CHAPTER - 4 BUSINESS SERVICES

CHAPTER - 4

BUSINESS SERVICES

Introduction

            Service are really intangibles. Experiencing service or rather purchasing services does not result in the ownership of anything physical.

Nature of Service.

·        Intangibility:     Service are really intangibles. You connect touch or taste or few them. For example, one connect taste a doctor’s treatment; on experience it. In the case of services, a customer must have a favourable experience.

·        Inconsistency:  Here we mean that services are provided depending upon the demands and expectations of different customers.

·        Inseparability:  Service are produced and consumed simultaneously. These are inseparable.

·        Inventory:        Since there are no tangible components in services, they cannot be stored for future use.

·        Involvement:     Another characteristic feature of service is the participation of  customer in the service delivery process.

Difference Between Services And Goods

Services	Goods
1.An activity or process	A physical object
2.Intangible	Tangible
3.Inconsistency-different customers different  demands	Consistency– different customers getting standardized products
4.  Inseparability – production and consumption take place simultaneously	Separable – separation of production and consumption.
5.No inventory – no change of inventory	Inventory – can be kept in stock
6.Involvement – customer involvement at the time of service delivery, e.g., self service in the case of food items	No involvement – Involvement not possible at the time of delivery, e.g., manufacturing a Car.

Types of Services

1.         Business Services

            Business includes trades and aids to trade. Banking, insurance, transportation, warehousing.

2.      Social Services

            Service rendered voluntarily to achieve certain social goals are called social services.

3.      Personal Services

            Personal services are differently experienced by different customers. There is no consistency in their nature.

Business Services.

            In the dynamic business world the role of business services is changing at a faster rate than industry and agriculture. Liberalization in all spheres gave added impetus to the business services in recent years.

Banking

            Finance is the life blood of business. It is needed for the uninterrupted supply of goods and services from the producers to the ultimate consumers through various intermediaries.

Banking and social objectives

            Nowadays banking has been reoriented towards achieving social objectives. A major shift has occurred in the banking policy of the country-

-                     from urban orientation to rural orientation

-                     from class banking to mass banking

-                     from traditional practices to innovative practices

-                     from short term objectives to long term (development)  objectives  

Types of Banks

            As the focus of banking is varied, needs diverse and methods different, we have different types of banks as follows:

1.                     Commercial banks

2.                   Co-operative banks

3.                   Specialised banks

4.                   Central banks

1.         Commercial Banks

 (a)  public sector banks:         Public sector banks are those banks in which the government has  major stake. Because of this, government can emphasise on social objectives besides profitability.

(B) private sector banks:         These are banks which are owned, managed and controlled by private parties. They operate in line with the market forces, but subject to the regulations of Reserve Bank of India.

2.    Co-operative Banks:         

       Co-operative banks are organized on co-operative lines. These banks are governed by the provisions of State Co-operative Societies Act. They encourages thrift, accept deposits and lend money to the members at a low rate of interest it is an important sources of rural credit, i.e., agricultural credit.

3.     Specialized Banks:           

        Specialized banks are those banks which render specific services to the public. These include foreign exchange banks, industrial banks, development banks, export-import (EXIM) banks, etc…

4.     Central Bank

        A central bank is the principal banking institution of a country. It is owned and managed by the Government.

Functions of Commercial Banks

Bank perform a variety of functions – basic or primary and secondary

I     Basic or Primary Functions

(i)   Accepting deposits        (ii)   Lending of money

      II    Secondary Functions

                  (i)   Agency services            (ii)    General utility services

Lending of money

(1) Loans and Advances,

(2) Overdraft,               

(3) Cash Credits,          

(4) Discounting of Bills.

Remittance of funds

            Remittance facilities are provided for transfer of funds from one place to another.

Personal services

            Banks undertake to pay insurance premium, collect dividend, interest, pension, etc.

Dealing in shares, debentures, etc.

            As per the instructions of customers, banks undertake to busy or sell shares, debentures, government securities, etc.

Custodial services

            Commercial bank locker accept valuables such as gold precious metals, important documents and valuable papers like insurance policies, share certificates, deed or properties etc.

Issue of letters of credit  

            Issuing of letters of is an essential thing in foreign trade (in import trade). It is very useful to trade and businessmen.

Issue of traveller’s cheques

            Issuing of traveller’s cheques is a great boon to tourists and business executives.

Provision of credit information

            Providing information about their customers is yet another useful function performed by commercial banks.

e-Banking

            With the advent of computers, banks can now offer a variety of new services to their customers.

(i)                  Electronic Funds Transfer System (EFTS)

(ii)                Automated Taller Machines (ATMs)

(iii)               Debit Card

(iv)               Credit Card

            Benefits

·        e-banking provides round the clock, 365 days a year services the customers.

·        Customers can enter into bank transactions (some of the permitted ones) from office or house or when traveling via mobile phone.

·        It creates a sense of financial discipline.

·        Unlimited access to the bank, less risk and greater security, etc., are provided to the customers as he can avoid traveling with cash.

·        Load on branches is considerably reduced.

  Insurance

            Human life is open to various risk and uncertainties. Risk is the exposure to loss but which is uncertain. For insurance, sickness, disablements, accidents, premature death etc. There are two parties to a contract of insurance, viz., the ‘insurance’ and the ‘insured’. ‘Premium the document containing the terms and conditions of insurance is called the ‘policy’. Insurance is a form of contract or agreement under which one party agrees in return for a consideration to pay a stipulated sum to another party to make good a loss, damage or injury to something of value in which the insured has a pecuniary interest because of some uncertain event.

Fundamental Principles of Insurance

            Fundamental Principles of Insurance lie in the fact that the insured (an individual or a business entity) is willing to spend a definitely known sum to safeguard against a possible huge amount by way of an indefinite future loss.

            The insurability of any risk depends on certain factors. More important of them are as follows.

(i)                  The loss must be foreseeable. It must predictable, and can be calculated mathematically.

(ii)                The risk should be spread over a large number of policy holders to average out the risk. Probable loss is estimated on the basis of law averages.

(iii)               The premium amount should be bearable.

Function of Insurance

·     Insurance shares risk

       The primary function of insurance is to share risks to  which human life and property are subject to. It should be noted that insurance does not eliminate risks.

·     Insurance affords protection

       As insurance covers risks it creates a sense of security in the life of individuals as well as the businessmen.

·     Insurance encourages savings

       When a life policy is taken the insured is bound to pay the premium regularly.

·     Insurance helps to acquire property or assets.

       In the case of life insurance, the policy holders save a portion of their income for making payments towards premium to the insurer.

·     Insurance creates funds for investment.

       The insurance are required to maintain a large potion of the premium received from the insured as reserve to pay compensation under the contract of insurance.

·     Insurance provides funds for developmental programmes.

       Large insurance at their command enable them to extent financial help to industrial concerns.

Principles of Insurance

·     Utmost Good Faith

       The contracts of insurance come under the category of the contracts ‘uberrimae-fide’, i.e., those contract which require absolute and almost good faith on the part of the parties concerned. Utmost good faith here means that the insurer and the insured must act in good faith and disclose all material fact concerning the subject matter of insurance.

·     Insurable Interest

       Insurable interest means monetary interest. It is the legal right of a person to effect insurance.

·     Indemnity

       All contracts of insurance expect life insurance and personal accident insurance are based on the principle of indemnity. The word indemnity means to make good the loss. It means that the insured will be paid only the actual amount of loss not exceeding the amount of policy. That is, he will not be allowed to make a profit in the event of loss or damage to his property.

·     Subrogation

       It is an extension of the principle of indemnity.  The insurer steps into the shoe of the insured after his claim is settled. That is all the rights available to the insured against the property insured will pass on to the insurance company.

·     Contribution

       Sometimes a person may get his goods insured with two or more insurers to cover the same risk. It is called double insurance. The principle of contribution applies to all double insurance contract. When there is double insurance the insured can claim only actual amount of loss although he has taken two or more policies on the same property.

·     Mitigation of Loss

       The insured should take all necessary steps to minimise the loss when the risk insured against occurred.

·     Causa Proxima

       There may be several causes for the damage or loss. When a loss arises in respect of the subject matter of insurance the insurer is liable  to pay the loss only if it is caused by a peril insured against.

Types of Insurance

            According to the nature of risk covered, insurance can be broadly classified into:

            (1)         Life Insurance               (2)        General Insurance

Kinds of policies

1.          Whole-Life Policy:         This is also known as ordinary life policy. The policy runs throughout the life of the policy holder.

2.         Endowment Policy:       This type of policy runs only for a limited period. Say, 15 years, 20 years etc.

Fire Insurance

            Fire insurance is an insurance against the risk of loss of a property by fire. It is a contract by which the insurer undertakes, in return for a consideration called the premium, to indemnity the insured for any loss or damaged to the insured property by fire for an agrees period and up to a certain amount.

Nature of Fire Insurance Contracts

            Fire insurance offers protection against group  loss or damaged by fire, lightning and explosion. For this, then fire must be incidental and not intentional.

Kinds of Fire Insurance

1.                     Valued Policy

2.                   Average Policy

3.                   Specific Policy

4.                   Floating Policy

5.                   Declaration Policy

6.                   Reinstatement Policy or Replacement Policy

7.                   Loss of Profit Policy

8.                   Comprehensive policy

Marine Insurance

            It is an insurance against the perils of the sea which are likely to occur during sea transport. It is a contract whereby the insurer agrees to indemnify the owner of a ship or cargo against risks which are incidental to marine adventure in consideration of premium.

1.                     Cargo Insurance

2.                   Hull Insurance

3.                   Freight Insurance