Sei sulla pagina 1di 27

Strategic alignment of CSR activities in

banking sector for profitability

A project report submitted in partial fulfillment of the


requirements for MBA Project

M.B.A.

By
Yashika Singh
(MBA Gen -037)

ABV-INDIAN INSTITUTE OF INFORMATION


TECHNOLOGY AND MANAGEMENT

GWALIOR-474 015
2015
1

Candidate's Declaration

I hereby certify that I have properly checked and verified all the items as prescribed in the
checklist and ensure that my thesis/report is in proper format as specified in the guideline for
thesis preparation.
I also declare that the work containing in this report is my own work. I, understand that
plagiarism is defined as anyone or combination of the following:
1. To steal and pass of (the ideas or words of another) as one's own
2. To use (another's production) without crediting the source
3. To commit literary theft
4. To present as new and original an idea or product derived from an existing source
I understand that plagiarism involves an intentional act by the plagiarist of using some-one else's
work/ideas completely/partially and claiming authorship/originality of the work/ideas. Verbatim
copy as well as close resemblance to some else's work constitute plagiarism.
I have given due credit to the original authors/sources for all the words, ideas, diagrams,
graphics, computer programs, experiments, results, websites, that are not my original
contribution. I have used quotation marks to identify verbatim sentences and given credit to the
original authors/sources.
I affirm that no portion of my work is plagiarized, and the experiments and results reported in the
report/dissertation/thesis are not manipulated. In the event of a com-plaint of plagiarism and the
manipulation of the experiments and results, I shall be fully responsible and answerable. My
faculty supervisor(s) will not be responsible for the same.

Signature:
Name: Yashika Singh
Roll No.: MBA Gen 037
Date: 03/12/2014

Abstract

The main purpose of the study is to analyze the corporate social responsibility (CSR) activities
carried out by Indian commercial banks. Variables used in the study are: rural branch expansion,
priority sector lending, environment protection, community welfare, and women welfare, new
initiative related to CSR, financial literacy, education and healthcare. The analysis shows that
though the Indian banks are making efforts in the CSR areas but still there is a requirement of
more emphasis on CSR. There are some banks which are not even meeting the regulatory
requirements. The public sector banks have overall highest contribution in CSR activities. Private
sector banks and foreign banks are still lagging in this area. The study has a scope of further
research where the CSR performance of banks can be related to financial performance of the
banks.
Keywords: Commercial banks, Community welfare, corporate social responsibility, financial
literacy, Public sector banks.

Acknowledgements

I am highly indebted to Dr. Gaurav Agrawal and obliged for giving us the autonomy of
functioning and experimenting with ideas. I would like to take the opportunity to express our
profound gratitude to him not only for his academic guidance but also for his interest in our
project and constant support coupled with confidence boosting and motivating sessions which
proved very fruitful and were instrumental in infusing self-assurance and trust within us. The
nurturing and blossoming of the present work was mainly due to his valuable guidance,
suggestions, astute judgment, constructive criticism and an eye for perfection. My mentor always
answered myriad of my doubts with smiling graciousness and prodigious patience, never letting
me feel that I am novice by always lending an ear to our views, appreciating and improving them
and by giving me a free hand in my project. Its only because of his overwhelming interest and
helpful attitude, the present work has attained the stage it has.
Finally, I am grateful to all our friends and colleagues, whose constant encouragement served to
renew our spirit, refocus our attention and energy and helped us in carrying out this work.

Yashika Singh
03/12/2014
ABVIIITM, Gwalior

Content

1. Introduction
1.1
1.2
1.3
1.4

Defining Corporate Social Responsibility (CSR)....7


Evolution of CSR8
CSR in Indian Banking Industry.10
CSR and Profitability..11

1.5 Literature Review


1.5.1 Concepts and proposed relationship12
1.5.2 Corporate Social Responsibility: A Study of Selected Public
Sector Banks in India..13
1.5.3 Corporate Social Responsibility and Corporate Governance in
Banking Sector in India...14
1.5.4 Corporate Social Responsibility: An analysis of Indian
Commercial Banks.14
1.5.5 Corporate Social responsibility of Public Sector Banks Of India
1.5.6 CSR Practices in Indian Banking Sector.15
1.5.7 CSR Practices and CSR reporting in Indian Banking Sector...16
1.5.8 CSR Orientation of Indian Banks and Stakeholder Relationship
Marketing Orientation: An Empirical Investigation17

2.
3.
4.
5.

Research Gap.18
Motivation..18
Objective ...19
Research Methodology
a. Research Method ..20
b. Research design.22
6. Data Analysis
a. Method23
b. Year Wise Score of CSR activities of Banks..24
c. CSR activity wise Mean Score of Banks25
d. Percentage of Banks Performed CSR activities 26
7. References.28

Introduction and Literature Review


Corporate social responsibility is a form of corporate self-regulation integrated into a business
model. CSR policy functions as a self-regulatory mechanism whereby a business monitors and
ensures its active compliance with the spirit of the law, ethical standards and international norms.
In some models, a firm's implementation of CSR goes beyond compliance and engages in
"actions that appear to further some social good, beyond the interests of the firm and that which
is required by law." CSR aims to embrace responsibility for corporate actions and to encourage a
positive impact on the environment and stakeholders including consumers, employees, investors,
communities, and others.
1.1 Defining CSR
Corporate Social Responsibility is a management concept whereby companies integrate social
and environmental concerns in their business operations and interactions with their stakeholders.
CSR is generally understood as being the way through which a company achieves a balance of
economic, environmental and social imperatives (Triple-Bottom-Line- Approach), while at the
same time addressing the expectations of shareholders and stakeholders. In this sense it is
important to draw a distinction between CSR, which can be a strategic business management
concept, and charity, sponsorships or philanthropy. Even though the latter can also make a
valuable contribution to poverty reduction, will directly enhance the reputation of a company and
strengthen its brand, the concept of CSR clearly goes beyond that.
The term "corporate social responsibility" became popular in the 1960s and has remained a term
used indiscriminately by many to cover legal and moral responsibility more narrowly construed.
Proponents argue that corporations increase long term profits by operating with a CSR
perspective, while critics argue that CSR distracts from business' economic role. A 2000 study
compared existing econometric studies of the relationship between social and financial
performance, concluding that the contradictory results of previous studies reporting positive,
negative, and neutral financial impact, were due to flawed empirical analysis and claimed when
the study is properly specified, CSR has a neutral impact on financial outcomes.

1.2 Evolution of CSR


The evolution of corporate social responsibility in India refers to changes over time in India of
the cultural norms of corporations' engagement of corporate social responsibility (CSR), with
CSR referring to way that businesses are managed to bring about an overall positive impact on
the communities, cultures, societies and environments in which they operate. The fundamentals
of CSR rest on the fact that not only public policy but even corporates should be responsible
enough to address social issues. Thus companies should deal with the challenges and issues
looked after to a certain extent by the states.
First Phase
The first phase of CSR was driven by noble deeds of philanthropists and charity. It was
influenced by family values, traditions, culture and religion along with industrialization. Till
1850, the wealthy businessmen shared their riches with the society by either setting up temples
or religious institutions.. In 1900s, the industrialist families like Tatas, Birlas, Modis, Godrej,

Bajajs and Singhanias promoted this concept by setting up charitable foundations, educational
and healthcare institutions, and trusts for community development. It may also be interesting to
note that their efforts for social benefit were also driven by political motives.
Second Phase
The second phase was the period of independence struggle when the industrialists were
pressurized to show their dedication towards the benefit of the society. Mahatma Gandhi urged to
the powerful industrialists to share their wealth for the benefit of underprivileged section of the
society. He gave the concept of trusteeship. This concept of trusteeship helped in the socioeconomic growth of India. Gandhi regarded the Indian companies and industries as Temples of
Modern India. He influenced the industrialists and business houses to build trusts for colleges,
research and training institutes. These trusts also worked to enhance social reforms like rural
development, women empowerment and education.
Third Phase
In the third phase from 1960-1980, CSR was influenced by the emergence of Public sector
undertakings to ensure proper distribution of wealth. The policy of industrial licensing, high
taxes and restrictions on the private sector resulted in corporate malpractices. This led to
enactment of legislation regarding corporate governance, labor and environmental issues. In
1965, the academicians, politicians and businessmen set up a national workshop on CSR, where
great stress was laid on social accountability and transparency.
Fourth Phase
In the fourth phase from 1980 onwards, Indian companies integrated CSR into a sustainable
business strategy. With globalization and economic liberalization in 1990s, and partial
withdrawal of controls and licensing systems there was a boom in the economic growth of the
country. This led to the increased momentum in industrial growth, making it possible for the
companies to contribute more towards social responsibility. What started as charity is now
understood and accepted as responsibility.
In the current scenario in India, the new companies act amended in December 2012
mandates the corporate to spend 2% of their average net profits of the last three financial years
towards CSR. This is applicable for companies with a turnover of 1000 Cr/ PAT of 5 Cr/ or net
worth of 500 cr. The new bill replaces the Companies act 1956 and emphasizes carrying forward
the agenda of Corporate Social Responsibility.

1.3 CSR in Indian Banking Industry

Taking deposits, granting loans and providing complementary services are the core business of
banks. No matter what kinds of countries, what kinds of culture, and what kinds of banking
products and investors, banks need to be responsible for their customers in a social responsible
way.
From literature, global regulations imposed for banks is holding reserve against loans and
achieving AAA grade ratings. In the past years, some banks tried to bundle up loans to private
customers and companies, and selling these to one another on the inter-bank market.
Besides, the importance of internal audit has to been emphasized, especially in banking
industries. Coetzee and Fourie (2010) mentioned that internal audit had been perceived
positively. They indicated that internal audit should focus on strategic, operational and business
risks in addition to financial and compliance risks as 80% of loss in external shareholders value
in Fortune 500 companies could be linked to the first set of risks. Senior management and those
of the chairpersons of the audit committees expect an increase in internal auditing involvement in
risk-related issues. Coetzee and Fourie (2010) also highlighted that risk assessment had to be
performed annually under the requirement of industries. So, what is the value from Internal Audit
Function (IAF)? Barac, Plant and Motubatse (2010) quoted a survey conducted by (Institute of
Internal Auditors (IIA) on five value-adding attributes for IAFs. They were: organizational
alignment, extensive staff expertise, challenging work environment, risk assessment of the audit
universe; and an array of audit services.
Furthermore, Barac, Plant and Motubatse (2010) shared the idea of Dittenhofer (2001) in the
aspect of making a smooth internal audit process. They were: interaction with organization,
internal restructuring, creation of new services and methods, and using technology.
All in all, CSR in banking industries shall comprise the above-mentioned elements: risk
assessment, effective and efficient internal audit process with value added to stakeholders.
Hence, in order to maintain competitiveness in the market and responsible to customers, bankers
need to understand the economic situation, re-focus marketing strategy with prudent risk
management system, identify the concerns of customers, implement fair operation procedures to
protect customers and the community as a whole.

1.4 CSR and profitability


Corporate social responsibility (CSR) is a doctrine that promotes expanded social stewardship by
businesses and organizations. CSR suggests that corporations embrace responsibilities toward a
broader group of stakeholders (customers, employees and the community at large) in addition to
their customary financial obligations to stockholders. A few examples of CSR include charitable
giving to community programs, commitment to environmental sustainability projects, and efforts
to nurture a diverse and safe workplace.
As more attention is being paid by outsiders to the social impact of businesses, corporations
have acknowledged the need for transparency regarding their social efforts.
Is CSR Socially Desirable?
Despite the apparent acceptance of CSR by businesses, many economists have taken a skeptical
view of CSR and its viability in a competitive environment. Friedman noted that there are many
circumstances in which a firms manager may engage in actions that serve the long-run interest
of the firms owners and that also have indirectly a positive social impact.
Examples are: investments in the community that can improve the quality of potential
employees, or contributions to charitable organizations to take advantage of tax deductions. Such
actions are justified in terms of the firms self-interest, but they happen to generate corporate
goodwill as a byproduct. Furthermore, this goodwill can serve to differentiate a company from
its competitors, providing an opportunity to generate additional economic profits.
Economists Bryan Husted and Jos de Jesus Salazar, for example, recently examined an
environment where it is possible for investment in CSR to be integrated into the operations of a
profit-maximizing firm. The authors considered three types of motivation that firms consider
before investing in social activities.

Table 1: Overview of significant literature


Study

Community welfare,
Education ,
Rural Development,
Vocational training,
Women,
Healthcare

Sample and method


Data are mainly collected
both from primary and
secondary sources. Primary
data were collected on
personal interaction with
HR executives who are
dealing with CSR activities
in the respective banks. The
secondary data has been
collected from different
sources like scholarly
articles, annual reports of
the selected banks,
newsletters, and various
web sites.

Corporate Social
Responsibility and
Corporate Governance
in Banking Sector in
India

Corporate Social
Responsibility ,
Sustainable
Development,
Non-Financial
Reporting

Data are mainly collected


from secondary sources
which have been collected
from different sources like
scholarly articles, annual
reports of the selected
banks, newsletters, and
various web sites.

CORPORATE SOCIAL
RESPONSIBILITY: AN
ANALYSIS OF
INDIAN
COMMERCIAL
BANKS

Rural Branch
Expansion ,Priority
Sector lending
,Environment
Protection
,Community Welfare
,Women Welfare ,
Farmers Welfare ,
New Initiative
related to CSR,
Financial Literacy
,Education

The study is based on the


secondary data collected
from the annual reports of
the banks. On the basis of
ownership structure of the
banks a sample of 30 banks
has been taken for the
study. Out of 30 banks,
there are 10 private sector
banks, 15 public sector
banks and 5 foreign banks.

Corporate Social
Responsibility: A Study
of Selected Public
Sector Banks in India

Factors

Results

Study of the existing CSR


practices in selected
Nationalized Banks.
Suggestions for the
implementations of model
CSR practices in Indian
Banks.
These papers have
highlighted the fact that
sound corporate governance
should have, as its basis, the
following strategies and
techniques:
1. the corporate values, codes
of conduct and other
standards of appropriate
behavior and the system used
to ensure compliance with
them.
2. A well-articulated
corporate strategy against
which the success of the
overall enterprise and the
contribution of individuals
can be measured.
The analysis shows that
though the Indian banks are
making efforts in the CSR
areas but still there is a
requirement of more
emphasis on CSR. There are
some banks which are not
even meeting the regulatory
requirement of Priority sector
lending and rural branch
expansion. Even after the
RBIs guidelines for financial
literacy programs the banks
have not take substantial
steps in this direction.

CORPORATE SOCIAL
RESPONSIBILITIES
OF PUBLIC SECTOR
Banks Of india

Educational support,
Poverty eradication,
Rural development,
Vocational training
to unemployed

CSR Practices in Indian


Banking Sector

Employment,
Children Welfare ,
Environment,
Community Welfare,
Rural development,
Health care,
Responsible banking

CSR Practices and CSR


reporting in Indian
Banking Sector

CSR Activities, Total


CSR spend

The study is based on the


case study method. Seven
Public Sector Banks are
selected. Data are collected
from the secondary sources
most particularly from
concerned Banks Annual
Report, web sites,
newsletters and other
secondary sources. The
study covers the period
2007 to 2010.

Data are mainly collected


from secondary sources
which have been collected
from different sources like
scholarly articles, annual
reports of the selected
banks, newsletters, and
various web sites.
Random Sampling
technique is used for
selecting the Banks for this
Study in which the major
players two from Public
Sector and two from
Private Sector have been
selected for the study i.e.
SBI, PNB, HDFC and
ICICI. The Data is
collected from secondary
sources particularly from
concerned Banks Annual
Report, Web sites,
newsletters and data from
various journals.

The Banks under study have


recognized their
responsibility towards the
society and are making their
contribution in the field of
employment generation,
education, health care,
farmer training, women
welfare and women
empowerment. We suggest
that banks should disclose
the amount spent on CSR
activities in their annual
reports.
The study found out that
among the reporting banks
also, some banks are making
false gestures in respect of
their efforts for
socioenvironmental
concerns. Most of the Banks
use CSR practices as a
marketing tool and many are
only making token efforts
towards CSR in tangential
ways such as donations to
charitable trusts, NGOs,
sponsorship of events, etc.
Very few banks have a
clearly defined CSR
philosophy. Mostly banks
implement CSR in an ad-hoc
manner, unconnected with
their business process and
dont state how much they
spend on CSR activities.

Maximum number of banks


whether related to private
sector or public sector highly
performing CSR activities as
per their priority but in CSR
reporting details are not
disclosed.
Ranking of Banks on the
basis of CSR activities
performed by them

CSR Orientation of
Indian Banks and
Stakeholder
Relationship Marketing
Orientation: An
Empirical Investigation

Education,
Health,
Community Welfare,
Entrepreneurship,
Environment,
Market Place,
Rural Development

Indian banks with average


assets (financial year 2009
and 2010) of more than
100,000 million INR were
chosen for the study. They
used content analysis to
generate the underlying
data for our research. They
analyzed the data available
from the websites, annual
reports, sustainability /CSR
reports (if available) of all
the banks in our sample.

It shatters the mythical


association between profits
and how banks plough these
profits.
It suggests that large banks
need to probably indulge in
CSR differently, to maintain
their preferred employer
status, and to appeal to
employee stakeholders.
It also suggests that time
spent by the bank also leads
them to adopt a higher and
different CSR orientation

2. Research Gap
Although many studies have been made to evaluate the various CSR activities being
implemented by public and private sector banks in India. Different factors may be some
independent variables that affect the choice for activities. For example, alignment of the activity
with their organizational values, vision and mission, association with its products, with a choice
to differentiate themselves from other banks etc. But until now, there has been no specific
relation that describes how these activities can be ranked in terms of their efficiency to drive
profitability for these financial institutions, in terms of Return on Investment, building of brand
image and brand awareness.

3. Motivation
Too often, executives have viewed corporate social responsibility (CSR) as just another source
of pressure or passing fad. But as customers, employees, and suppliersand, indeed, society
more broadlyplace increasing importance on CSR, some leaders have started to look at it as a
creative opportunity to fundamentally strengthen their businesses while contributing to society at
the same time. They view CSR as central to their overall strategies, helping them to creatively
address key business issues.
The big challenge for executives of these financial institutions is how to develop an approach
that can truly deliver on this lofty ambition

The study will help to find out:

The Major areas of CSR initiatives in Indian Banking Sector.


To Focus on the Present Status of CSR in Banking.
To strategically align widely used CSR activities in Indian Banking sector for profitability.

Important Factors Identified


Based on the literature review we have identified various factors .The detailed factors are
presented in the following table:

Table 2: Factors identified after the literature review


S.
No

Variable

Explanation
Variabl
e Code

Priority Sector
lending

PSL

Environment
Protection

EP

The ratio of advances made to priority


sector to
total advances
Number of activities done for environment
protection

Community Welfare

CW

Number of activities done for community


welfare

Women Welfare

WW

Number of activities done for women


and girl child welfare.

Farmers Welfare

FW

New Initiative related


to
CSR

NI

Financial Literacy

FL

Education

EDU

Number of activities done for farmers


welfare
New initiatives related to CSR activities
taken in
the year 2010-11
Efforts done for promoting financial
literacy
Number of activities done for
promotion of Education

Priority Sector Lending: As described by the Reserve Bank of India, Priority Sector lending
means lending to the agriculture, small scale and ancillary industries, new and renewable
sources of energy, cottage industries, artisans, food and agro based processing, education,
housing and weaker section. While for domestic banks, both the public and private sectors are
required to lend 40 per cent of their net bank credit (NBC) to the priority sector, foreign
banks are required to lend 32 per cent of their NBC to the priority sector. It has been observed
that while banks often tend to meet the overall priority sector targets, they sometimes tend to
miss the sub-targets. This is particularly true in case of domestic banks failing to meet their
sub-targets for agricultural advances. One of the reasons banks often site for not lending to
this sector is that recovery is often difficult.
Environment Protection: This variable includes all the activities carried out by the banks for
the purpose of environment protection or to reduce the environmental harm by adopting
different initiatives, replacing traditional activities by eco friendly processes or activities in
day to day business. Adenekan (2007), Joyner and Payne (2002), concluded that a growing
number of companies in many sectors and geographic regions discovered concrete value and
competitive advantage from socially responsible practices in pollution prevention, energy
efficiency, environmentally oriented design, supply chain management, and health and
sustainable agriculture initiatives, among others. For these firms, CSR has had a positive
impact on profits. The World Bank has also pressurized the banks not to finance the projects,
which are causing harm to the environment either directly or indirectly.
The major activities performed by banks in this field are as follows:
o No credit to businesses involved in Ozone depletion, human rights violation,
controversial weapons, gambling or pornography activities.
o Awareness programs about avoiding the usage of plastic bags and reduced
use of paper in offices.
o Promoting and financing energy saving and solar energy projects.
o Encouraging, financing and setting up of non-conventional energy generation
units,
o Tree plantation drives
o Projects related to reduction of carbon emissions
Education: This variable is used to measure the contribution of banks in the field of
education. In India Rao (1964) and the Education Commission (1966) emphasized the links
between education and development. Fields (1980) and Tilak (1978) explained that education
and poverty are inversely related: the higher the level of education of the population, the
lower would be the proportion of poor people in the total population, as education imparts
knowledge and skills that are associated with higher wages. The major activities carried out
by the banks in the field of education are as follows:
o Support to low income family students with financial assistance, free uniform
and books
o Motivational camps to go to school, for the students of rural areas.
concession in interest on education loans for backward class
students

o Establishing library-cum-reading rooms in rural areas and


providing fans, water coolers etc. to schools.
o Promotion and financial support education of special children,
o Tie-ups with educational institutes for providing education loans, interest
subsidy schemes for students belonging to economically weaker sections
o School adoption projects
o Special educational sponsorships for the girl
child Educational assistance by giving
donations
o Opening of pre-schools and assistance in mid day meal programs for the
students.
Community Welfare: This variable is used to measure the activities performed by the banks
for the welfare of the community. As per the data, highest number of banks has contributed in
this CSR activity.
Some of the common activities in this field are:
o Donations to orphanages
o Free food distribution to the poor patients of government health care
centers Health awareness programs
o Free health checkups
o Campaigns against usage of drugs, alcohol and
smoking Construction of toilets, community halls and
dispensaries.
o Helping disabled persons by donating artificial limbs/calipers/wheelchairs
etc. Providing free medical facilities to the poor people
o Community welfare through helping
NGOs Blood donation camps
o Donations for disaster relief and accident victims
Financial Literacy: As per the Reserve Bank of India, Financial literacy is providing
familiarity with and understanding of financial market products, especially rewards and risks,
in order to make informed choices. It is the ability to know, monitor, and effectively use
financial resources to enhance the well- being and economic security of oneself, one's family,
and one's business. Financial literacy has assumed greater importance in the recent years, as
financial markets have become increasingly complex and as there is information asymmetry
between markets and the common person, leading to the latter finding it increasingly difficult
to make informed choices. In India, the need for financial literacy is even greater considering
the low levels of literacy and the large section of the population, which still remains out of the
formal financial set- up. Credit Counselling can be defined as counselling that explores the
possibility of repaying debts outside bankruptcy and educates the debtor about credit,
budgeting, and financial management. In view of the above two points the RBI has initiated a
scheme for setting up of Financial Literacy and Credit Counselling (FLCC) Centers by the
banks. Certain banks have not just opened the FLCC centers but have also taken other
measures to promote finance education among people.

New Initiatives related to CSR: This variable is used to measure the new CSR initiatives
taken by the banks in the respective year for which CSR has been measured. Some of the
major initiatives taken by the banks are listed below:
o Programs for promotion of women
entrepreneurs Village adoption schemes
o Green initiatives like electricity audit of bank office
o Establishment of Butterfly park which houses medicinal
plants Tree Plantation Drives
o Spreading awareness on Climate Change and Global Warming, joining hands
with World Wide Fund of Nature (WWF) and The Indus Entrepreneurs
(TIE)
Women Welfare: This variable indicates the activities done in the direction of welfare of
women and girl child. Some of the activities which banks are performing in the field of the
women welfare are as follows:
Farmers Welfare: Indian economy has always been an agriculture based economy.
Although the contribution of agriculture to the GDP of the country has decreased in past
years, a large portion of population still depends upon agriculture for its survival. However,
the agriculture sector is still in a meagre state. Due to the poor economic health of agriculture
sector, India observes a large number of cases of suicide among the farmers. It has been felt
that there is an urgent requirement to promote investments in this sector and welfare of the
farmers. Some of the major activities done by the banks under the farmers welfare are as
follows:
Agriculture Debt Waiver & Debt Relief Scheme
Loan for Solar Water Heating Systems at concessional rate,
Rural Extension Education Programs enabling farmers & entrepreneurs to improve
their productivity/production,
Establishment of Farmers clubs,
Farmers Training Centers (FTCs),
Special credit cards for farmers,
Agriculture knowledge sharing Programs,
National insurance programs for agriculture
Financing rural go downs and cold storages/warehouses,
Debt Swap Schemes
Setting up agriculture clusters for better farming
Commodity finance against pledge of warehouse receipts of agro commodities

Objectives

The Major areas of CSR initiatives in Indian Banking Sector.


To Focus on the Present Status of CSR in Banking.

To strategically align widely used CSR activities in Indian Banking sector for
profitability.

Research Methodology
The study is based on the secondary data collected from the annual reports of the banks.
On the basis of ownership structure of the banks a sample of 30 banks has been taken for
the study. Out of 30 banks, there are 10 private sector banks, 15 public sector banks and
5 foreign banks. From the literature review and on the basis of data collected the
following 9 variables have been identified to assess the corporate social responsibility of
the banks (Shown in following Table).

S.
No

Variable

Explanation
Variable
Code

Priority Sector
lending

PSL

The ratio of advances made to


priority sector to
total advances

Environment
Protection

EP

Number of activities done for


environment
Protection

Community Welfare

CW

Women Welfare

WW

Farmers Welfare

FW

New Initiative related


to
CSR

NI

Financial Literacy

FL

Number of activities done for


community welfare
Number of activities done
for women and
girl child welfare
Number of activities done for
farmers welfare
New initiatives related to CSR
activities taken in
the year 2010-11
Efforts done for promoting
financial literacy

Education

Number of activities done


for promotion of Education

EDU

Data Analysis
On the basis of the actual activities done and disclosed in the annual reports,
the banks have been given points on the following criterion:
Number of
Activities
Points Given

0
0

1 to 2
1

3 to 4
2

5 to 6
3

Above 6
4

For the variable Priority Sector Lending (PSL) the following criterion has
been used to give points to the banks.
PSL Ratio Above 40%
Points
Given
5

40% to
35%

35% to
30%

30% to 25% Below 25%


2

The total score of the CSR has been calculated by adding up the individual
score of each variable for the bank. The CSR score of all the banks for the
studied period has been shown in the below table 2.

BANK
PNB
ALB
SB
SBI
CBI
IOB
OBC
CB
UBOI
BOI
IB

Table 2 Bank Wise CSR Score (2010-11 to 2012-13)


Average CSR
Bank Type
2010-11
2011-12
2012-13
Score
14
25
20
20
12
14
15
14
16
16
11
14
PUBLIC
9
14
13
12
BANKS
11
12
11
11
12
13
12
12
13
13
13
13
13
10
12
12
11
13
13
12
11
10
9
10
10
10
13
11

BOB
IDBI
CO.B
UCO
ICICI

10
9
10
11
15

8
11
10
7
18

8
13
11
8
13

9
11
11
9
16

HDFC
JKB

14
13

14
15

11
18

13
16

13

15

14

14

11
9
11
13
9
3
11
9

10
12
9
9
7
6
15
10

12
8
13
13
10
8
9
12

11
10
11
11
9
6
12
10

8
6

6
5

8
9

7
7

PRIVATE
ING
AXIS
SIB
KMB
FB
KB
YES
RBS
HSBC

SCETOR
BANKS

FOREIGN
DEU
BANKS
CITI
SCH

Interpretation: A comparative analysis of CSR score of all the banks for the year 2010-11 to

2012-13 has been given in table 2. As per the CSR score of 2010-11, the highest score is
recorded for public bank i.e. 16 by Syndicate bank, while the lowest CSR score is recorded for
private bank i.e. 3 by YES bank. The mean value of CSR score on the basis of highest and lowest
score is 10. 13 public banks out of a total of 15 have scored above or equal to the mean value of
score on the basis of highest and lowest CSR score. Only one foreign bank out of a total of five
has achieved the CSR score above the mean value. 7 private banks out of a total of 10 have
achieved the CSR score above the mean value. The highest CSR score for private bank is 15 of
ICICI bank, and highest CSR score of foreign bank is 11 of Royal Bank of Scotland.
As per the CSR score of 2011-2012, the highest score is recorded for public bank i.e. 25 by
Punjab National bank, while the lowest CSR score is recorded for foreign bank i.e. 5 by Standard
Chartered bank. The mean value of CSR score on the basis of highest and lowest score is 15.
Only 2 public banks out of a total of 15 have scored above the mean value of score on the basis
of highest and lowest CSR score. Only one foreign bank out of a total of five has achieved the
CSR score equal to the mean value. 3 private banks out of a total of 10 have achieved the CSR
score above and equal to the mean value. The highest CSR score for private bank is 18 of ICICI
bank, and highest CSR score of foreign bank is 15 of Royal Bank of Scotland.
As per the CSR score of 2012-13, the highest score is recorded for public bank i.e. 20 by Punjab
National bank, while the lowest CSR score is recorded for foreign bank i.e. 7 by Deutsche bank.
The mean value of CSR score on the basis of highest and lowest score is 14. Only 2 public banks
out of a total of 15 have scored above the mean value of score on the basis of highest and lowest
CSR score. No foreign bank out of a total of five has achieved the CSR score equal to the mean
value. 2 private banks out of a total of 10 have achieved the CSR score above and equal to the
mean value. The highest CSR score for private bank is 18 of Jammu & Kashmir bank, and
highest CSR score of foreign bank is
12 of HSBC bank. Thus overall it can be interpret from the table 2 that on the basis of average
CSR score, public bank is leading, then private sector banks and foreign banks are far behind
from both the public and private banks in CSR score.

Year wise score of CSR activities of 30 Banks


Interpretation: Graph 1 gives the total score of each CSR activity for the year 2011-12 to 201314. It can be seen from the graph 1 that in the year 2010-11, the highest score i.e. 45, was
obtained by Community Welfare (CW) activity, while the lowest score i.e. 16, was obtained by

financial literacy (FL) and women welfare (WW) activities by the banks. As per the score of
2011-12, the highest score i.e. 46 was obtained by Community Welfare (CW) activity, while the
lowest score i.e. 16, was obtained by women welfare (WW) activity by the banks. As per the
score of 2012-13, the highest score i.e. 58 was obtained by Community Welfare (CW) activity,
while the lowest score i.e. 12, was obtained by women welfare (WW) activity by the banks. Thus
overall it can be interpret from the graph that banks are performing well related to the
community welfare activities throughout the years while lowest performance has been shown by
banks in CSR activity related to women welfare. The score of community welfare increased year
by year from 45 (2010 -11) to 58(2012-13).

Graph 2 CSR Activity wise Mean values of Banks


Interpretation: It can be interpret from the graph 2 that public banks have shown best
performance related to Farmers welfare activities, and lowest performance in women welfare
activity. As per the mean values of CSR activities of private sector banks, they have shown best
performance in community welfare activities and lowest performance in women welfare
activities. As per the mean values of CSR activities of foreign banks, the best performance has
been recorded in environmental protection activities by the foreign banks and lowest
performance in farmers welfare activities. Overall it can be interpret that private banks are
leading in environmental protection, education, and community welfare activities and lagging in
New Initiative related to CSR and women welfare activities. Public banks are leading in financial
literacy and farmers welfare activities and lagging in environmental protection and education
activities. Foreign banks are leading in New Initiative related to CSR and women welfare
activities and lagging in community welfare, financial literacy and farmers welfare activities.
Thus overall foreign banks are far behind from public and private banks in performing CSR
activities.

Graph 3 Percentage of Banks Performed CSR activities from (2010-11 to 2012-13)

Interpretation: As per the data of 2010-11, highest number of banks i.e 80 percent of total
banks are performing community welfare activities, while only 40 percent of total 30 banks
are performing new initiative related to CSR activities and only half of the banks i.e. 50
percent are performing financial literacy and women welfare activities. As per the data of
2011-12, highest number of banks i.e 80 percent of total banks are performing community
welfare activities followed by financial literacy activities, while only 50 percent of total 30
banks are performing women welfare activities. As per the data of 2012-13, highest number
of banks i.e 87 percent of total banks are performing community welfare activities followed
by environmental protection activities, while only 37 percent of total 30 banks are performing
women welfare activities. Thus overall it can be interpret from the graph 3 that lowest
percentage are performing women welfare activities, and even the percentages of banks
performing women welfare activities have decreased from 50 percent to 37 percent while
highest percentages of banks are performing community welfare activities and the
percentages of banks involved in this activity have increased from 80 percent to 87 percent
which is a good signal.
Priority Sector Lending Ratio
(PSL)
BANK
PNB
Al.B
SB
SBI
CBI
IOB
OBC

Bank Type

PUBLIC
BANKS

2009-10
35.70
33.91
34.38
26.99
32.14

2010-11
32.48
32.86
30.13
30.61
31.23

2011-12
31.33
33.65
29.46
28.84
26.11

34.48

29.19

30.03

33.65

36.45

35.75

CB
UBOI
BOI
IB
BOB
IDBI
CO.B
UCO

33.48
31.68
25.48
34.84
26.35
22.43
31.57
29.53

32.19
31.94
25.76
34.29
24.01
26.87
27.52
24.32

29.80
35.15
22.56
32.98
22.59
26.74
29.19
25.03

ICICI
HDFC
JKB
ING

29.79
35.09
37.44
37.15

24.68
34.24
39.23
34.09

23.37
32.68
30.11
33.04

32.69
36.55

29.79
33.13
35.96
26.30

31.47
32.28
36.53
25.92

28.99
30.25
35.05
44.17
32.26
32.78
26.37

28.56
18.76
30.25
40.56
24.89
28.87
26.39

KMB
FB
KB
YES
AXIS
SIB
HSBC
RBS
DEU
CITI
SCH

PRIVATE
SECTOR
BANKS

FOREIGN
BANKS

36.39
20.24
28.69
31.23
34.99
45.24
26.55
36.20
27.56

From the table it can be interpreted that PSL Priority sector lending ratio was 35.70 (Maximum)
and 22.43 (Minimum) in the year 2010-11 for public banks, while the PSL ratio has increased
from 35.70 to 35.75 in the year 2011-12. The top performer among public banks in PSL ratio
variable is Oriental Bank of Commerce while the least performer bank is Bank of India as per the
PSL ratio of 2011-12. Priority sector lending ratio was 37.44 (Maximum) and 20.24 (Minimum)
in the year 2010-11 for private sector banks, while the PSL ratio has decreased from 37.44 to
36.53 in the year 2011-12. The top performer among private sector banks in PSL ratio variable is
Karnataka Bank while the least performer bank is South Indian Bank as per the PSL ratio of
2011-12. Priority sector lending ratio was 45.24 (Maximum) and 26.55 (Minimum) in the year
2010-11 for foreign banks, while the PSL ratio has decreased from 45.24 to 40.56 in the year
2011-12. The top performer among foreign banks in PSL ratio variable is Royal Bank of
Scotland while the least performer bank is Deustche bank as per the PSL ratio of 2011-12. Thus
overall it can be interpret from the table 3 that foreign banks are leading in the PSL ratio
variable, then private sector banks and at last public banks.

Banks are usually judged from the point of view of their financial performance but this study
has explored a new dimension for analyzing the performance of banks. It could be inferred from
the study that certain banks like ICICI bank, HDFC bank and State Bank of India which are top
performers in terms of profitability and growth are not at the top in CSR activities.
This study might valuable for commercial banks to understand their own position among the

overall banking sector and also it is important for policymakers to judge the banking
performance from the angle of corporate social responsibility. However, a number of limitations
of this study could be identified. First, the study is limited to a sample of 30 Indian banks hence
more evidence is needed on the CSR activities before any generalization of the results can be
made. Second, the data was collected only for the year 2010-11 and hence the results of the
study cannot be assumed to extend to different study periods. The study has a scope of further
research where the CSR performance of banks can be related to financial performance of the
banks.

Alignment of the CSR activities as per the data analyzed is as follows:

References
Abbott, W. F. and Monson, J. R. (1979), On the measurement of corporate social
responsibility: self reported disclosure as a method of measuring corporate social
involvement, Academy of Management Journal, Vol.22, pp.501-515.
Addock, S.A., and Graves, S.B. (1997), The Corporate Social Performance-Financial
Performance Link, Strategic Management Journal, Vol.18 (4), pp. 303-319.
Ahmed, Homayara Latifa, Alam, Md. Jahangir and Jafar, Saeed Alamgir Zaman Sawlat
Hilmi (2008), A Conceptual Review on Corporate Governance and its Effect on Firms
Performance: Bangladesh Perspective, AIUB Bus Econ Working Paper Series,
Vol.2008- 10, pp.1-24.
Allouche, J. and Laroche, P.(2005), A meta-analytical examination of the link between
corporate social and financial performance, French Review of Human Resource
Management, Vol.57, pp.18-41.
RBI Notification.(2007) .CSR in Indian Banks, Corporate Social Responsibility,
Sustainable Development and Non- Financial Reporting- Role of Banks,RBI/200708/216:DBOD No Dir.BC.58/13.27.00/2007-08,Dec.20.
Agrawal, Sanjaoy K, Corporate Social Responsibility in India (2008) Response
Business Book from Sage, Sage Publications, New Delhi.
Annual Report of Banking Institutions, 2007-2008,2008-2009 and2009-2010
Baxi, C V & Prasad Ajit (Ed) (2005), Corporate Social Responsibility-Concept and
Cases, New Delhi, Excell Books.
Bihari, Suresh Chandra and Pradhan ,Sudeepta(2011),CSR and performance :The story of
Banks in India .Journal of Transational Management16(1),20-35
http://en.wikipedia.org/wiki/Reserve_Bank_of_India
http://en.wikipedia.org/wiki/Corporate_social_responsibility
http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=3987
http://gujarati.economictimes.indiatimes.com/dirreport.cms?year=2008&companyI
D=3540&Go=Go http://timesofindia.indiatimes.com/articleshow/msid-3132402,prtpage1.cms
http://timesofindia.indiatimes.com/Business/India_Business/Disha_and_RBI_launch_co
mic_book_Raju_and_the_Money_Tree/articleshow/2447522.cms

Hertz, Noreena. (2012), Gradual demise of Gucci capitalism to be followed by


responsible capitalism, The Economic Times, 23rd January 2012.
Sharma, Nishi. (2011), CSR practices and CSR reporting in Indian banking sector,
International Journal of Advanced Economic and Business Management, Vol.1 (2), pp.
58-66
www.karmayog.org/csr2010 , Accessed 20th December 2014.
Rangarajan C, (2008), Report of the Committee on Financial Inclusion, Ministry of
Finance, Government of India.
Sharma, Nishi. (2011), CSR practices and CSR reporting in Indian banking sector,
International Journal of Advanced Economic and Business Management, Vol.1 (2), pp.
58-66.

Public Banks: ALB: Allahabad Bank, BOB: Bank of Baroda, BOI: Bank of India, CB:
Canara Bank, CBI: Central Bank of India, IDBI: Industrial Development Bank of
India,PNB: Punjab National Bank, UBOI: United Bank of India, SBI: State Bank of
India, IOB: Indian Overseas Bank, OBC: Oriental Bank of Commerce, SB: Syndicate
Bank, CO.B: Corporation Bank, IB: Indian Bank, UCO: UCO Bank.
Private Banks: AXIS: Axis Bank, JKB: Jammu Kashmir Bank, KMB: Kotak Mahindra
Bank, KB: Karnataka Bank, ICICI: Industrial Credit and Investment Corporation of
India, HDFC: Housing Development Finance Corporation Bank, YES: YES Bank, FB:
Federal Bank, SIB: South Indian Bank, ING: ING Vysya Bank.
Foreign Banks: CITI: Citi Bank, DEU: Deutsche Bank, HSBC: Hongkong Shanghai
Banking Corporation, SCH: Standard Chartered Bank, RBS: Royal Bank of Scotland.