Chapter 4 — Business Services

Chapter 4, titled Business Services, covers the nature and characteristics of services, their distinction from goods, and five major types of business services: banking, insurance, communication, transportation, and warehousing. It also explains the principles of insurance, the functions of commercial banks, types of warehouses, and the concept of e-banking.

The five Is of services are intangibility (services cannot be touched or tasted), inconsistency (services must be performed exclusively each time as different customers have different demands), inseparability (production and consumption occur simultaneously), inventory (services are perishable and cannot be stored for future use), and involvement (customers participate in the service delivery process).

e-banking is electronic banking that allows a customer to conduct banking transactions — such as managing savings, checking accounts, applying for loans, or paying bills — over the internet using a personal computer, mobile telephone, or handheld computer. It includes Automated Teller Machines (ATMs), Point of Sales (PoS), Electronic Data Interchange (EDI), credit cards, and Electronic Fund Transfer (EFT) through NEFT (National Electronic Fund Transfer) and RTGS (Real Time Gross Settlement).

The seven principles are: utmost good faith (both parties must fully disclose all material facts), insurable interest (the insured must have a pecuniary interest in the subject matter), indemnity (the insured is restored to the pre-loss position), proximate cause (compensation is based on the nearest dominant cause of loss), subrogation (insurer steps into the insured's rights after settlement), contribution (loss is shared among multiple insurers in case of double insurance), and mitigation (the insured must take reasonable steps to minimise the loss).

Life insurance is not a contract of indemnity — a specified sum is paid on the happening of the event or on maturity of the policy. Fire insurance is a contract of strict indemnity — the insured can claim only the actual amount of loss within the maximum policy limit. Fire insurance is normally for one year; life insurance typically spans 5 to 30 years or the whole life of the assured.

The chapter describes five types: private warehouses (owned or leased by a company for its own goods), public warehouses (available to traders and manufacturers on payment of storage charges, licensed by the government), bonded warehouses (licensed to accept imported goods prior to payment of customs duty, facilitating entrepot trade), government warehouses (owned and managed by the government, for example Food Corporation of India and Central Warehousing Corporation), and cooperative warehouses (set up by marketing or agricultural cooperative societies for their members).

The functions of warehousing are: consolidation (combining goods from different production plants for a single shipment to a customer), breaking the bulk (dividing large quantities into smaller lots for clients), stock piling (seasonal storage to match supply with demand throughout the year), value added services (in-transit mixing, packaging, labelling, and grading), price stabilisation (adjusting supply to demand conditions to control prices), and financing (advancing money to goods owners on security of goods).

Banks are classified into four types: commercial banks (public sector banks such as SBI and PNB, and private sector banks such as HDFC Bank and ICICI Bank, governed by the Indian Banking Regulation Act 1949), cooperative banks (governed by State Cooperative Societies Act, primarily for rural and agricultural credit), specialised banks (foreign exchange banks, industrial banks, development banks, export-import banks), and the central bank (Reserve Bank of India), which supervises and regulates all commercial banks and acts as government banker.

Marine insurance is a contract whereby the insurer undertakes to indemnify the insured against marine losses — losses caused by perils of the sea such as collision, fire, piracy, and actions of the crew. It covers three things: ship or hull (damage to the ship), cargo (goods in transit by sea exposed to theft or loss), and freight (reimbursement to the shipping company if freight charges are not received due to loss or damage of cargo in transit).

Communication services are classified into postal services and telecom services. Postal services (provided by the Indian post and telegraph department across 22 postal circles) include financial facilities (PPF, Kisan Vikas Patra, savings accounts, money orders) and mail facilities (parcel, registration, insurance cover). Telecom services include cellular mobile services, fixed line services, cable services, VSAT (Very Small Aperture Terminal) satellite-based services, and DTH (Direct to Home) services.

e-banking facilitates digital payments and promotes transparency in financial statements, provides 24-hour, 365-day service, allows customers to make transactions from office, home, or while travelling via mobile telephone, inculcates financial discipline by recording each transaction, and offers greater security by reducing the need to travel with cash.

The chapter describes four functions of insurance: providing certainty (payment for the risk of loss removes financial uncertainty), protection (compensating for losses arising from probable risks even though the event itself cannot be stopped), risk sharing (loss is spread over all insured members through premium contributions), and assisting in capital formation (accumulated premium funds are invested in various income-generating schemes).

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