1

CHAP 4

BUSINESS SERVICES
Meaning of Business Services 2

Services which help in successful running of business is called as

Business Services. It is provided to satisfy customer needs.
According to American Marketing Association,” Activities, benefits, or
satisfactions which are offered for sale, or provided in connection with
sale of goods”.
FEATURES
1. INTANGIBLE 2. INCONSISTENCY 3.INSERARABILITY
4. PERISHABILITY 5. NON-TRANSFERABILITY
6. CONSUMER PARTICIPATION
TYPES OF BUSINESS
1. BANKING 2. INSURANCE 3. TRANSPORT 4. COMMUNICATION AND
5. WAREHOUSING
Business Services 3
WHAT IS A BANK
4

• According to some monetary experts, the word ‘Bank’

is derived from ‘Banco’. ‘Bancus’, ‘Banque’ or ‘Banc’ all
of which mean a bench upon which the early money-
lenders used to display their coins and transact
business across the bench in the market place.
• Banks are the nerve centre of trade, commerce and
business of an economy. Banking plays a very
important role in the economic development of all the
nations of the world. In fact, banking is the life-blood of
commerce
• BANKS is described as “institution for receiving and
lending money”
• Banks in past used to be known as SETHS, SHROFFS,
GOLDSMITHS, ETC.
Meaning of Banking
5

A bank is a financial institution which deals with

deposits and advances andBank provides various
services related to money or financial requirements
of consumers other related services..
Bank means a financial institution for the purpose of
lending, borrowing, exchanging, issuing and
safeguarding money.
Bank is an institution which accepts deposit from
public and provides loan. It purchases and sells
money and transacts other related business.
It is described as a dealer in money and credit
because it accepts deposit &lends money.
 FEATURES OF BANKING
6

 Financial Institution
 Accepting Deposit
 Lending Of Money
 Connecting Link
 Role In Trade
 Bank Money
 Provides Services
 Profit and service oriented
FUNCTIONS OF BANKS 7
 8
PRIMARY FUNCTION OF BANKS
 SAVING ACCOUNT
9

• MEANING: It is opened by individuals for the

purpose of saving
• DEPOSIT & WITHDRAWAL: There is no restrictions
on deposits but there are restriction on
withdrawal limit
• INTEREST: Interest on deposits are nominal
• LOAN FACILITY : No loan facility is provided
against this account
• DOCUMENTS: Bank provides passbook, cheque
book, staement of account, and pay in slip to its
customer
• Customers can withdraw either by cheque or by
withdrawal slips
 CURRENT ACCOUNT 10

• Account is opened by businessmen as they have their

financial transaction on large scale
• There is no restrictions on deposits and on withdrawal
limit
• No Interest is paid on this account
• Overdraft facility is provided against this account
• Customers can withdraw by cheque
• Statement of accounts is provided every month
 11
FIXED DEPOSIT ACCOUNT

• IT is an account opened by individuals who

like to deposit a fixed amount for a fixed
period of time bearing fixed rate of interest.
• No withdrawal is allowed till the date of
maturity
• Provides high rate of interest on deposit
• Loan can be provided against this account
• Fixed Deposit Receipt (FDR) is issued by the
bank
 RECURRING DEPOSIT ACCOUNT 12

• IT is an account opened by individual where

a person deposits certain sum of money at
regular intervals for a fixed period of time.
• No withdrawal is allowed till the date of
maturity.
• Provides nominal rate of interest on deposit.
• Loan can be provided against this account.
• Seperate RD passbook is issued by the bank.
 LOAN AND ADVANCES
13

OVERDRAFT CASH CREDIT LOAN

• IT IS AN ARRANGEMENT
• FACILITY PROVIDED TO
• FACILITY PROVIDED TO MADE BETWEEN THE BANKER
CURRENT AS WELL AS
CURRENT ACCOUNT AND THE CUSTOMER FOR A
SAVING ACCOUNT HOLDERS
HOLDERS FIXEDPERIOD OF TIME.
• THEY ARE ALLOWED TO
• THEY ARE ALLOWED TO • THE AMOUNT OF LOAN IS
WITHDRAW MORE THAN
WITHDRAW MORE THAN TRANSFERRED TO A SEPARATE
WHAT THEY HAVE IN THEIR
WHAT THEY HAVE IN THEIR LOAN ACCOUNT .
ACCOUNT TO MEET THEIR
ACCOUNT TO MEET THEIR
WORKING CAPITAL • AFTER THE EXPIRY OF THE
WORKING CAPITAL
REQUIREMENTS. PERIOD THE AMOUNT HAS TO
REQUIREMENTS.
BE REPAID BY THE CUSTOMER
• INTEREST IS CHARGED ON THE
• INTEREST IS CHARGED ON TO THE BANK.
AMOUNT ACTUALLY USED OR
THE AMOUNT ACTUALLY
WITHDRAWN. IT IS HIGHER • INTEREST IS TO BE CHARGED
USED OR WITHDRAWN.
THAN OVERDRAFT. ON THE AMOUNT
• IT IS GIVEN FOR TEMPORARY SANCTIONED BY THE BANK
• A SEPARATE CASH CREDIT
PERIOD (i.e.15 to 60 days) WHETHER USED OR NOT.
ACCOUNT IS OPENED FOR A
LONGER PEROID OF TIME • A SEPERATE LOAN ACCOUNT
IS OPENED
 14
DISCOUNTING BILL OF EXCHANGE

 A bill of exchange is an order from the creditor to the debtor to pay

a certain sum, to certain person after a certain period.
 Discounting a bill of exchange means lending for a short period .It is
the most important form in which the bank lends money without
security.
 The bank can provide money by purchasing bill of exchange. The
bank pays the bill amount to the drawer by deducting the discount
charges. This provision given by the bank is called discounting bill of
exchange.
 On maturity of the bill the bank presents the bill to the drawee and
collects the amount from him.
 TYPE OF BANK 15

Types of banks

Commercial Co-operative Development Exchange Regional Investment Specialized

Central Bank Savings Bank
Bank Bank Bank Bank Rural Bank Bank Bank
 Central Bank
16
The CENTRAL BANK is the apex financial institution in banking industry in the
country.
Every country has their own central bank. It stands at the top of all banking
institutions in the country.
It is different from other types of banks. It is a non profit base bank.
Central Bank Every country has a central bank which is owned and managed by the
central government.
The entire banking activities of a country in any part of the world is controlled
and directed by the Central Bank.

FUNCTIONS:
1. Monopoly of Note Issue
2. Banker’s Bank
3. Banker to the Government
4. Controller of Money and Credit
5. Controller of Foreign Exchange.
 RESERVE BANK OF INDIA
17

➢ Reserve Bank of India is the Central Bank of our

country. It was established on 1st April 1935
under the RBI Act of 1934.
➢ It holds the apex position in the banking
structure
➢ As of now 26 public sector banks in India out of
which 21 are Nationalised banks and 5 are
State Bank of India and its associate banks.
➢ There are total 92 commercial banks in India.
Public sector banks hold near about 75% of the
total bank deposits in India.
INDIAN BANKING SYSTEM
18
 Commercial Bank
19

The commercial banks play an important role in economic and

social development of a country.

Commercial Bank They are the banks whose main function is to accept deposits
for the purpose of lending it to general public or industries.
They provide short term, medium term and long term loans to
trade, commerce, agriculture, industry and public.
They give less rate of interest on deposits and charge higher rate
of interest on loan.
These banks are registered under Banking Regulation Act 1949.
Their main aim is to earn profit.
 TYPE OF COMMERCIAL BANK 20

PUBLIC PRIVATE FOREIGN

➢ REGISTERED UNDER ➢ BANK REGISTERED IN
➢ STAKE HELD BY THE
COMPANIES ACT 1956 FOREIGN COUNTRY
GOVERNMENT
BUT OPERATES THEIR
EXAMPLE EXAMPLE BRANCH IN OTHER
➢ HDFC COUNTRY.
➢ STATE BANK OF INDIA
AND ITS ASSOCIATES ➢ ICICI EXAMPLE
➢ 21 PUBLIC BANKS ➢ AXIS ➢ HSBC
➢ IDBI ➢ YES BANK ➢ CITIBANK
➢ BHARATIYA MAHILA ➢ KARUR VYSAYA ➢ STANDARD
BANK CHARTERED
➢ SOUTH INDIAN
➢ AMERICAN EXPRESS
BANK
 Co-operative Bank
21

In India, co-operative banks are registered under

Indian Co-operatives Societies Act and regulated
under Banking regulation Act.
Co-operative Bank The main function of such banks is to accept deposits
from its members and public for lending it to the weaker
section and small businessmen.
The main aim is to provide service to its members and
public.
They give higher rate of interest of deposits and charge
lesser rate of interest on loans.
They provide short term and medium term loans to
farmers, weaker section and small businessmen.
 TYPES OF COOPERATIVE BANK 22

DISTRICT CENTRAL STATE

PRIMARY CREDIT
COOPERATIVE COOPERATIVE
SOCIETIES
BANK BANK
➢ Formed at village ➢ Formed at district ➢ Apex body
or town level level ➢ Operates at state
➢ Collects deposit ➢ Collects deposit level
from members and from public at ➢ Provides funds to
public district level primary and central
➢ Gets funds from ➢ Gets funds from cooperative bank
state co- operative state co- operative ➢ Monitors district
and credit
cooperative
socities
 Industrial Development Banks
23
Business requires medium and long term capital for purchase of
machinery & equipment for using latest technology for
expansion & modernisation. Such financial assistance is provided
by these bank.
These banks provide long term credit or loan to industrial sectors.
Industrial Their main aim is to increase industrialisation, modernisation and
Development Banks development of industries.
The loan amount provided by them is very high and is given
against securities like land, building, machinery etc.
Their main function is to raise funds by issuing shares and
debentures. They underwrite shares and debentures. They also
act as a guaranteer on loan.
Examples of development bank are Industrial Finance
Corporation of India (IFCI), State Finance Corporation (SFC),
Maharashtra State Finance Corporation(MSFC) etc. Some
 Exchange Banks
24

The Exchange banks are type of commercial bank .

Exchange Banks Their main function are remitting money from one country
to another country and helping import export trade.
It issues letter of credit, discounts foreign bill of exchange,
financing foreign trade transaction.
They work under the direction of the RBI
Examples of exchange banks are Barclays Bank, Bank of
Tokyo etc.
 Regional Rural Bank
25

Regional Rural Banks (RRBs) were established in 1975.

These banks are sponsored by large public sector banks.
Regional Rural The capital of RRB is contributed by Central Government
50%, State Government 15% and Sponsored Banks 35%.
Bank RRBs mobilize deposits primarily from rural and semi-urban
areas and provide loans and advances mostly to small
and marginal farmers, agricultural laborers and rural
artisans
 Savings Bank
26

The main aim of forming a savings bank was to

develop the habit of saving among people. Thus, a
Savings Bank bank helps to put together the scattered resources of
the people and invest them in bonds and securities.
Savings bank receives deposits which are withdraw
able on demand beyond a certain limit. Example-
Postal saving bank, NSC (national saving certificate).
 Investment Bank
27

These banks provide financial and advisory assistance

to their customers. Their clients generally include
Investment Bank business firms and government organisations.
Investment banks facilitate mergers and acquisitions
by undertaking research and providing advice on
investment decisions. Generally, investment banks do
not directly deal with general public.
 Specialized Banks
28

These banks cater to the requirements

Specialized Banks and provide overall support for setting up
business in specific areas. They are
NABARD,SIDBI, EXIM bank
 29
TYPES OF SPECIALISED BANK

EXIM SIDBI NABARD

Its purpose is to NABARD is designated as an apex
Export Import Bank (Exim development bank in the country.
Banks) are government provide refinance faciliti
es and short term This national bank was established in
or semi government 1982 by a Special Act of the Parliament,
agencies that ensure lending to industries, with a manadate to uplift rural India by
the safety and growth of and serves as the facilitating credit flow in agriculture,
a country’s foreign principal financial cottage and village industries,
handicrafts and small-scale industries.
trade. They provide institution in the Micro,
customized financial Small and Medium It is also required to support non-farm
sector while promoting other allied
instruments to safeguard Enterprises (MSME) economic activities in rural areas.
the interests of exporters sector.
IT promote sustainable rural
against development for attaining prosperity of
default/nonpayment rural areas in India.
from the importers
 30
NEW MODEL BANKS

• Small finance banks are a type of niche banks in India.

• These are banks with a small finance bank license and
provide basic banking service of acceptance of deposits
and lending.
• The aim behind these banks is to provide financial inclusion to
Small Finance Banks sections of the economy not being served by other banks
such as small business units, small and marginal farmers, micro
and small industriesand un-organised sector entities.
• They are established as public limited companies in the
private sector under the Companies Act,1956. They are
governed by the provisions of Reserve Bank of lndia Act,
1934, Banking RegulationAct, 1949.There is no territorial
restrictions for these bank.
 31
NEW MODEL BANKS

• It is a new model of banking. It is conceptualised by the

Reserve Bank of lndia.
• The main aims is to offer financial services to small
businesses and low income people. It is like any other bank
Payment Bank as it can carry out most of the banking functions such as
remittance services, mobile banking, ATM cards, net
banking etc. But, it is not allowed to issue loans and credit
cards.
• Similarly, it can accept the demand deposits only up to Rs. 1
lakh.
• Indian Post Payment Bank, Airtel Payment Bank, Paytm
Payment Bank etc are some of the examples of active
payment banks to the date.
 32
E-BANKING SERVICES

 AUTOMATED TELLER MACHINE(ATM)

 DEBIT CARD
 CREDIT CARD
 NET BANKING AND MOBILE BANKING
 NEFT (NATIONAL ELECTRONIC FUND TRANSFER)
 RTGS (REAL TIME GROSS SETTLEMENT)
 IMPS( IMMEDIATE PAYMENT SERVICES)
 Insurance
33

Introduction

Insurance is a means of protection from financial loss. It is a form of

risk management, primarily used to hedge against the risk of a
uncertain loss. Insurance is the protection against this risk.
It is one of the aids to trade which solves the problem of risk. All risk
cannot be insured such as risk of loss due to change in price, taste,
preference of consumers etc.
The function of insurance is to spread the loss over a large number
of people who agreed to co-operate each other at the time of loss.
 34
MEANING

• Insurance is a contract under which one party called the “insured”

agrees in written for a compensation called premium to pay a certain
amount of money to another party “insurer” by the way of
compensation for the loss due to the happening of some event.
• It is a contract between the insurer and the insured, whereby the
insurer agrees to compensate the insured against loss. The insured has
to pay a certain fixed sum of money on timely basis to the insurer.
• It is a protection device as it gives protection against loss in terms of
money.
 Some basic terms in insurance
35

Insured The Person Who Is Protected AGAINST CERTAIN Losses. Insured Is Known AS
ASSURED In CASE Of Life INSURANCE CONTRACTS. HE IS THE POLICY HOLDER

Insurer The FIRM or COMPANY who AGREES to COMPENSATE the insured AGAINST
losses for A CONSIDERATIOn. Insurer is known AS ASSURER in CASE of
life INSURANCE CONTRACTS.

Premium It is a PERIODICAL PAYMENT/AMOUNT /CONSIDERATION /FIXED SUM OF

MONEY which the insured has to pay to the insurance company.
 Some basic terms in insurance
36

Policy The STATEMENT Of CONTRACT Between The Insured AND Insurer. It CONTAINS The
Terms AND Conditions Of The INSURANCE CONTRACT

CLAIM It is DEMAND MADE by the insured to the insurer to COMPENSATE for loss occurred
due to MISHAP.

Subject MATTER It refers to the SUBJECT OR ENTITY i.e life, property, CARGO or ship etc.
which is insured AGAINST which the policy is TAKEN.

Assignment/ It means TRANSFER OF PROPERTY in a policy to the THIRD PARTY.

Nomination It is a process of giving A NAME of the person to whom payment can be made
after the death of the insured person.
 Some basic terms in insurance
37
• If the insured body is unable to pay the instalment of the premium money regularly to the insurance
company and is in urgent need of money he can surrender his policy as per the rules with the request to
Surrender value of refund the money paid so far.
the policy:- • If the insurance company accepts the surrender, then the company has to pay certain money called
surrender value to the insured body.
• Thus, surrender value is a certain amount of money out of the premium paid by the policy holder which
can be refunded to him on his surrendering the policy to the insurance company due to the inability to
pay the premium. In order to claim the surrender value the policy must be enforced for minimum 3 years.

• If the insured body is not in a position to pay the amount of the premium money regularly he may stop
PAID UP VALUE OF
paying the instalments of premium and request the insurance company to get the policy paid up.
THE POLICY
• To get this policy paid up it is necessary that the policy is in force for 3 years. The policy holder will stop
the payment of the further premium and convert the policy into paid up. He will be entitled only to the
paid up value of the policy i.e., it is the value which the insurance company will pay on maturity or
death of the insured body whichever is earlier.

• A proportionate amount of bonus is declared during the period up to the date of maturity or death
which is included in the amount of the paid up value. Therefore, paid up value is higher than the
surrender value of the policy.
SURRENDER VALUE AND PAID UP VALUE 38
 TERMS USED IN INSURANCE 39

REINSURANCE It is an agreement under insurance where an insurer enters into a contract with
another insurer on the same subject matter for the part of all the risk undertaken
by him. it is a contract or an agreement between two insurers. it is done to
distribute the risk among the insurers. two insurance companies are involved.

When an insured body insures the same subject with two or more insurers. It is
DOUBLE
INSURANCE a contract or agreement between the insured body and two or more
insurers. The objective is to get maximum amount of compensation on the
death of the insured body or at the time of maturity. The insured and two or
more insurance companies are involved.
Principles of Insurance
40
Principle of
Utmost good
faith
Principle of
Principle of
Insurable
Causa-Proxima
interest

PRINCIPLE OF
Principle of
INSURANCE Principle of
Mitigation of
loss Indemnity

Principle of Principle of
Contribution Subrogation
PRINCIPLE OF UTMOST GOOD FAITH
41

In all types of insurance contracts both the parties must

have utmost good faith towards each other.
The insurer and insured must disclose all material facts
clearly, completely and correctly.
The insured must provide complete, clear and correct
information of the subject matter of insurance to the
insurer.
Similarly, the insurer must provide relevant information
regarding terms and conditions of the contract.
Failure to provide complete, correct and clear information
may lead to non-settlement of claim.
PRINCIPLE OF INSURABLE INTEREST 42

INSURABLE INTEREST means some financial interest in the

subject matter.
The insured must have insurable interest in the subject
matter of insurance.
Insurable interest is applicable to all insurance contracts.
It is said to have insurable interest in subject matter,
when the existence of that subject matter puts the insured
in financial benefit.
Whereas non existence of subject matter put him into
financial loss.
PRINCIPLE OF INDEMNITY
43

INDEMNITY means a guarantee or assurance to put the

insured in same financial position in which he was
immediately prior to the happening of the uncertain
event .
This principle says that insurance is done only for the
coverage of the loss; hence insured should not make any
profit from the insurance contract. In other words, the
insured should be compensated the amount equal to the
actual loss and not the amount exceeding the loss. The
purpose of the indemnity principle is to set back the
insured at the same financial position as he was before
the loss occurred.
This principle is applicable to fire, marine and general
insurance. It is not applicable to life insurance as loss of
life can never be measured in monetary terms.
PRINCIPLE OF SUBROGATION
44

This principle is applicable to all contracts of indemnity.

As per this principle, after the insured is compensated for
the loss due to damage of the property insured, then the
right of ownership of such property passes on to the
insurer.
This principle is applicable only when the damaged
property has any value after the event causing the
damage.
PRINCIPLE OF CONTRIBUTION
45

This principle is applicable to all contracts of indemnity

where the insured has taken out more than one policy for
the same risk or subject matter.
Under this principle, the insured can claim the
compensation only to the extent of actual loss either from
one insurer or all the insurers.
If the one insurer pays full compensation then that insurer
can claim proportionate amount from other insurers from
whom insured has taken policy.
PRINCIPLE OF MITIGATION OF LOSS
46

Insured must always try to minimize the loss of the

property, in case of uncertain events. The insured must
take all possible measures and necessary steps to
control and reduce losses. Hence, it is the responsibility
of the insured to protect the property and avoid loss.
For example, A house of Mr. Jayant is on fire due to
electric short circuit. In this case, Mr. Jayant cannot
remain passive and must try his best to save his house
from fire. Mr. Jayant must be active and cannot watch
his house burn, just because house is insured.
PRINCIPLE OF CAUSA PROXIMA
47

Principle of CAUSA-PROXIMA also called the principle of

Proximate cause’ or the nearest cause.
This principle applies when the loss is the result of two or
more causes. The insurance company will find the
nearest cause of loss to the property. If the proximate
cause is the one in which the property is insured, then
the company must pay compensation. If it is not a
cause the property is insured against, then no payment
will be made by the insured.
 Life Insurance
48

Meaning of Life Insurance

It is a contract between insurer and insured whereby, the

insurer agrees to compensate the insured a certain sum on
the expiry of certain period or on death whichever is earlier
for a consideration.
 Types of life insurance policies
49

* Whole life of a person is insured.

* Cannot receive money from insurance company till he is alive.
Whole Life Policy * The rate of premium is normally low.
* The money becomes payable on the death of insured person to
the nominee or the legal heir of the deceased policy holder.

* Taken for specific period under this policy.

* Sum assured along with bonus is given on the death of
Endowment the insured to dependents or on the expiry of the specific
Insurance Policy period to the insured(whichever happens earlier) .
*premium is hihg
 Types of life insurance policies
50

* Taken for a specific period.

* lowest premium among all insurance policies.
Term Insurance * Premium is fixed and does not change during the term of the
policy.
Policy
* In case of untimely death, the dependents will receive the
benefit amount specified in the term life insurance agreement.

* Annuity means a fixed sum of money paid to someone

each year, typically for the rest of their life:
* The premium is paid in lump sum or in instalments over a
certain period of time.
Annuity Policy * The insured will receive back a specific sum periodically
from specified date onwards, either for life or for a fixed
number of years.
* It is like pension payment scheme.8
 Types of life insurance policies
51

* It provides a regular percentage of the sum assured during

the life time of the policy and also guarantees the benefit of
full sum assured in the event of the death of the insured to the
Money-back Policy dependents of the insured.
* Generally, the money back policy is availab1e for four
terms-12 years, 15 years, 20 years, 25 years etc.

* It is a saving cum investment plan that is designed to meet

child's future financial needs.
* It allows kids to live their dreams.
* It gives you the advantage to start investing in the children's
Child Insurance plan right from the time the child is born and provisions to
withdraw the savings once the child reaches adulthood.
* Some child insurance policies allow intermediate withdrawals
at certain intervals.
 Types of life insurance policies
52

* A savings and investment plan that provides insured an

income during retirement is called Retirement Plan.
Retirement Plans * On maturity, this corpus is invested for generating a
regular income stream which is referred to as pension or
annuity

* ULIP stands for unit linked insurance policies.

*it gives investors both insurance & investment under single
integrated plan.
ULIP Policy * A portion of premium paid is utilized to provide insurance
coverage to policy holder and the remaining portion is invested
in equity & debt instruments.
*ULIP policies are very popular as they combine the benefits of
life insurance policies with mutual funds.
 Marine Insurance
53

Meaning of Marine Insurance

It gives protection against the losses caused due to the dangers of the
sea. It is a form of insurance contract covering loss or damage to vessels
or to cargo or passengers during marine transportation.
It covers the loss or damage of ships, cargo, terminal and any water
transport by which the property is transferred, acquired or held between
the point of origin and final destination.
All the principles of insurance are applicable to marine insurance
contracts.
Types of marine insurance policies
54

* It is a policy in which the subject matter is insured for a

specific voyage irrespective of time involved in it.
* In this case, risk begins only when the ship starts on
Voyage Policy voyage.

*In this policy the subject matter is insured for a definite

period of time.
* A time policy cannot be for a period exceeding one
Time Policy year, but it may contain continuation clause.
* The continuation clause means that if the voyage is not
completed within the specified time, the risk shall be
covered until the voyage is completed.
Types of marine insurance policies
55

*This policy is the combination of voyage and time policy.

* It cover the risk of both, particular voyage and for
Mixed Policy specified period of time.

* Under this policy, goods are insured for an agreed value

between the insurer and insured at the time of taking
Valued Policy policy.
* It is taken when it is difficult for insurer to assess the real
market value.
 Types of marine insurance policies
56
*
* This policy describe the nature of goods insured, specific
route, ports and places of voyage. It covers multiple risks
on one property or it covers many properties under the
Blanket Policy policy.
* This policy is taken for maximum limit of the required
amount of protection and full amount of premium is paid
in the beginning of the policy.
*

* In fleet policy, several ships belonging to one owner are

insured under the same policy.
Fleet Policy and *In block Policy, the cargo owner is protected against
Block Policy damage or loss of cargo in all modes of transport through
which his/her cargo is carried i.e. covering all the risks of
rail, road, and sea transport etc.
 Types of marine insurance policies
57

* Port risk policy covers all types of risks of a vessel while it is

anchored at the port for a particular period of time.
Port Risk Policy
* This policy is applicable till the departure of the vessel
from the port.

* This type of policy is purchased from more than one

insurers.
Composite Policy
* The liability of each insurer is separate and distinct. This
policy is taken when the amount of insurance is very high.

* This policy is suitable for small ship owner having only one
Single Vessel Policy ship or having one ship in different fleets.
* It covers the risk of one vessel of the insured.
 Fire Insurance
58

Meaning of Fire Insurance

A fire insurance contract is an agreement whereby the insurer in

return for consideration undertakes to indemnify the insured against
the loss to property due to fire.
Any property which is subject to damage by fire can be insured
against fire. The loss due to fire, lightening and explosion is also
covered by fire insurance.
 Types of fire insurance policies
59

* Value of the subject matter of insurance is agreed upon

at the time of making a contract.
* The insurer has to pay specific amount or value
Valued Policy irrespective of amount of loss caused due to fire.
* It is taken for those goods whose value becomes difficult
to calculate in case of loss by fire. For example, policy can
be taken for art work, sculptures, paintings etc.

* It is policy which contains an average clause.

* If the subject matter is not insured as per the exact
market value or it is undervalued, then the insurer is liable
Average Policy to pay that percentage of the loss for which it is insured.
* it is calculated based on
Actual loss = Insured value/Actual value
 Types of fire insurance policies
60

* In this policy the property is insured for a definite sum

irrespective of the market value. If there is a loss, stated
Specific Policy amount will have to be paid to the policy holder.
* In this policy, the actual value of the subject matter is not
considered.

* This policy can be taken for the goods which are lying at
different locations or god owns or warehouses.
* Since the quantity of goods lying at different locations
fluctuate from time to time, it becomes difficult for the
Floating Policy owner to take specific policy.
* So businessmen or traders take fluctuating policy. Such
policy is taken for one sum and one premium for goods
lying at different places.
 Types of fire insurance policies
61

* When the value of goods or stocks fluctuates, then excess

policy may be taken by insured apart from normal policy. The
insured will take two policies:
Excess Policy
A)one policy for the amount below which the value of the stock
does not fall and
B)another policy to cover the excess value by which the price of
the goods fluctuate.

* This is a type of policy where the insurer undertakes to

replace the property or goods lost by fire.
* Instead of paying compensation for the property lost by
Reinstatement fire, the property is replaced.
Policy * While paying the compensation, the depreciation
amount of the policy is not taken into consideration.
* The rate of premium is higher in reinstatement policy.
 Types of fire insurance policies
62
* Fire insurance is called a comprehensive policy when it
covers all other kinds of risks like riots, arson, loot, civil
commotion, wars, strikes, accidents and others in single
Comprehensive Policy insurance.
* This refers to the complete 360 protection for the property
if the insured property is a house, shop, office, or factory it
will also cover the loss due to burglary and break-ins.
* For homeowners, the comprehensive policy includes the
building and the contents of the building as well.
• Sprinkler leakage insurance is a policy that covers damage to
property caused by an automatic sprinkler system that has leaked or
Sprinkler Leakage discharged water accidentally rather than in response to fire and
smoke
Policy • It covers damage to property caused by an automatic sprinkler system
that has leaked or discharged water accidentally rather than in
response to fire and smoke.
• However, the discharge or leakage of water due to heat caused by
fire, repair or alteration of building, earthquake, war, explosion are not
covered by this policy
 Types of fire insurance policies 63

• The loss due to fire is not the only loss an insured person
faces after fire break. Factory may lose important
machinery and the production line could go down for
several weeks or months after the fire.
• The loss of production is a loss of business or profit. Such
Consequential Loss indemnity can be claimed under consequential loss
policy.
Policy • The business in which continuous production is the
essence must take consequential loss policy to make
good of such losses..
• fire insurance was originally purchased to indemnify the
material loss only. The intangible interest was not
indemnified. Thus, the consequential loss policy includes
the loss of tangible and intangible properties.
WAREHOUSING 64

Definition
A warehouse is defined as "an establishment for the storage or
accumulation of goods. “
Warehousing refers to storage of goods and consists of all those
activities which are connected with storage and preserving of goods.
It is a means of storing the goods.
Warehousing can be defined as a group of activities connected with
the storing and preserving of stored goods from the time of production
till the time of consumption.
 Functions of Warehouses 65

* This is the basic function of warehousing.

* Surplus commodities which are not needed immediately can
Storage be stored in warehouses.
* They can be supplied as and when needed by the
customers.

* Warehouses play an important role in the process of price

stabilization.
* It is achieved by the creation of time utility by warehousing. In
Price warehouses, usually large stock of goods is kept.
Stabilization * Whenever, there is shortage in the market, goods can be
immediately supplied through warehouses, which helps in price
stabilization to avoid rise in price due to demand and supply
difference.
 Functions of Warehouses 66

Warehouses now-a-days provide the facilities of packing,

processing and grading of goods. Goods can be packed in
convenient sizes as per the instructions of the owner.
Grading and
Packing

Warehouses can provide transportation facility to bulk

depositors. It collects goods from the place of production and
also sends goods to the place of delivery on the request of the
owner.
Transportation
 Functions of Warehouses 67

* Warehouses create time utility by preserving the goods till

Time and Place they are demanded.
Utility * It also creates place utility by providing the goods at the
place, where they are required.

*Certain commodities are not consumed in the form they are

produced.
Processing * Processing is required to make them consumable. e.g. Paddy
is polished, fruits are ripened etc.
* Sometimes warehouses undertake such activities on behalf
of the owners.
 Functions of Warehouses 68

* When the goods are stored in warehouses they are exposed

to many risks in the form of theft, deterioration, fire etc.
Risk bearing * Warehouses are constructed in such a way that they
minimize these risks.
* A warehouse keeper has to take the reasonable care of the
goods and safeguard them against various risks. For any loss or
damage sustained by goods, warehouse keeper shall be
liable to the owner of the goods.

* Loans can be raised from the warehouse keeper or from

financial institutions against the goods stored by the owner.
Financing
* Goods act as security for the warehouse keeper or for
financial institutions.
In this manner, warehousing acts as a source of finance for
the businessmen for meeting business operations.
TYPES OF WAREHOUSE 69

1. Private warehouse
2. Public warehouse
3. Bonded
warehouse
4. Duty paid
warehouse
5. Government
warehouse
6. Cooperative
warehouse
7. Cold storage
 Types of Warehouses 70

*The warehouses which are owned and

managed by the manufacturers or
traders to store, exclusively, their own
Private stock of goods are known as private
Warehouses warehouses.
* Generally these warehouses are
constructed by the farmers near their
fields, by wholesalers and retailers near
their business centres and by
manufacturers near their factories.
* The design and the facilities are
provided there according to the nature
of products to be stored.
* Business firms which need large storage
capacity on a regular basis and who can
afford money, construct and maintain
their private warehouses
CASE STUDY: AMAZON FULFILLMENT CENTER
71

https://youtu.be/HxJ2_XgV2-w https://youtu.be/dAXdeqcHBp4
 Types of Warehouses 72

*A public warehouse is a specialized

business establishment that provides storage
Public facilities to the general public for a certain
charge.
Warehouses * It may be owned and operated by an
individual or a cooperative society. It works
under a license from the government in
accordance with the prescribed rules and
regulations.
* It provide storage facilities to small
manufacturers and traders at low cost. These
warehouses are well constructed and guarded
round the clock to ensure safe custody of
goods.
* They are generally located near the junctions
of railways, highways and waterways
 Types of Warehouses 73

* Bonded warehouses are licensed by the

government to accept imported goods for
storage until the payment of custom duty.
Bonded * These warehouses work under the control of
Warehouses custom authorities
* The warehouse keeper is required to give an
undertaking or 'Bond' that it will not allow the
goods to be removed without the consent of
the custom authorities.
* The goods are held in bond and cannot be
withdrawn without paying the custom duty.
* If an importer is unable or unwilling to pay
customs duty immediately after the arrival of
goods he can store the goods in a bonded
warehouse. He can withdraw the goods in
installments by paying the customs duty
proportionately.
 Types of Warehouses 74

* If an importer faces any problem in

transportation of goods, after making
payment of duty, then goods can be
Duty paid stored at a duty paid warehouse.
Warehouses * All duty paid warehouses are public
warehouses which are available to all
importers.
* Duty paid warehouses help the
importer as proper care of goods is
taken, processing of goods can be
done like sorting, re-packing etc.
* Such warehouses are more useful for
re-export of the goods. These are
located near port & dock area.
 Types of Warehouses 75

* These warehouses are owned,

managed and controlled by central
and state governments or public
Government authorities.
Warehouses * It is difficult for small farmers,
businessmen, traders to own a
warehouse, so these government
warehouses assist them in storing their
goods at nominal charge.
* Central Warehousing Corporation of
India (CWC), State Warehousing
Corporation (SWC) and Food
Corporation of India (FCI) are having
warehouses across different states and
country
 Types of Warehouses 76

* These warehouses are owned,

Co-operative managed and controlled by co-
operative societies.
Warehouses
* They mainly provide warehousing
facilities at most economical rates.
* These type of warehouses are very
useful for farmers and traders and
general public.
 Types of Warehouses 77

*Cold storage warehouses

provide facilities for perishable
Cold storage commodities like fruits, flowers,
Warehouses vegetables, dairy products etc.
* In cold storage warehouses,
goods are stored and refrigerated
at very low temperatures so as to
preserve them and use them in
future.
* International trade has become
possible due to these warehouses
 DISTINCTION
78
BONDED WAREHOUSE DUTYPAID WAREHOUSE

MEANING

It is a warehouse where imported goods on which duty is It is a warehouse where imported goods on which duty is
not paid are stored already paid are stored

LOCATION

They are located within the dock area They are located in a port-town outside the dock
area.
MARKET

Imported goods are stored here for re-exporting Imported goods are stored here mostly for the domestic
market
SUPERVISION

The custom authority closely supervises the working of The warehouse is supervised by the port authority
these warehouse
OWNERSHIP

It is owned by private or dock authorities They are owned by public authorities

 Transportation
79

Meaning of Transportation

Transportation is the movement of people, animals

and goods from one location to another location
or it can be defined as a means of carrying goods
and people from one place to another place.
ROLE OF TRANSPORT 80

HELPS IN PRODUCTION CREATES EMPLOYMENT

EXPANDING MARKETS IMPROVES STANDARD OF LIVING

CREATE PLACE UTILITY ECONOMIC DEVELOPMENT

PROVIDES HELP DURING

STABILITY OF PRICE EMERGENCY

COST REDUCTION NATIONAL DEFENCE

 Modes of transport
81

Monorail rail and

Road Transport
Metro

Rail Transport Water Transport Ropeways

Air Transport Pipeline

 Road Transport
82
Advantages

01 • It is cheap mode of transport as compared to other

modes of transport.

02 • Perishable goods can be transported at a faster speed

by road carriers over a short distance

03 • It is flexible mode of transport as loading and unloading

is possible at any destination.

04 • It provides door to door service. Also it functions as

feeder transport to other modes of transport

It helps people to travel and carry goods from one place

05
•
to another place where any other mode of transport is
not available.
 Road Transport
83
Disadvantages

01 • Due to limited carrying capacity road transport is not

economical for long distance transportation.

02 • Transportation of heavy and bulky goods through road

transport involves high cost.

03 • Road transport is affected by adverse weather

conditions such as floods, rain, landslides etc.

04 • There is a possibility of road accidents which are

common.

05 • It causes pollution due to emission of gases which affects

the health of people.
 Rail Transport
84
Advantages

01 • It is convenient mode of transport for travelling long

distances.

02 • It is suitable mode of transport for carrying heavy and

bulky goods in large quantities over a long distance.

03 • It is faster mode of transport as compared to road

transport.

04 • Its operation is less affected by adverse weather

condition.

05 • It ensures safety and security of goods.

 Rail Transport
85
Disadvantages

01 • It is relatively costly for carrying goods and passengers

over short distances.

02 • It is not available in remote parts of the country

03 • It involves heavy losses of life as well as goods in case of

accidents

04 • Time flexibility is not there as trains are running as per

their fixed time.

05 • It does not provide door to door service.

 Air Transport
86
Advantages

01 • It is fastest means of transport among all means of

transport.

Air transport plays vital role during war or emergency

02
•
situations as it can be useful for rescue purpose or
providing quick services in affected areas.

03 • As air transport uses natural ways, no separate

construction of routes required like road or rail transport.

04 • It is less polluting as compared to road transport.

05 • It is useful in such areas where others means of transport

are not accessible.
 Air Transport
87
Disadvantages

01 • It is relatively expensive mode of transport

02 • It is affected by adverse weather conditions

03 • It requires huge investment costs such as construction of

airports, runways, air traffic control tower etc.

04 • It is not suitable for short distances.

Air transport is subject to international restrictions as

05
•
airplanes of some nations are not a11owed to fly over
other countries.
 Water Transport
88
Advantages

01 • It is relatively economical mode of transport for bulky

and heavy goods

02 • It is safe mode of transport with respect to occurrence of

accidents

03 • It helps to promote international trade

04 • There is no cost for constructing and maintaining of

routes as most of them are naturally made.

05 • It offers more flexibility as compared to rail transport.

 Water Transport
89
Advantages

01 • It is relatively economical mode of transport for bulky

and heavy goods

02 • It is safe mode of transport with respect to occurrence of

accidents

03 • It helps to promote international trade

04 • There is no cost for constructing and maintaining of

routes as most of them are naturally made.

05 • It offers more flexibility as compared to rail transport.

 Water Transport
90
Disadvantages

01 • It does not provide door to door service.

02 • It gets heavily affected by adverse weather conditions.

03 • It is comparatively slow moving transport.

04 • More investment cost is involved in terms of ports, ships,

maintenance etc.

05 • It is subject to perils of sea.

Monorail and Metro
91

These are the types of rapid transit systems found in

urban areas. These types of transport are energy
efficient and less polluting too. A monorail is a railway in
which the track consists of a single rail or a beam. The
term is also used to describe the beam of the system, or
the trains traveling on such a beam or track. From the
passenger's perspective, monorails can have some
advantages over other modes such as less intersection
turns, no traffic jams, absence of problem of collision.
Examples of monorail in India is Mumbai Monorail.
 Ropeway
92

Ropeway refers to mode of transport which connects

two places on the hills or across a valley or river. In
ropeway transport, trolleys move on wheels connected
to a rope and are used for carrying passengers or
goods. Examples are Raigad ropeway at Raigad fort,
ropeway at Son-marg in Srinagar etc.
Pipeline Transport
93

Pipeline transport sends goods through a pipe, most

commonly liquid and gases. Short distance systems exist
for sewage, slurry or water while long distance networks
are used for petroleum and natural gas.
94