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Chapter – 4
Business Services – Weightage of Marks - 20 (25%)

Q.1 Define bank. Explain different types of banks.

Ans:

 MEANING AND DEFINITION OF BANK

1) Origin of the Term “Bank”

• The word bank comes from the French word “Banco”,

meaning bench.

2) Meaning

• A bank is a financial institution that deals with:

 Deposits

 Loans/advances

 Other financial services needed by consumers.

3) Legal Definition as per Indian Banking Regulation Act, 1949:

 A banking company means any company that carries on the

business of banking in India.

 Banking means:
o Accepting deposits from the public

o For lending or investment

o Repayable on demand or otherwise

o Withdraw able by cheque, draft, order or otherwise

 TYPES OF BANKS – Smart Code ( C, C, Co, I, R, I, S,E SP)

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1) CENTRAL BANK
 The apex (top) financial institution of a country.

 Controls and regulates the entire banking system.

 Example: Reserve Bank of India (RBI) – established in 1935

under RBI Act, 1934.

 Functions of RBI

 Frames monetary policy

 Issues currency notes

 Acts as banker to the Government

 Acts as banker’s bank to other banks

 Regulates and supervises financial system

2) COMMERCIAL BANKS

 Banks used by individuals and businesses for daily

transactions.

 Perform:

 Primary functions: accepting deposits, lending loans

 Secondary functions: agency services, utility services

 Types of Commercial Banks
(i) Public Sector Banks
• Majority ownership with the Government.

• Example: SBI, Bank of India etc.

(ii) Private Sector Banks
• Owned by private individuals/groups.

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• Example: HDFC Bank, Axis Bank.

(iii) Foreign Banks
 Set up outside India, but have branches in India.

 Example: Citi Bank, HSBC, Standard Chartered.

3) CO-OPERATIVE BANKS
 Provide credit to small farmers, low-income groups, and

rural areas.

 Registered under Co-operative Societies Act and regulated by

the Banking Regulation Act.

 Three Levels of Co-operative Banks
1. Primary Credit Societies (Village level)

o Collect deposits from members and public.

o Receive funds from State and District Co-operative Banks.

2. District Central Co-operative Banks (District level)

o Collect public deposits and receive funds from State Co-

operative Banks.

3. State Co-operative Banks (State level)

o Provide funds to district banks and credit societies.

o Supervise and monitor them.

4) INDUSTRIAL DEVELOPMENT BANKS

• Provide medium and long-term finance to industries.

• Examples:

 IFCI

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 State Finance Corporation (SFC)

 Maharashtra State Finance Corporation (MSFC)

 Functions

• Provide long-term loans for expansion/modernization.

• Underwrite shares of public companies.

• Purchase debentures and bonds.

5) REGIONAL RURAL BANKS (RRBs)

 Started in 1975.

 Sponsored by Public Sector Banks.

 Serve rural and semi-urban areas.

 Functions

• Mobilize deposits from rural people.

• Provide loans to:

 Small/marginal farmers

 Agricultural labourers

 Rural artisans

 Capital Structure of RRBs

Contributor Contribution
Central Government 50%
Sponsor Bank 35%
State Government 15%
6) INVESTMENT BANKS
• Do not deal with the general public.

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• Clients include business firms and government bodies.

 Functions

 Provide financial and advisory services

 Give advice on investment decisions

 Assist in mergers and acquisitions

7) SAVINGS BANK
 Encourage savings, especially in rural areas.

 Examples:

o Post Office Savings Bank

o Commercial & Co-operative Banks (savings accounts).

8) EXCHANGE BANKS

• Facilitate foreign exchange and international trade.

• Examples: Barclays Bank, Deutsche Bank, HSBC.

 Functions
 Finance foreign trade

 Issue Letters of Credit (LCs)

 Discount bills of exchange

 Handle remittances (dividends, interest, profits)

9) SPECIALISED BANKS
(i) EXIM Bank (Export-Import Bank of India)

 Supports exporters and importers.

 Coordinates institutions involved in foreign trade finance.

 Promotes international trade.

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(ii) SIDBI (Small Industries Development Bank of India)

 Established on 2 April 1990.

 Principal institution for the MSME sector.

 Provides finance and coordinates institutions supporting

MSMEs.

(iii) NABARD (National Bank for Agriculture and Rural

Development)

 Apex institution for agriculture and rural development.

 Provides short-term and long-term finance to:

 RRBs,

 Co-operative Banks,

 Other rural financial institutions.

 Engages in policy planning for agricultural and rural credit.

Q.2 what is insurance? Explain principles of insurance. (Very Important)

– Smart Code (U, I, I, S, C, M, CP)
Ans:

1) Principle of Utmost Good Faith

• Both insurer and insured must be honest.

• They must disclose all important (material) facts.

• Wrong or incomplete information can lead to rejection of

claim.

• Example: If a person hides a major illness while taking life

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insurance, the insurer can refuse the claim.

2) Principle of Insurable Interest

• The insured must have financial interest in the

person/property insured.

• It means the insured will suffer a loss if the person/property

is harmed.

• Life insurance: insurable interest must exist at the time of

taking policy.

• Fire & marine insurance: must exist at the time of taking

policy and at the time of loss.

• Example: A person has insurable interest in his own life, his

property, and a businessman has interest in his goods.

3) Principle of Indemnity

• To compensate the insured and restore him to the same

financial position as before the loss.

• Applicable to fire, marine and general insurance.

• Compensation = actual loss or sum insured, whichever is less.

• Not applicable to life insurance (human life cannot be valued).

• Example: Loss = ₹3 lakh, insurance = ₹4 lakh → insurer pays

₹3 lakh.

4) Principle of Subrogation
• After paying compensation, the insurer gets the legal rights

of the damaged property.

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• Applies only when damaged property still has some value.

• Example: If a stolen bike is later found, the insurer (who paid

the claim) has the right to sell or scrap it.

5) Principle of Contribution

• Applies when a property is insured with multiple insurers.

• The insured cannot receive more than the actual loss.
• If one insurer pays full amount, they can recover
proportionate share from other insurers.
• Example: Stock insured with 3 companies → loss of ₹20 lakh
→ maximum claim allowed = ₹20 lakh only.
6) Principle of Mitigation of Loss

• The insured must take steps to reduce the loss.

• Should not remain careless just because the property is

insured.

• Example: If fire breaks out, people must use extinguishers and

call fire brigade immediately.

7) Principle of Causa Proxima (Nearest Cause)

• When more than one cause of loss exists, the nearest (most

direct) cause is considered.

• If the nearest cause is covered in the policy, the insurer must

compensate.

• Example: Cargo destroyed by sea water (nearest cause), not

by collision → compensation only if insured against sea water

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damage.
Q.3 Types of warehouses. Smart Code – (P, PU, G, C, D, B, CO)
1) Private Warehouses

 Owned and managed by big manufacturers or big traders.

 Used to store their own goods.

 Suitable for firms needing large storage regularly.

 Examples: Warehouses of D-Mart, Big Bazaar, etc.

2) Public Warehouses

 Owned by individuals or co-operative societies.

 Provide storage to general public for a fee.

 Useful for small manufacturers and traders.

 Need a government Licence and must follow rules.

 Located near railways, highways, ports.

3) Government Warehouses

 Owned and controlled by Central/State Government or

public authorities.

 Provide storage at low cost, mainly to small farmers, traders

and businessmen.

 Examples:

 Central Warehousing Corporation (CWC)

 State Warehousing Corporation (SWC)

 Food Corporation of India (FCI)

4) Cold Storage Warehouses

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 Used to store perishable items like fruits, vegetables, milk,

meat, flowers, etc.

 Maintain very low temperature to preserve goods.

 Help in availability of seasonal goods throughout the year.

 Support international trade of perishable commodities.

5) Duty Paid Warehouses

 Store imported goods on which customs duty is already paid.

 Useful when importer cannot immediately take goods.

 Provide services like sorting, repacking.

 Mostly located near ports and docks.

 Useful for re-exporters.

6) Bonded Warehouses

 Store imported goods for which customs duty is NOT yet paid.

 Licensed by the government and supervised by custom

authorities.

 Goods are kept “in bond” until duty is paid.

 Importer can pay customs duty in installments and take

goods gradually.

 Useful for importers with limited funds at the time of import.

7) Co-operative Warehouses

 Owned and managed by co-operative societies.

 Provide storage at very low (economical) rates.

 Very useful for farmers, small traders, and general public.

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Distinguish between
Basis Commercial Bank Central Bank
1) Function Main function is to accept Main function is to

deposits from the public and regulate money supply

lend money to industries, and control the

businesses, and individuals. financial system of the

country.

2) Printing Cannot print currency. Has the sole authority

of Currency to print currency notes.

3) Accepts deposits from the Does not accept

Acceptance public. deposits from the

of Deposits public.

4) Loans Provides loans to the public, Gives loans to

industries, and businesses. commercial banks and

financial institutions.

5) May be owned by private Owned and controlled

Ownership individuals, companies, or entirely by the

the government. Government of India.

6) number Many commercial banks Only one Central Bank

of Banks operate in India. in India—RBI.

7) Monetary Does not frame monetary Frames monetary and

Policy policy. credit policy of the

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country.

8) Control Does not control the Central Keeps a check on

Bank. commercial banks and

regulates them.

Distinguish between: Current Account, Savings Account, and Fixed

Deposit Account (Very Important)
Basis Current Account Savings Account Fixed Deposit
Account
1) Meaning Maintained by Opened by An account

businessmen individuals to save where a fixed

and others who a part of their amount is

have regular income. deposited for a

and frequent fixed period.

banking

transactions.

2) Money can be Money can be No withdrawal

Withdrawals withdrawn withdrawn using is allowed

anytime using cheques or during the fixed

cheques. withdrawal slips. period;

premature

withdrawal

reduces

interest.

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3) Passbook, Passbook, cheque Bank issues a

Documents cheque book, book, and pay-in- Fixed Deposit

Provided statement of slip book. Receipt (FDR).

account, and

pay-in-slip

book.

4) Who Suitable for Suitable for Suitable for any

Usually traders, salaried persons, person with

Opens It businessmen, wage earners, and temporary idle

firms, and individuals with cash who wants

institutions. regular savings. to earn higher

interest.

5) No restrictions Limited Amount can be

Restrictions as long as withdrawals withdrawn only

sufficient allowed. after the expiry

balance exists. of the fixed

period; early

withdrawal

reduces

interest.

6) Interest Normally no Low interest is Highest interest

Rate interest. paid. rate among the

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three; longer

period → higher

interest.

7) Nature of Continuous Continuous Not continuous;

Account operating operating it is for a fixed

account. account. period, unless

renewed.

8) Facilities Overdraft No overdraft Loan facility

facility available. facility. available up to

90% of the FD

amount.

Distinguish between: Life Insurance, Fire Insurance & Marine Insurance

Basis Life Insurance Fire Insurance Marine

Insurance

1) Meaning A contract A contract A contract

where the where the where the

insurer agrees insurer insurer

to pay a sum of compensates compensates the

money on death the insured for insured for loss

or maturity, in loss or damage due to perils of

return for caused by fire the sea.

premium. or related

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events.

2) Policy Any individual Individuals and Exporters,

Taken By for own life or businessmen for importers,

family property, shipping

members’ life. goods, or companies and

business assets. others involved

in marine trade.

3) Subject Human life. Assets or Ship, cargo,

Matter property of the goods, freight.

insured.

4) Insurable Must exist at Must exist at Must exist at the

Interest the time of the time of time of contract

contract. contract and at and at the time

the time of loss. of loss.

5) Tenure Long-term; can Usually short- Short-term;

be for many term; typically usually one

years or even up one year. month to one

to the insured’s year.

death.

6) Paid on death Paid only if loss Paid only if loss

Compensation or maturity, occurs due to occurs due to

whichever is fire during the marine perils

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Earlier. policy period. during the policy

period.

7) Principle of Not applicable, Applicable: Applicable:

Indemnity because human insured is insured is

life cannot be compensated compensated for

valued exactly. for actual loss actual loss only

only.

8) Number of Any number of Double Double insurance

Policies policies can be insurance possible but only

taken; full claim possible but actual loss is

on all policies is only actual loss paid.

allowed. is paid.

9) Beneficiary The insured (if The insured The insured

alive on who owns the person,

maturity) or property. company,

nominee/legal exporter or

heir (if death importer.

occurs).

10) Can be Cannot be Cannot be

Surrender of surrendered surrendered. surrendered.

Policy before expiry

(subject to

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conditions).

Distinguish between: Road Transport, Rail Transport, Water Transport

& Air Transport – (Extremely Important)
Basis Road Rail Transport Water Air Transport
Transport Transport
1) Speed Limited Higher speed Slowest mode Fastest mode of

speed due to because tracks of transport. transport.

bad roads are smooth and

and uninterrupted.

accidents.

2) Limited Very high Very high Limited

Carrying carrying carrying carrying carrying

Capacity capacity. capacity. capacity. capacity.

3) Cost Low capital High cost for No cost for No cost for

cost for roads tracks, trains, waterways, airways, but

and vehicles. stations and but high cost very high cost

maintenance. for ships and for aircrafts

maintenance. and

maintenance.

4) Suitable for Suitable for Suitable for Suitable for

Distance short both short and long distances long-distance

distance. long distances. across global

countries/con transport.

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tinents.

5) High due to Lower and Low charges. Very high

Charges high fuel fixed according charges.

prices. to distance.

6) Door- Provides Does not Does not Does not

to-Door door-to-door provide door- provide door- provide door-

Service service. to-door service. to-door to-door service.

service.

7) Means Animals, Passenger and Boats, ships, Aircrafts,

of carts, bikes, goods trains. tankers, helicopters,

Transpor cars, trucks, liners. jets.

t etc.

8) Suitable for Suitable for Suitable for Suitable for

Suitabilit small heavy goods in very heavy light, perishable

y quantities large quantities goods and and valuable

over short over long machinery goods globally.

distances. distances. across the

world.

9) Safety Less safety High safety— High safety— High safety—

from sun, goods kept in goods specially goods specially

rain, wind, locked wagons. packed. packed.

etc.

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10) High chances Lower chances Lower chances Lower chances

Accident due to bad due to one-way in water due to skilled

s roads and tracks and transport. pilots and good

negligent good signals. maintenance.

drivers.

11) Owned by Mostly owned Owned by Owned by both

Ownersh private and by government. both private private and

ip government and government

sector. government sector.

sector.

Distinguish Between: Bonded Warehouse and Duty Paid Warehouse

Basis Bonded Warehouse Duty Paid Warehouses
1) Meaning A warehouse where A warehouse where

imported goods on which imported goods on which

duty is not yet paid are duty is already paid are

stored. stored.

2) Licensed by the Not supervised by Customs

Supervision government and operate authority; they function as

under the strict control public warehouses

of Customs authorities. available to all importers.

3) Delivery Goods are said to be Delivery is given after

“held in bond” and can paying the warehouse

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be withdrawn only with rent, as customs duty is

Customs permission after already paid.

paying the required duty.

4) Purpose Useful for importers who Useful when importer has

cannot pay full customs already paid duty but

duty immediately. They cannot transport goods

can pay duty in immediately. Also helpful

instalments and take for businessmen who re-

goods proportionately. export goods.

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