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Nature Of Business Services- CBSE Class 11 Business Studies

Nature Of Business Services Class 11

1. Intangibility 

Cannot be seen, touched or smelled. Just can only be felt, yet their benefits can be availed of e.g. Treatment by doctor.

2. Inconsistency

Different customers have different demands & expectation.e.g. Mobile services/Beauty Parlour.

3. In Separability 

Production and consumption are performed simultaneously.For e.g. ATM may replace clerk but presence of customer is must.

4. Inventory Loss

Services cannot be stored for future use or performed earlier to be consumed at a later date. e.g. underutilized capacity of hotels and airlines during slack demand cannot be stored for future when there will be a peak demand.

5. Involvement

Participation of the customer in the service delivery is a must e.g. A customer can get the service modified according to specific requirements.


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Nature Of Business Services- Types

1. Social Services

Provided voluntarily to achieve certain goals e.g. healthcare and education services provided by NGOs.

2. Personal Services

Services which are experienced differently by different customers. e.g. tourism, restaurants etc.

3. Business Services

Services used by business enterprises to conduct their activities smoothly. e.g. Banking, Insurance, communication, Warehousing and transportation.


Nature Of Business Services- Banks

Banks occupy an important position in the modern business World. No country can make commercial and industrial progress without a well organized banking system. Banks encourage the habit of saving among the public. They mobilize small savings and channelize them into productive uses.


Meaning of Bank

A bank is an institution that deals in money and credit. It collects deposits from the public and supplies credit, thereby facilitating exchange. It also performs many other functions like credit creation, agency functions, general services, etc Hence, a Bank is an organization that accepts deposits, lends money, and performs other agency functions.

Primary Functions

1. Accepting Deposits 

Accepting deposits is the main function of commercial banks. Banks offer different types of Bank accounts to suit the requirements and needs of different customers. Different types of Bank account are as follows:

A. Fixed Deposit Account

Money deposited in the account for a fixed period is called a Fixed Deposit account. After the expiry of the specified period, the person can claim his money from the bank. Usually, the rate of interest is maximum in this account. The longer the period of deposit, the higher the rate of interest on the deposit will be.

B. Current Deposit Account 

Current deposit Accounts are opened by businessmen. The account holder can deposit and Withdraw money. Whenever desired. As the deposit is repayable on demand, it is also known as demand deposit. Withdrawals are always made by cheque. No interest is paid on current accounts. Rather charges are taken by the bank for services rendered by it.

C. Saving Deposit Account 

The aim of a savings account is to mobilize savings of the public. A person can open this account by depositing a small sum of money. He can withdraw money from his account and make additional deposits at will. Account holder also gets interest on his deposit. In this account though the rate of interest is lower than the rate of interest on fixed deposit accounts.

D.Recurring Deposit Account

The aim of recurring deposits is to encourage regular savings by the people. A depositor can deposit a fixed amount, say Rs. 100 every month for a fixed period. The amount together with interest is repaid on maturity. The interest rate on this account is higher than that on saving deposits.

E. Multiple Option Deposit Account

It is a type of saving Bank A/c in which deposits in excess of a particular limit get  automatically transferred into fixed Deposit. On the other hand, in case an adequate fund is not available in our saving Bank Account so, as to honor a cheque that we have issued, the required amount gets automatically transferred from fixed deposit to the saving bank account. Therefore, the account holder has twin benefits from this amount 

(i) he can earn more interest and 

(ii) It lowers the risk of dishonoring a cheque.


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2. Lending Money

with the help of money collected through various types of deposits, commercial banks lend finance to businessmen, farmers, and others. The main ways of lending money are as follows:

A. Term Loans

These loans are provided by the banks to their customers for a fixed period to purchase Machinery. Truck. Scooter. House etc. The borrowers repay the loans in Monthly/Quarterly/Half Yearly/Annual installments.

B. Bank Overdraft

The customer who maintains a current account with the bank, takes permission from the bank to withdraw more money than deposited in his account. The extra amount withdrawn is called overdraft. This facility is available to trustworthy customers for a small period. This facility is usually given against the security of some assets or on the personal security of the customer. Interest is charged on the actual amount overdrawn by the customer.

C. Cash Credit

Under this arrangement, the bank advances cash loans up to a specified limit against current assets and other securities. The bank opens an account in the name of the borrower and allows him to withdraw the borrowed money from time to time subject to the sanctioned limit. Interest is charged on the amount actually withdrawn.

D. Discounting of Bill of Exchange

Under this, a bank gives money to its customers on the security of a bill of exchange before the expiry of the bill in ease if customers need it. For this service the bank charges a discount for the remaining period of the bill.


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Secondary Functions

The secondary functions of commercial banks are as under:

(1) Agent Functions

As an agent of its customers a commercial bank provides the following services:


(I) Collecting bills of exchange, promissory notes and cheques.

(II) Collecting dividends, interest etc.

(III) Buying and selling shares, debentures and other securities.

(IV) Payment of interest, insurance premium etc.

(V) Transferring funds from one branch to another and from one place to another.

(VI) Acting as an agent of representative while dealing with other banks and financial  institutions. A Commercial bank performs the above functions on behalf of and as per the instructions of its customers.


(2) General Utility Functions

Commercial banks also perform the following miscellaneous functions:

(I) Providing lockers for safe custody of jewelry and other valuables of customers.

(II) Giving references about the financial position of customers.

(III) Providing information to a customer about the credit worthiness of other customers.

(IV) Supplying various types of trade information useful to customers.

(V) Issuing letter of credit, pay orders, bank draft, credit cards and travelers cheques to customers.

(VI) Underwriting issues of shares and debentures.

(VII) Providing foreign exchange to importers and travelers going abroad.

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Related Post:

Nature Of Business Services- FAQs

Question 1 What are the differences between services and goods?

Ans. Goods are tangible, as in these have a physical presence and they can be touched, while services are intangible in nature.


Question 2 What is the importance of services?

Ans. It’s no secret that how well you serve customers will define your company’s long term success. In fact, great customer service leads to better customer loyalty, higher revenue, and lower costs.


Question 3 Why are services important to the economy?

Ans. Government services play a critical role in providing a stable environment for in- vestment and economic growth.

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