insurance company may be lost.
Types of Insurance

44 XI – Business Studies

AK
Concept of Life Insurance : Under life insurance the amount of Insurance is paid
on the maturity of policy or the death of policy holder whichever is earlier. If the
policy holder survives till maturity he enjoys the amount of insurance. If he dies
before maturity then the insurance claim helps in maintenance of his family. The
insurance company insures the life of a person in exchange for a premium which
may be paid in one lump sum or periodically say yearly, half yearly, quarterly or
monthy.

Types of Life Insurance Policies.

1. Whole Life Police Under this policy the sum insured is not payable earlier
than death of the insured. The sum then becomes payable to the heir of the
deceased.
2. Endowment Life Assurance Policy Under this policy the insurer
undertakes to pay the assured or his heirs or nominees a specified sum on
the attainment of a particular age or on his death which every is earlier.
3. Joint Life Policy It involves the insurance of two or more lives
simultaneously. The policy money is payable upon the death of any one of
lives assured and the assured sum will be payable to the survivor or
survivors.
4. Annuity Policy This policy is one under which amount is payable in
monthly, quarterly, half yearly or annual instalments after the assured
attains a certain age. This is useful to those who prefer a regular income
after a certain age.
5. Children s Endowment Policy This policy is taken for the purpose of
education of children or to meet marriage expenses. The insurer agrees to
pay a certain sum when the children attain a certain age.
Fire Insurance : It provides safety against loss from fire. If property of insured
gets damaged due to fire the insured will receive the value of damaged property
as compensation from insurance company. It no such event happens, insured will
not receive anything. For such service insurance company charges premium
depending upon the amount of loss insured.

Features
1. Utmost Good Faith
2. Contract of Indemnity
3. Insurable interest in the subject matter
4. Subject to the doctrine of causa premima - nearest cause.

45 XI – Business Studies

AK
5. It is a contract from year to year. It generally comes to an end at the expiry
of the year and may be renewed.
Marine Insurance : Marine insurance provides protection against loss during sea
voyage. The businessmen can get their goods insured whereas the ship owner
can get his ship insured by paying the premia fixed by the insurance company.
The fundamental principles of marine insurance are the same as the general
principles of insurance.

Other Insurance
Health Insurance : Health insurance has gained popularity these days. General
Insurance companies provide special health insurance policies such as mediclaim
for the general public. The insurance company charges a nominal premium every
year and in return undertakes to provide up to stipulated amounts for the
treatment of certain diseases such as heart problem, cancer, etc.
Communication is an important service that helps in establishing links
between businessmen, Organisation, suppliers, customers etc. It educates
people, widen their knowledge and broden their outlook. It overcomes the
problem of distance between people, businessmen and institutions and thus
helps in smooth running of trade, industrial and commercial activities. In this fast
moving and competitive world it is essential to have advanced technology for
quick exchange of information with the help of electronic media. The main
services can be classifed into postal and telecom.
Postal Services Every business sends to outsiders and receives from outsiders
several letters, market reports, parcell, money order etc. every day. All these
services are provided by the post and telegraph offices scattered throughout the
country. The postal department performs the following services.
1. Financial Services They provide postal banking facilities to the general
public and mobilise their savings through the following saving schemes like
public provident fund (PPF), Kisan Vikas Patra, National Saving Certificate,
Recurring Deposit Scheme and Money Order facility.
2. M ail Services The mail services offered by post offices include
transmission of messages through post cards, Inland letters, envelops etc.
transmission of articles through parcel facility, registration facility and
speed post to provide security of transmitted letters and articles and
insurance facility to provide insurance cover for various risks in the course
of transmission by post.

46 XI – Business Studies

AK
The various mail services all :
1. UPC (under postal certificate) When ordinary letters all posted the past
office does not issue any receipt. However, if sender wants to have proof
then a certificate can be obtained from the post office on payment of
prescribed fee. This paper now serves as a evidence of posting the letters.
2. Registered Post Sometimes we want to ensure that our mail is difinitely
delivered to the addressee otherwise it should come back to us. In such
situations the post office offers registered post facility which serves as a
proof that mail has been posted.
3. Parcel Transmission of articles 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.
Allied Postal Services
1. Greetings Post Greetings can be sent through post offices to people at
different places.
2. Media Post Corporates can advertise their brands through post cards,
envelops etc.
3. Speed Post It allows speedy transmission of articles (within 24 hours) to
people in specified cities.
4. e-bill post The post offices collect payment of bills on behalf of BSNL and
other organisations.
5. Courier Services Letters, documents, parcels etc. can be sent through the
courier service. It being a private service the employees work with more
responsibility.
Telecom Services Today s global business world, the dream of doing business
across the world, will remain a dream only in the absence of telecom services.
The various types of telecom services are
1. Cellular mobile services cordless mobile communication device including
voice and non-voice messages, data services and PCO services.
2. Radio Paging Services means of transmitting information to persons even
when they are mobile.
3. Fixed Line Services including voice and non-voice messages and data
services to establish linkage for long distance traffic.

47 XI – Business Studies

AK
4. Cable services Linkages and switched services within a licensed area of
operation to operate media services which are essentially one way
entertainment related services.
5. VSAT Service (Very small Aperture Terminal) is a Satellite based
communication service. It offers government and business agencies a highly
flexible and reliable communication solution in both urban and rural areas.
6. DTH Services (Direct to Home) a Satellite based media services provided
by cellular companies with the help of small dish antena and a set up box.

1 Marks Questions
Q.1 What do you mean by Debit Card?
Q.2 What is Crdit Card?
Q.3 Write the meaning of Tele Banking.
Q.4 Define Insurance.
Q.5 Principle of Indemnity is not applicable to which insurance.
Q.6 Name the type of insurance where in insurable interest need not exist
when the policy in taken.
Q. 7 What are the two categories of communication services?
Q.8 Name two companies that offer DTH service in our country.

3-4 Marks Questions

Q.9 Write three advantages of insurance.
Q.10 Explain the scope of Health Insurance.
Q.11 A contract of insurance is an uberrimae fidei-utmost good faith
contract . Comment.
Q.12 What insurable interest be present in the following case (1) Life Insurance
(2) Fire Insurance (3) Marine Insurance.
Q.13 Explain the meaning of Bank Overdraft.
Q.14 Name the accounts generally opened in the Bank.
Q.15. Write about Multiple option Deposit Account is 40 words.
Q. 16 Write note on core Banking.
Q. 17 Name any four services offered by electronic banking.

48 XI – Business Studies

AK
Long Answer Question (5-6 Marks)
Q.18 Describe briefly the various policies issued by life insurance corporation.
Q.19 A factory owner gets his stock of goods insured but he hide the fact that
the electricity board has issued him statutory warning letter to get his
factory s wiring changed later on, the factory catches fire due to short
circuit which principle is violated in this case. Explain.
Q.20 Why is insurance said to be mechanism of risk coverage and investment.
Q.21 Write a detailed note on various facilities offered by Indian Postal
Department.
Q.22 Briefly discuss the various type of accounts by which banks attract
deposit from the public.
Q.23 Write notes on RTGS system and NEFT.

49 XI – Business Studies

AK