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This chapter discusses the meaning, nature, and types of business services essential for the conduct of business activities. It covers banking, insurance, transportation, warehousing, and communication services. These notes summarise key concepts from Chapter 4 of the NCERT textbook Business Studies for effective revision. You can also download the free PDF for quick reference.
Contents
- 1 Introduction
- 2 Nature of Services
- 3 Difference between Services and Goods
- 4 Types of Services
- 5 Business Services
- 6 Banking
- 7 Types of Banks
- 8 Functions of Commercial Banks
- 9 E-Banking
- 10 Insurance
- 11 Fire Insurance
- 12 Marine Insurance
- 13 Communication Services
- 14 Postal Services
- 15 Telecom Services
- 16 Transportation
- 17 Warehousing
- 18 Important Definitions in NCERT Notes Class 11 Business Studies Chapter 4: Business Services
- 19 FAQs
Explore Notes of Class 11: Business Studies
Introduction
All types of organisations experience the effect of business activities. Examples: purchasing ice cream from a store and eating ice cream in a restaurant, watching a movie in a cinema hall, purchasing a school bus and leasing it from a transporter. There is a difference between purchasing and eating, purchasing and watching, and purchasing and leasing. One is purchasing an item, and the other is experiencing a service. Services are essentially intangibles. Their purchase does not result in the ownership of anything physical. For example, you can only seek advice from the doctor; you cannot purchase him.
Services are all those economic activities that are intangible and imply an interaction to be realised between the service provider and the consumer. Services are those separately identifiable, essentially intangible activities that provide satisfaction of wants, and are not necessarily linked to the sale of a product or another service. A good is a physical product capable of being delivered to a purchaser and involves the transfer of ownership from seller to customer.
- Examples: Purchasing ice cream (good) vs. eating in a restaurant (service), watching a movie (service), leasing a bus (service).
- Services: Intangible, no ownership, interaction between provider and consumer.
- Goods: Physical, transferable ownership.
Nature of Services
There are five basic features of services. These features also distinguish them from goods and are known as the five Is of services.
(i) Intangibility: Services are intangible, i.e., they cannot be touched. They are experiential in nature. One cannot taste a doctor’s treatment or touch entertainment. The quality of the offer can often not be determined before consumption. Service providers consciously work on creating a desired service for a favourable experience. For example, treatment by a doctor should be a favourable experience.
(ii) Inconsistency: No standard tangible product, services have to be performed exclusively each time. Different customers have different demands and expectations. Service providers alter their offer to meet requirements, for example, in the case of mobile services.
(iii) Inseparability: Simultaneous activity of production and consumption. Production and consumption of services seem to be inseparable. Services have to be consumed as and when produced. Interaction with the customer remains a key feature. Automated Teller Machines (ATMs) may replace the banking clerk, but the presence of the customer is required.
(iv) Inventory (Less): Little or no tangible components, cannot be stored for future use. Services are perishable. Demand and supply need to be managed as the service has to be performed as and when the customer asks for it. For example, a railway ticket can be stored, but the railway journey will be experienced only when the railway provides it.
(v) Involvement: Participation of the customer in the service delivery process. The customer has the opportunity to get the services modified according to specific requirements.
Difference between Services and Goods
The two main differentiating characteristics of services and goods are non-transferability of ownership and the presence of both the provider as well as consumer. 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 are sold at the consumption point, there are no inventories.
- Goods: Produced, inventories possible, ownership transferable, no simultaneous production-consumption, no customer involvement in production.
- Services: Performed, no inventories, no ownership transfer, simultaneous production-consumption, customer involvement.
Types of Services
Services can be classified into three broad categories: business services, social services and personal services.
(i) Business Services: Services used by business enterprises for the conduct of their activities. For example, banking, insurance, transportation, warehousing and communication services.
(ii) Social Services: Provided voluntarily in pursuit of certain social goals. To improve the standard of living for weaker sections, provide educational services, and health care. Provided voluntarily, but for some consideration to cover costs. For example, health care and education services are provided by NGOs and government agencies.
(iii) Personal Services: Experienced differently by different customers. Cannot be consistent. Differ depending upon the service provider, the customer’s preferences and demands. For example, tourism, recreational services, and restaurants.
In the context of a better understanding of the business world, discussions are limited to business services.
Business Services
Today’s world is one of tough competition, survival of the fittest. Companies stick to what they can do best. Dependent on specialised business services. Look towards banks for funds; insurance companies for insuring plant, machinery, goods; transport companies for raw material and finished goods; telecom and postal services for contact with vendors, suppliers, customers. Globalised world, rapid change in the service industry in India. India is gaining a competitive edge in providing services to developed economies. Foreign companies are transferring business operations to India.
Banking
Commercial banks important institution for providing institutional credit. A banking company transacts business of banking: accepting deposits from the public for lending/investment, repayable on demand or otherwise, withdrawable by cheque, draft, or order. The bank accepts deposits, repayable on demand, and earns profit by lending. Stimulates economic activity, mobilises savings, and makes funds available to business. Deals in financial instruments, provides services for interest, discount, and commission.
Types of Banks
Banks are classified into: 1. Commercial banks, 2. Cooperative banks 3. Specialised banks 4. Central bank.
(i) Commercial Banks: Deal in money. Governed by the Indian Banking Regulation Act 1949. Accepting deposits for lending or investment. Two types: public sector and private sector banks.
- Public sector banks: Government major stake, emphasising social objectives over profitability.
- Private sector banks: Owned, managed, and controlled by private promoters, operate as per market forces. Examples: SBI, PNB, IOB (public); HDFC Bank, ICICI Bank, Kotak Mahindra Bank (private).
(ii) Cooperative Banks: Governed by the State Cooperative Societies Act, they provide cheap credit to members. An important source of rural credit, agricultural financing in India.
(iii) Specialised Banks: Foreign exchange banks, industrial banks, development banks, export-import banks. Provide financial aid to industries, heavy turnkey projects, and foreign trade.
(iv) Central Bank: Supervises, controls, and regulates commercial banks. Acts as government banker. Controls currency and credit policies. The Reserve Bank of India is the central bank.
Functions of Commercial Banks
Here we have discussed the functions of the commercial banks:
(i) Acceptance of deposits: Through current account, savings account, and fixed deposits. Current: withdraw anytime. Savings: encourage savings, interest by RBI, restrictions on withdrawal. Fixed: time deposits, higher interest, and premature withdrawal forfeit interest.
(ii) Lending of funds: Loans and advances from deposits. Overdrafts, cash credits, discounting trade bills, term loans, consumer credits, miscellaneous advances. Contributes to trade, industry, transport, and business.
(iii) Cheque facility: Collect cheques drawn on other banks. Most developed credit instrument. Bearer cheques: encashable at counters. Crossed cheques: deposited in the payee’s account.
(iv) Remittance of funds: Transfer funds from place to place via branches. Bank drafts, pay orders, mail transfers, nominal commission.
(v) Allied services: Bill payments, locker facilities, and underwriting services. Buying/selling shares/debentures, payment of insurance premiums, and collection of dividends.
E-Banking
Internet banking: part of virtual banking, a delivery channel. A user with a PC and a browser connects to the bank’s website for virtual banking functions. Centralised web-enabled database. Services are displayed on the menu. e-banking lowers transaction costs, adds value, and empowers customers. Conduct transactions: managing savings, checking accounts, applying for loans, paying bills over the internet via PC, mobile, or PDA. Services: ATM, PoS, EDI, Credit Cards, Digital cash, EFT (NEFT, RTGS).
Benefits
- To customers: (i) Digital payments, transparency. (ii) 24 hours, 365 days. (iii) Transactions from office/house/travelling. (iv) Financial discipline by recording. (v) Satisfaction, unlimited access, less risk, security.
- To banks: (i) Competitive advantage. (ii) Unlimited network. (iii) Reduced load on branches, centralised database.
Insurance
Life is full of uncertainties. Risks of death, disability, fire, burglary for property; perils of sea for goods. Need insurance to minimise impact. Investment in assets is possible with insurance cover. People facing common risks contribute to a common fund, spreading the loss over persons exposed. Insurance: a contract, one party pays consideration (premium) to another to pay an agreed amount for loss, damage, or injury to property due to an uncertain event. Policy: written contract. Insured: a person whose risk is insured. Insurer: firm insuring loss.
Fundamental principle of Insurance
Substitution of a small periodic payment (premium) for the risk of a large possible loss. Loss is spread over policyholders. Premiums are pooled, compensate for losses. Risk management to safeguard against potential financial loss. Equitable transfer of risk for a fee. Social device: group transfers risk to insurer, payment from premiums.
Functions of Insurance
Look at the functions and the purpose of the insurance.
(i) Providing certainty: Payment for risk of loss. Removes uncertainties of time/amount. Premium for certainty.
(ii) Protection: Protection from probable loss. Cannot stop risk but compensates for losses.
(iii) Risk sharing: Loss shared by all exposed, via premiums.
(iv) Assist in capital formation: Premiums invested in income-generating schemes.
Principles of Insurance
Here we have listed the principles of insurance:
(i) Utmost good faith: Uberrimae fidei. Both display good faith. Insured discloses material facts. Insurer’s clear terms. Failure makes the contract voidable.
(ii) Insurable Interest: Pecuniary interest in subject matter. Suffer financially at the event. Must exist at the time of the event for the property. Example: trustee, owner.
(iii) Indemnity: Fire/marine contracts. The insurer puts the insured in the same position before the loss. Compensation in money. Not applicable to life.
(iv) Proximate Cause: Compensation for perils stated. Proximate: direct, dominant, effective cause.
(v) Subrogation: Insurer stands in the insured’s place after the claim. Ownership of property passes to the insurer. No profit to the insured.
(vi) Contribution: The Insurer who paid can call others to contribute proportionately in double insurance. No more than actual loss.
(vii) Mitigation: Insured takes reasonable steps to minimise loss. Behave prudently.
What is Life Insurance?
Life Insurance offers protection against the uncertainty of life. In this contract, the insurer pays the assured sum on the specified event contingent on the human life or expiry of the period, for the premium. Provides protection against premature death or an amount at an old age. Encourages savings. Elements: valid contract, utmost good faith, insurable interest at inception, not indemnity.
Types of life insurance policies
Here are five types of life insurance, which are defined below:
(i) Whole Life Policy: Amount paid after death to beneficiaries. Premium fixed period or whole life.
(ii) Endowment Life Assurance Policy: Specified sum at a particular age or on death earlier. To heir/nominee or assured.
(iii) Joint Life Policy: By two or more. Payable on the death of one to the survivors.
(iv) Annuity Policy: Payable after a certain age in instalments.
(v) Children’s Endowment Policy: For children’s education/marriage. The sum when the child attains age. No premium if the person dies before maturity.
Fire Insurance
Fire insurance offers a contract under which the insurer makes good the loss by fire during the period up to the amount. It is renewable for one year and can be claimed under actual loss, accidental fire. It has insurable interest at insurance and loss, utmost good faith, indemnity, and the proximate cause of fire.
Marine Insurance
In Marine insurance, the insurer indemnifies against marine losses. It covers ship hull, cargo, and freight and can be claimed during collision, fire, or piracy. Its elements are indemnity (commercial for cargo), utmost good faith, insurable interest at loss, and proximate cause.
Communication Services
Communication services help businesses establish links with the outside world, including suppliers, customers, and competitors. It is efficient, accurate, and fast. It comes under the electronic media transformation and is classified into postal and telecom.
Postal Services
The Indian Post and Telegraph has 22 postal circles. It offers financial facilities such as PPF, Kisan Vikas Patra, National Saving Certificates, retail banking, and money orders. It also includes mail facilities: parcel, registration, and insurance. Its allies are greeting post, media post, direct post, international money transfer, passport facilities, speed post, and e-bill post.
Telecom Services
Telecom services are key to economic/social development. It has convergence of telecom, IT, electronics, and media. Under the New Telecom Policy 1999 and Broadband Policy 2004, it offers services as listed below:
(i) Cellular mobile services: Voice/non-voice, data, PCO.
(ii) Fixed line services: Voice/non-voice, data, long distance, fibre optic.
(iii) Cable services: Linkages, switched, one-way entertainment.
(iv) VSAT services: Satellite-based, flexible, reliable, tele-medicine, tele-education.
(v) DTH services: Satellite-based, direct via dish antenna, set-top box.
Transportation
Transportation has freight services, supported by rail, road, air, and sea. It removes the hindrance of place and is essential for speedy services. For proper utilisation, it needs better infrastructure and ports.
Warehousing
Warehouses are important for economic development, and it is logistical service providers. It stores the goods in the right quantity, place, time, form, and cost.
Types of Warehouses
These are the types of warehouses that are mentioned below:
(i) Private warehouses: Owned/leased by the company for its own goods. Control, flexibility.
(ii) Public warehouses: For the public on a fee. Licensed, regulated. Flexibility, no fixed cost, value added.
(iii) Bonded warehouses: Licensed for imported goods before duty. In bond till duty paid. Branding, packaging, grading. Part removal, duty instalments.
(iv) Government warehouses: Owned, managed by the government. FCI, STC, CWC.
(v) Cooperative warehouses: By cooperative societies for members.
Functions of Warehousing
Read and understand the following functions of the warehousing:
(a) Consolidation: Receive from plants, dispatch to customer in a single shipment.
(b) Break the bulk: Divide the bulk into smaller quantities.
(c) Stockpiling: Seasonal storage, release on demand.
(d) Value-added services: In transit mixing, packaging, labelling, and grading.
(e) Price stabilisation: Adjust supply with demand.
(f) Financing: Advance money on security, supply on credit.
Important Definitions in NCERT Notes Class 11 Business Studies Chapter 4: Business Services
This section lists key terms for clarity and revision:
- Services: Separately identifiable, essentially intangible activities providing satisfaction of wants, not necessarily linked to the sale of a product/service.
- Business Services: Services used by business enterprises for the conduct of activities.
- E-Banking: A Service allowing the conduct of banking transactions over the internet using a PC, mobile, or PDA.
- Insurance: Contract to pay an agreed amount for loss/damage/injury due to an uncertain event for consideration (premium).
- Life Insurance: A Contract to pay an assured sum on a specified event contingent on human life or the expiry of the period for premiums.
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FAQs
The five features are Intangibility, Inconsistency, Inseparability, Inventory (Less), and Involvement.
Services are intangible, performed, have no ownership transfer, and involve simultaneous production and consumption, while goods are tangible, produced, have ownership transfer, and can be stored.
They accept deposits, lend funds, provide cheque facilities, remit funds, and offer allied services like bill payments and lockers.
It substitutes a small known premium for the risk of a large uncertain loss, spreading the loss over many policyholders.
The types are Private warehouses, Public warehouses, Bonded warehouses, Government warehouses, and Cooperative warehouses.
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