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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

DR SHAKUNTALA MISRA NATIONAL REHABLITATION

UNIVERSITY, LUCKNOW

SESSION: 2018 -2019

“INVESTMENT BANKING”

“CSR Practices in the banking sector-Impact of its implementation on

performance and image of banks”

Submitted To:
Prof. Shail Shakya
Submitted By:
Samiksha Gupta
9th sem

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

ACKNOWLEDGEMENT

I wish to extend my heartfelt gratitude to The Almighty for helping me to complete my

Endeavour successfully. I would also like to express my sincere gratitude to my educational
institution, for providing me with all the required support for the successful completion of my
project. I also extend my heartfelt thanks to my investment banking teacher, Prof. Shail Shakya.

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

Table of contents

1. Introduction ……………………………………………………………………………..4
2. CSR practices in Indian banks…………………………………………………………..5
3. Different key areas………………………………………………………………………6
4. RBI guidelines on CSR………………………………………………………………….7
5. Some recent initiatives by Indian banks…………………………………………………8
6. Implementation of CSR by Indian financial institutes…………………………………..9
7. Constraints of CSR………………………………………………………………………10
8. Recommendation on CSR Implementation……………………………………………...10
9. Conclusion……………………………………………………………………………….11
10. Bibliography………………………………………………………………………………12

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

INTRODUCTION

The word “company” derives by the two Latin words “cum” and “pains”, that mean “to share the
food together”. CSR represents the idea of an ethical organization that social obligations towards
society. The concept of corporate social responsibility focuses on responsibility towards all
stakeholders: shareholders, employees, creditors, suppliers, government, and community rather
than only on maximization of profit for shareholders. It is a continuous commitment that
companies should have towards the economic, social and environmental development of the
community in which they operate. Companies are increasingly understanding of their role
towards the society. Corporations now are setting up separate departments and teams that
develop CSR strategies. The concept of CSR was first mentioned in 1953 in the publication of
“Social responsibilities of businessman” by William J.Bowen.

Some definitions:
According to Forbes (2010); works in two ways. The company gives back to the turn, people get
to know about the company who helped them most and cater to their products and services.

Peter Drucker argued that companies have a social dimension as well as an economic purpose in
his second book, of Industrial Man, in 1942.

Carrol and Bocholt define ethical and philanthropic expectations placed on organizations by
society at a given point in time.”

According to Bowen, “CSR refers to the obligations of businessmen to pursue those policies to
make those decisions or to follow those lines of relations which are desirable in terms of the
objectives and values of our society.1

Social Responsibility of business refers to what a business does over and above the statutory
requirement for the benefit of the society. The word “responsibility” emphasizes that the
business has some moral obligations towards the society. CSR, also known as Sustainable
Responsible Business (SRB), or Corporate Social Performance, is a form of corporate self-
regulation integrated into a business model. Industrialization and commercialization of service
sector have explored vivid avenues of progress to a nation but at the flip side it has rooted the use
of non-renewable energy sources, global warming, green house gas mission and rising levels of
waste which have harmful effects to the generation coming next. The growing concerns for
sustainable development, environmental performance, encompassing pollution control and
management of natural resources has given mass recognition to the concept of Corporate Social
Responsibility (CSR). The integration of CSR principles in operating activities of business is

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http://www.journalcra.com/article/study-corporate-social-responsibility-csr-indian-banking-sector

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

very much essential to ensure sustainable development of an economy. In the financial sector
several international initiatives like United Nations Environment Programmed Finance Initiative,
Global Reporting Initiative, Equator Principles and Collavecchio Declaration on Financial
Institutions are underway to ensure the adoption of CSR practices in normal business operations.
These initiatives have favorably tuned up developed countries to behave in a socially responsible
way. But in developing nations, there is a lack of focused and effective actions to the current
need. In addition to this a very limited research work has been done to investigate the CSR
practices in developing and emerging nations. In fact the academic publication on this fiery issue
is primarily western centric. Belal (2001) noted that most of the CSR studies conducted so far
were in the context of developed countries such as Western Europe, the USA and Australia and
we still know too little about practices in smaller and emerging countries. In this context, the
present paper attempts to examine the steps initiated by Indian commercial banks to represent
their efforts in this arena. The second section unfolds some prominent dimensions of CSR
practices world-wide. Next section entails the discussion of CSR practices in banking industry
with special reference to Indian banks. The Last section summarizes the limitations of CSR
practices in Indian banking sector and gives suggestions to improve the current scenario.2

CSR Practices in Indian Banks:

Banking in India originated in the last decades of the 18th century with the establishment of
General Bank of India in 1786 and the Bank of Hindustan set up in 1870 (however both of the
banks are now defunct). The oldest bank existing in India is the State Bank of India and the apex
regulatory authority of Indian banking sector is Reserve Bank of India. At present, the
commercial banking structure in India consists of Scheduled Commercial Banks & Unscheduled
Banks. Since independence, banking in India has evolved through four distinct phases:

 Foundation phase (1950s till the nationalization of banks in 1969),

 Expansion phase (mid-60s to 1984)
 Consolidation phase (1985 to 1991) and
 Reforms phase (since 1992).

In recent years an attempt has been initiated to ensure socially responsible behavior of banking
sector in a more organized manner. The CSR in Indian Banking Sector is aimed towards
addressing the financial inclusion, providing financial services to the unbanked or untapped areas
of the country, the socio-economic development of the country by focusing on the activities like,
poverty eradication, health and medical care, rural area development, self employment training
and financial literacy trainings, infrastructure development, education, and environmental
Protection etc. RBI also insisted upon taking measures for sustainable development of economy

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https://www.ripublication.com/gjfm-spl/gjfmv6n9_08.pdf

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

through realizing the dire necessity of CSR. Reserve Bank of India (2007) stated that CSR entails
the integration of social and environmental concerns by companies in their business operations
and also in interactions with their stakeholders. The major thrust areas for CSR practice in Indian
banks are common in public sector and private sector banks. These areas include children
welfare, community welfare, education, environment, healthcare, poverty eradication, rural
development, vocational training, women's empowerment, protection to girl child and
employment. However the core areas for reporting CSR activities are slightly different in both
types of banks. The analysis of three core activity areas as depicted by these banks reflected
some prominent fields for CSR activities.

Indian public sector banks most actively participate for improvement of regional imbalances
through initiating various activities for promotion of rural development. Besides it, they
principally focus on the issues of gender equality through women's empowerment. Indian public
sector banks most actively participate for improvement of regional imbalances through initiating
various activities for promotion of rural development. Besides it, they principally focus on the
issues of gender equality through women's empowerment. The study of core areas as reported by
the selected banks reveal that primary concern for both type of bank is social welfare. However
both have different approach to promote the same. The general trend of selected public sector
banks are mainly practices for rural development and removal of gender inequality. On the other
hand, the core operational CSR activities in private sector banks are focused on education and
employment for all and mitigating the risk of environmental degradation through their green
banking strategies.

Different key areas:

The major key areas of CSR like, children welfare, community welfare, education, environment,
healthcare, poverty eradication, rural development, vocational training, women empowerment,
protection to girl child, and employment.

Education: Almost all the banks in India have given due importance to education. Some of the
banks have donated money whereas some have helped the schools in other different facilities
such as Allahabad Bank is providing fans in each classroom and staffroom in Primary Schools
and helping schools in providing the drinking water to children. The bank have incurred Rs.
26.68 lacs in financial year 2014-15 (Source: Annual Report Allahabad Bank 2014-15)

Rural Development: Similarly like education most of the banks of India have invested in Rural
Development. Some of them are educating rural people by Financial Literary Centers whereas
some of them have given financial help to villages. Union Bank of India’s Adarsh Gram is the
example of Rural development.

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

Children and Women: For the encouragement of women empowerment or girl child many
government and non-government organizations are working in India. GOI has introduced “beti
padhao, beti bachao” similarly banks are giving scholarships for girls’ education. Allahabad bank
has distributed 1861 scholarships belonging to BPL families in financial year 2014-15, the
disbursement amounted to Rs.55.83 lacs. (Source: Annual Report Allahabad Bank 2014-15)

Social Community Welfare: This category includes the welfare activities for society welfare as
whole. In this category all the welfare activities can be included like Axis Bank work for Armed
Forces veterans and union bank of India’s Union Social Foundation. In this category they talk
about the different social issues to be taken care of in India.

Health: Health is the last category where different banks offer various health facilities to the
deprived people. Axis bank have started health and trauma care centers in different areas. Bank
of India also have different schemes like Ambulances to Hospitals catering to economically
challenged sections of the society, rural areas, etc. ultra-modern medical equipment’s to Family
Planning Centres and other hospitals. Wheel chairs to physically challenged sportspersons and
others. Gensets for running equipments in hospitals for the Cancer patients.3

RBI guideline on CSR:

To highlight the role of banks in corporate social responsibility the RBI circulated a notice on
December 20, 2007 for all the scheduled commercial banks, with title “corporate social
responsibility, sustainable development and non-financial reporting – role of banks”.

Major issues discussed in the notice were regarding-

1. Corporate social responsibility

2. Sustainable Development
3. Non- financial reporting
Briefing about the corporate social responsibility program to other member commercial
banks RBI followed many international initiatives to highlight the important of this notice
like…
 United nations environment program finance initative
 Global reporting initative
 International finance corporation
 The equate or principles
 Declaration financial institutions.

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file:///C:/Users/HP/Downloads/07_IJRG16_C08_83.pdf

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

A part from these international initiatives, RBI report also talked about other important and
urgent issues regarding

1. Global warming and extent of problem,

2. Stern review- the economics of climate change
3. The happy planet index
4. The Kyoto protocol

Some Recent CSR Initiatives by Indian Banks:

The central bank of India decided to go for energy efficient buildings in order to address
ecological and environmental concerns as its CSR practice. Following are the other banks that
fulfill their social responsibility:

Small Industries development bank of India has included environmental and social aspects in
its core business activities so as to ensure sustainable development. It is providing Concessional
and liberal credit to medium and small scale industries which are Initiating energy saving
projects and are adopting pollution control measures.

Yes bank is the fourth largest private sector Bank of India. Yes bank in association with CARE
India and Humanitarian relief and development NGO has launched India’s first Social Deposit
Account (SDA). SDA is a regular Fixed Deposit account where customers have the option of
donating their interest income to a social cause through CARE India. Yes Bank received the Best
Corporate Social Responsibility Practice award at the 6th Social and Corporate Governance
Awards 2010 held in Mumbai. . It also won Best CSR Practice Award in March 2011.

State Bank of India (SBI), the nation's largest lender State Bank of India (SBI) has created a
separate company, SBI Foundation, to carry out its massive CSR initiatives and hopes to get it
"running" from July. It has also has adopted green banking in its lending operations.

Industrial Credit and Investment Corporation of India (ICICI) has shown its commitment to
corporate environmental stewardship and extended a great support to clean technology projects.
It has also liberalized credit to zero emission vehicles. Union Bank of India has well developed
Corporate Social Responsibility initiatives in place. The focus on the rural sector is through
Village Knowledge Centers and Farmers' Clubs etc. It launches schemes for the girl child, where
bank take care of education expenses. Initiatives are in place in other areas such as providing
drinking water for schools, setting up bus shelters etc. All CSR initiatives have shown good
results and they are an ongoing part of bank’s contribution to the building of the nation.

Industrial Development bank of India (IDBI) has set up carbon desk. IDBI has come forward
to join hands with Smile Foundation in social development initiatives. The bank has contributed
14 personal computers to Smile Foundation which have been utilized in four different projects
being implemented through as many partners in Delhi and NCR.

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

Axis Bank has set up a Trust the Axis Bank Foundation (ABF) to channel its philanthropic
initiatives. The Foundation has committed itself to participate in various socially relevant
endeavors with a special focus on poverty alleviation, providing sustainable livelihoods,
education of the underprivileged, healthcare, sanitation etc. ABF aspires to contribute in the
areas of education and healthcare. It has set up various programmes which provide educational
support, in order to meet these goals.

Housing Development Finance Corporation (HDFC) has been working with NGOs for
providing non formal vocational and technical education programs as well as skill up gradation
courses to enable sustainable employment and income generation for economically weaker
sections.

Indusind Bank has committed to minimizing the environmental impact of bank operations on
the planet. Through its Solar ATMs, salaried premises, green operations and supply chains bank
is doing a bit in integrating environmental stewardship across its operations and investment
portfolio.

Punjab National Bank (PNB)’s approach to Corporate Responsibility in the community is

firmly rooted in its commitment to support people below poverty line and down trodden section
of the society.

There are 27 public sector and 23 private sectors banks in India. But CSR practices adopted by
banks are not at a big level. From the above table it can be concluded that private sector banks
doing great job in the field of CSR. In the field of implementation of CSR practices in the
banking companies, Yes bank is at the top with 25th rank, HDFC bank is at 44th rank and Axis
bank is at 57th rank. Public sector banks CSR ranking is not so good out of 100 companies in the
comparison of private sector banks. But overall the public sector banks have highest contribution
in CSR activities. Private sector banks and foreign banks are still lagging in this area.

Implementation of CSR by Indian financial institutions:

In the Indian context, very little systematic documentation of CSR initiatives is available so far.
According to study done by business community foundation for TERI (the energy and resources
institute). Some of the findings of the study are as follows-

1. Serious and committed approach to CSR is increasing its reach, but there is vast ground
yet to be covered.
2. Collaboration work between Companies and NGOs is increasing.
3. Corporate are realizing that “Good for business is good business”
4. Most interventions so far philanthropic in nature, rather than strategic.

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

Constraints of CSR:
Shareholders put their risk capital in a joint stock company (or business) and therefore,
companies should be managed in the interest of the owners or the shareholders. This primacy of
treatment given to the shareholders is being justified on the grounds of ownership and
shareholding. It is felt that maximization of profits or the bottom line should be the ultimate
objective of the management. Developing corporations argued that practicing and following CSR
is matter of concern for companies having big business with lot of resources at their disposal. It
is argued that CSR is the responsibility of the politicians. It’s not business role to get involved.
Business has traditionally been beyond morality and public policy. Sometimes CSR is also
attached with the ulterior motive of the company following

Recommendations on CSR implementation:

Some guidelines as plan of action are proposed by the reserve bank of India in this aspect act.
The financial institutions have to see the environment and social sustainability of the projects of
the company, coming for financing. Social responsibility of the companies and firms should be
acknowledged. In the financial sector too there is a visible trend to promote environmentally and
socially responsible lending and investment in emerging markets therefore , financial institutions
that implements strategies incorporating environmental and social issues in lending and
investment should be able to better assess, mitigate, document and monitor risks associated with
financing and investment.

Banks should make sure that the companies for which they are financing or investing incur the
risks that the impacts due to their anti-environmental act create can be legal, financial and
reputational, and banks themselves are increasingly accountable for the effects their portfolios
have on the environment and society. The costs that can be incurred by a business operating
without regard to environmental and social issues include

 Pollution cleanup costs

 Fines
 Increased waste handling costs
 Costs from damaged assets with reduced value
 Regulatory delays
 Reduced public regard, and reduced sales

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

As an important player in the Indian economy, the banks realize that its role should
extend beyond the commercial sector to include the social sector as well. The group can
achieve its mission by supporting that are-
1. Cost effective
2. Measurable
3. Capable of large- scale replication and
4. Have the potential for both near and long-term impact

Conclusion:
Banking sector in India is showing interest in integrating sustainability into their business models
but its CSR reporting practices are far from satisfaction. There are only a few banks which report
their activities on triple bottom line principles. As a matter of fact, the standards for rating CSR
practices are less uniform in comparison to that for financial rating. This leads to problem in
comparison of corporate houses and determining the CSR rating. The study found out that
among the reporting banks also, some banks are making false gestures in respect of their efforts
for social environmental 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 don’t state how much they spend on CSR activities. Further voluntary actions are
required to be taken by the financial bodies to ensure the socio-environmental feasibility of
projects to be financed. Indian banking sector must also portray their socially responsible
behavior through integrating triple bottom line principle. Financial Institutions can do a lot to
assist efforts for social responsibility and achieve sustainability. Banks must also provide
appropriate training to its employees on environmental and social risks in lending to ensure that
climate change is taken into account in corporate banking decisions.

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CSR Practices in the banking sector-impact of its simplification of performance and image of banks.

Bibliography:

1. CSR Note for website of Bank of India

2. Sarita Moharana,(2013) Corporate Social Responsibility: A Study of Selected Public
Sector Banks in India
3. Deepika Dhingra and Rama Mittal, 2014. “CSR Practices in Indian Banking Sector”
Global Journal of Finance and Management, ISSN 0975-6477 Volume 6, Number 9,
pp.853-862
4. Richa Gautam and Anju Singh “Corporate Social Responsibility Practices in India: A
Study of Top 500 Companies”
5. www.sbifoundation.in

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