Corporate social responsibility role of banks

CORPORATESOCIAL

RESPONSIBILITY-ROLE OF BANKS

PRESENTATION MADE ON 16TH JAN, 2015 AT INSTITUTE OF COMPANY SECRETARIES OF INDIA ( CCGRT) MUMBAI

Dr. RAJEEV BABELACS, MBA, PH.D, LLB, AIIB,

M.COM, DBM, DFS, D T&D

Mail: [email protected]

INTRODUCTION Good Corporate Governance and Corporate

Responsibility towards society are so inextricably interlinked that we cannot separate one from the other.

If providing good governance to its stakeholders and the society at large is what is expected of a corporate, it is because it receives so much from the society that it is only appropriate that the corporate gives back to it at least something in return in the form of good governance.

It is thus understood that good corporate governance itself is part and parcel of corporate responsibility to society

MEANING OF CSR Corporate social responsibility (CSR, also called

Corporate Conscience, Corporate Citizenship or Sustainable Responsible Business) 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 . With 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 stake holders including consumers, employees, investors, communities, and others.

MEANING OF CSR … The acronym CSR is made of three words

i.e. Corporate, Social and Responsibility. • Corporate: Corporate citizenship doing

business for wealth creation. • Social: Sustainable development i.e

taking care of the People, Planet and Profit.• Responsibility: Accountability between

the two i.e. having a balance between the wealth creation by exploiting the natural and societal resources and providing employments generation and welfare activities for the society at larger.

MEANING OF CSR … Gone are the days, when it was believed that ‘ The

business of business is business’. Now the business (activity) of business (trading/

manufacturing/ service) is not only the business (wealth creation) but it has to take care of the sustainable development too.

Thus, sustainable business success and shareholder’s value cannot be achieved solely through maximizing short-term profits, but instead through market-oriented yet responsible behaviour.

Thus, CSR is operating a business in a manner which meets or excels the ethical, legal, commercial and public expectations that a society has from the business.

CSR UNDER LEGISLATIVE UMBRELLA:

Under the old Companies Act, 1956, there was no provision of CSR.

However the CSR was introduced as Voluntary Guidelines in 2009 by the Ministry of Corporate Affairs (MCA).

VOLUNTARY GUIDELINES 2009

In its preamble it was mentioned that CSR is not philanthropy and CSR activities are purely voluntary- what companies will like to do beyond any statutory requirement or obligation.

To provide companies with guidance in dealing with the above mentioned expectations, while working closely within the framework of national aspirations and policies, following Voluntary Guidelines for Corporate Social Responsibility have been developed.

VOLUNTARY GUIDELINES 2009 …

While the guidelines have been prepared in the Indian Context, enterprises that have a trans-national presence would benefit from using these guidelines for their overseas operations as well.

Since the guidelines are voluntary and not prepared in the nature of a perspective road-map, they are not intended for regulatory or contractual use.

VOLUNTARY GUIDELINES 2009 …

The Core elements of CSR Policy covered the following points:

• Care for all stakeholders• Ethical Functioning • Respect for Workers Rights and

Welfare• Respect for Human Rights• Respect for Environment• Activities for Social and Inclusive

Development

CARE FOR ALL STAKEHOLDERS

The companies should respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large etc. and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.

ETHICAL FUNCTIONING Their governance systems should be

underpinned by Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive.

RESPECT FOR WORKERS' RIGHTS AND WELFARE

Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees.

They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis.

They should uphold the freedom of association and the effective recognition of the right to collective bargaining of labour, have an effective grievance redressal system, should not employ child or forced labour and provide and maintain equality of opportunities without any discrimination on any grounds in recruitment and during employment.

RESPECT FOR HUMAN RIGHTS

Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party.

RESPECT FOR ENVIRONMENT

Companies should take measures to check and prevent pollution; recycle, manage and reduce waste, should manage natural resources in a sustainable manner and ensure optimal use of resources like land and water, should proactively respond to the challenges of climate change by adopting cleaner production methods, promoting efficient use of energy and environment friendly technologies

ACTIVITIES FOR SOCIAL AND INCLUSIVE DEVELOPMENT

Depending upon their core competency and business interest, companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include education, skill building for livelihood of people, health, cultural and social welfare etc., particularly targeting at disadvantaged sections of society.

PROVISIONS UNDER THE NEW COMPANIES ACT, 2013 Section 135 deals with the Corporate

Social Responsibility. Section 135 (1) provides that every company having-

• Net worth of Rs. 500 crore or more, or• Turnover of Rs. 1000 crore or more, or• Net profit of Rs. 5 crore or more, during any financial year shall constitute

a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director

PROVISIONS UNDER THE NEW COMPANIES ACT, 2013 …

The Corporate Social Responsibility Committee shall formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

Recommend the amount of expenditure to be incurred on such the activities.

Monitor the Corporate Social Responsibility Policy of the company from time to time.

PROVISIONS UNDER THE NEW COMPANIES ACT, 2013 …

Company should spend, in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

Give preference to the local area and areas around it, where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.

If the company fails to spend such amount, the Board shall, in its report made specify the reasons for not spending.

LIST OF CSR ACTIVITIES AS PER SCHEDULE VII OF THE COMPANIES ACT, 2013

eradicating extreme hunger and poverty;

promotion of education;

promoting gender equality and empowering women;

reducing child mortality and improving maternal health;

LIST OF CSR ACTIVITIES AS PER SCHEDULE VII OF THE COMPANIES ACT, 2013…

combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;

ensuring environmental sustainability;

employment enhancing vocational skills

social business projects;

LIST OF CSR ACTIVITIES AS PER SCHEDULE VII OF THE COMPANIES ACT, 2013 …

contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and

Such other matters as may be prescribed.

CSR SPENDING AND INCOME TAX ACT, 1961

Explanation 2 to section 37(1) of the Income Tax Act 1961 states that any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to 36 or section 80G shall be allowed deduction under those sections subject to fulfilment of condition, if any, specified therein.

EVOLUTION OF CSR IN BANKS 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-69s to 1984),• Consolidation phase (1985 to 1991) and• Reforms phase (since 1992).

EVOLUTION OF CSR IN BANKS …

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.

PHASES OF CSR PRACTICES IN BANKS

The CSR phases and its development can be divided in to four phases are as follows:

• Phase I ( Till 1914): CSR motivated by charity and philanthropy.

• The oldest form of CSR was motivated by charity and philanthropy with direct influence from culture, religion, family trading and industrialization process.

PHASES OF CSR PRACTICES IN BANKS…

• Phase II ( 1914 – 1960): CSR for India’s social development.

• Dominated by the country’s struggle for independence and influenced fundamentally by Gandhi’s theory of trusteeship for consolidation and amplification of social development. Gandhi’s reform programs which included activities that sought in particular abolition of untouchability, women’s empowerment and rural development


• Phase III ( 1960 – 1980): CSR under the paradigm of the mixed economy

• The paradigm of mixed economy with the emergence of legislation on labor and Environmental standards, affected the third phase of Indian CSR This phase Is also characterized by a shift from corporate self regulation to strict legal and public regulation of business activities


• Phase IV ( 1980 & onwards): CSR at the Interface between philanthropic and business approaches

• Indian companies and stakeholders began abandoning traditional philanthropic engagement and, to some extent, integrated CSR into a coherent and sustainable business strategy, partly adopting the multi stakeholder approach

PYRAMID OF CSR

INITIATIVES TAKEN BY RBI RBI also insisted upon taking measures

for sustainable development of economy through realizing the dire necessity of CSR and issued a circular bearing No. RBI/2007-08/216 DBOD. No.Dir. BC. 58/13.27.00/2007- 08 dated 20.12.2007 on Corporate Social Responsibility, Sustainable Development (SD)and Non-Financial Reporting (NFR) – Role of Banks.

INITIATIVES TAKEN BY RBI …

CSR entails the integration of social and environmental concerns by companies in their business operations as also in interactions with their stakeholders.

Sustainable Development (SD) essentially refers to the process of maintenance of the quality of environmental and social systems in the pursuit of economic development.


Non-Financial Reporting (NFR) is basically a system of reporting by organizations on their activities in this context, especially as regards the triple bottom line, that is, the environmental, social and economic accounting (Planet, People and Profit).

The contribution of financial institutions including banks to sustainable development is paramount, considering the crucial role they play in financing the economic and developmental activities of the world.

In this context, the urgency for banks to act as responsible corporate citizens in the society, especially in a developing country like ours, need be hardly overemphasized. Their activities should reflect their concern for human rights and environment.


In this context, the need for sustainable developmental efforts by financial institutions in India assumes urgency and banks, in particular, can help contribute to this effort by playing a meaningful role.

In the circumstances, banks are advised to take note of the issues raised and consider using the same to put in place a suitable and appropriate plan of action towards helping the cause of sustainable development, with the approval of their Boards.

The progress made there under could be placed in the public domain along with the annual accounts of banks.

CSR PRACTICES IN INDIAN BANKING SECTOR

ROLE OF BANKS TOWARDS CSR

Schedule VII of Companies Act, 2013 sets out the activities which may be included in CSR and the banks in India are already working on it.

These activities include poverty eradication, education, empowering women, environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.

ROLE OF BANKS TOWARDS CSR…

After the nationalization of banks in 1969 (14 banks) and in 1980 (6 banks) the banks in India, whether it be in public or private sector domain, apart from catering the needs of big industrial houses, are also actively participating in the Priority Sector Lending ( target of which is 40% of the overall credit or credit equivalent of Off-balance sheet exposure, which ever is higher.

CATEGORIES OF PRIORITY SECTOR LENDING

Priority sector include:• Agriculture• Small Enterprises• Retail Trade• Micro Credit • Education loans• Housing loans• Finance to weaker section

OTHER DIMENSIONS OF CSR ACTIVITIES OF BANKS Financial Inclusion: Financial inclusion

means the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. It may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.

OTHER DIMENSIONS OF CSR ACTIVITIES OF BANKS -

FINANCIAL INCLUSION … The Reserve Bank had adopted financial inclusion as

one of its major projects in January 2010. Banks have been advised to devise financial inclusion

plans (FIPs) congruent with their business strategies and comparative advantages to make them an integral part of their corporate business plans.

The initiative included targets required to be set by banks for opening banking outlets, Business Correspondent (BC) outlets opened in urban locations, opening of basic savings bank deposit accounts (BSBDAs), overdraft (OD) facility availed in BSBDAs and farm and nonfarm credit such as Kisan Credit Cards/ General Credit Cards (KCCs/GCCs) transactions in (Business Correspondent – Information and Communication Technology) (BC-ICT) accounts.

PRADHAN MANTRI JAN DHAN YOJANA (PMJDY)

The objectives of PMJDY launched by the Government of India are mostly in sync with the financial inclusion objectives being advocated by the Reserve Bank. The implementation plan for PMJDY leverages on the policies laid down by the Reserve Bank under financial inclusion.

The timeline for providing banking services in villages with populations below 2,000 under the roadmap may be advanced from March 2015 to August 2015. With revised targets for opening of basic bank accounts in place, banks will have to ensure opening of at least one bank account in each household by January 26, 2015.

In addition, banks are advised to undertake financial awareness campaigns in association with IBA so as to educate customers with regard to the facilities offered under the accounts opened under PMJDY, extending PMJDY to insurance and pension.

SELF HELP GROUP ( SHG) The scheme of linkage of SHGs with banks was

launched in 1992 under aegis of NABARD with a view to combat growing problem of poverty.

The credit is not the primary objectives of an SHG. It comes into play only when the group graduates to a highly functional entity, gains ability to undertake productive and income generating activities and becomes capable of undertaking exposure to risk. SHGs are registered or unregistered small economically homogeneous and affinity groups of rural poor, voluntarily coming together for mutual benefits.

It involves 3 stages namely (a) group formation & stabilization, (b) micro credit stage and (c) micro enterprise development stage.

RURAL DEVELOPMENT The Government of India has designed

and implemented a large number of schemes for creation of employment, eradication of poverty and for ensuring overall development in rural areas. Commercial Banks are the main players in the implementation of these schemes.

RURAL DEVELOPMENT … Integrated Rural Development Programme

(IRDP) Service Area Approach (SAA) Lead Bank Scheme (LBS) Differential Interest Rate (DIR) Small Farmers Development Agency (SFDA) Marginal Farmers and Agricultural

Labourers Development Agencies (MFAL ) Farmers Service Societies (FSS) Swarnajayanthi Gram Swarozgar Yojana

(SGSY) Indira Awas Yojana (IAY) Prime Minister’s Rozgar Yojana (PMRY)

RURAL DEVELOPMENT … Pradhan Manthri’s Gram Sadak Yojana

(PMGSY) Central Rural Sanitation Programme

(CRSP) Sampoorna Grameen Rozgar Yojana (SGRY) Swajal Dhara Scheme (SDS) Watershed Development Programme Hariyali Programme People’s Planning Programme (PPP) Self Help Groups (SHGs) Vikas Volunteer Vahini Clubs (VVVs) Kisan Credit Card (KCC)

CSR PRACTICES IN BANKS We have picked up samples from Public

Sectors Banks ( SBI, BOB and PNB) and two from the Private Sectors ( ICICI Bank and Axis Bank) which are leading banks in Public and Private sector. The abstract on the CSR activity of the concerned banks have been taken from the respective Annual Reports.

SBI’S BUSINESS RESPONSIBILITY

State Bank of India is committed to: • Enhancing stakeholder’s value though

value-driven engagement. • Economic and social well-being of the

society, particularly the less fortunate and under-privileged members of the society.

• Minimize the direct and indirect impact of its operations on the environment.

SBI’S BUSINESS RESPONSIBILITY…

In order to further guide the Sustainability Development journey, the individual elements of the policy are grouped into three key pillars:

1. Social Responsibility, 2. Environmental Responsibility and 3. Economic Responsibility.

SBI’S CSR POLICY CSR was introduced in the SBI as early as 1973,

under the name Innovative Banking, covering both banking as well as non-banking activities.

The initial emphasis was on assisting groups belonging to the weaker and downtrodden sections of society by providing avenues for improvement of their economic condition.

Non-banking activities involved participation in community activities which contributed to the communal good, e.g. blood donation camps, health camps, participation in local festivals, adult literacy, tree planting etc.

As the scope of activities increased, the Bank classified these activities as Community Service Banking, through which the Bank plays the role of a responsible and responsive corporate citizen and discharges its corporate social responsibility to the community.

CSR PRACTICES IN SBI BANK’S DONATIONS: In terms of

Reserve Bank of India instructions, the Bank can sanction donations up to 1% of the previous year’s profits. Bank’s donations are classified under 2 broad categories:

1. National Donations [0.25% of profit]

Prime Minister’s National Relief Fund, National Defence Fund, Chief Minister’s Relief Fund etc. for relief / rehabilitation during natural calamities.

CSR PRACTICES IN SBI… 2. Normal Donations [0.75% of profit] Voluntary organizations / NGOs/ charitable

institutions registered as Societies or Public Charitable Trusts. It covers Health, Education, Sports and Games, Adoption of the Girl Child, Women’s empowerment, Child development, Welfare and rehabilitation of poor and handicapped Assistance to poor and under privileged, Entrepreneur development programmes , Vocational guidance, Thrust for assistance to IT education in Rural /Tribal /unreached areas, Environment protection, Adoption, maintenance , restoration of historic / heritage monuments / buildings, Assistance during natural calamities like floods/droughts etc.

CSR PRACTICES IN SBI… ADOPTION OF THE GIRL CHILD Society’s preference for the boy child has

resulted in a large number of instances when the girl child is deprived of basic facilities. In order to supplement the efforts of the Govt., to change this concept, Branches may adopt Girl Children in the age group of 6 to 14 years, who are orphans / destitute / physically handicapped / belong to poor families. A lump sum amount of Rs.3000/ to Rs.5000/- per annum is given for the child’s education.

CSR PRACTICES IN BANK OF BARODA

The Bank received the ‘Global Excellence & Leadership Award’ in the category of ‘50 most talented CSR Professionals of India’ by World CSR Congress in Mumbai on 18/02/2014.

CSR PRACTICES IN BANK OF BARODA

The Bank has established Baroda

Swarozgar Vikas Sansthan (Baroda R-SETI) for imparting free training to unemployed youth to develop their ntrepreneurial skills to become self employed.

All the Lead Districts of the Bank have an R-SETI each. About 47 such Sansthans have been established by the Bank in which more than 1,92,247 youth have been trained and around 1,20,979 have been gainfully self employed.

CSR PRACTICES IN BANK OF BARODA …

To speed up the process of financial inclusion, the Bank has also established 46 Financial Literacy Centres (FLC) across India. These centres will impart financial literacy in the form of simple messages like Why Save, Why borrow from banks, Why borrow as far as possible for income generating activities, Why repay in time, Why insure yourself, Why Save for your retirement, etc.

CSR PRACTICES IN PNB Appreciation Certificate for CSR

Activities by ASSOCHAM. Global CSR Excellence and Leadership

Awards for “Organisations with Best CSR Practices" by ABP News.

3rd Asia’s Best CSR Practices Awards- Best CSR Practices Overall by World CSR Day.

CSR PRACTICES IN PNB Punjab National Bank has been

proactively catering to the needs and aspirations of the society and small & micro entrepreneurs and youth in particular. Towards improving the livelihood of farmers, the Bank has a well defi ned set up in terms of Farmers' Training Centres (FTCs), Rural Self Employment Training Institutes (RSETIs) and Financial Literacy and Credit Counselling Centres (FLCCs).

CSR PRACTICES IN PNB… The Bank in the area of CSR, a separate

wing i.e. PNB Prerna has been set up wherein the wives of the senior officers and female employees identify the needy organisations & beneficiaries who deserve to be supported for bringing about a change in the lives of differently-abled people and also people from the lower strata of the society. The CSR activities have been decentralized to circle levels. To encourage innovative ideas, a scheme to recognise best CSR initiatives of the circles is also put in place.

CSR PRACTICES IN PNB… Apart from this, the Bank has been

performing its role by taking green initiatives. Tree plantation Drives, Energy Conservation measures and making use of Solar energy have been some programmes undertaken by the Bank in this direction.

CSR PRACTICES IN ICICI BANK

ICICI Group set ICICI Foundation for Inclusive Growth in early 2008 to build up the Group’s legacy of promoting inclusive growth

Areas of Focus: 1. Skill Development & Sustainable

Livelihoods 1.1. ICICI Foundation has launched the

ICICI Academy for Skill to impart vocational training to the youth to train about 5000 youth in its first year of operation.

CSR PRACTICES IN ICICI BANK …

1.2. Rural Self-Employment Training Institutes at Udaipur and Jodhpur. It offers short term residential training and on-location training courses in various trades. ICICI Foundation has set up satellite centers at block-levels in districts which offer vocational training in remote locations.

CSR PRACTICES IN ICICI BANK …

2. Elementary Education:2.1. School and Teacher Education Reform

Programme, Rajasthan. It has 4 key components viz: (i) Revision and renewal of curricula and syllabus for classes I to VII have been revised and new text books have been developed (ii) Teacher education and training for in-service and pre-service teachers

2.2. School and Teacher Education Reform Programme, Chattisgarh: to enable qualitative improvement in teaching-learning processes with State Council Educational Research and Training.

CSR PRACTICES IN ICICI BANK … 3. Primary Healthcare: (i) Out patient

Health Programm, Odisha and Gujarat (ii) Strengthening Convergent Action for Reducing Child Under nutrition, Rajasthan

4. Financial Inclusion: Financial Literacy Programme

5.Other Programmes: ICICI Fellows – To create a cadre of socially responsible leaders with a passion for development work in rural India. Blood Donation, Inclusive India Series.

CSR PRACTICES IN ICICI BANK … Financial Inclusion-During Fiscal year

2014 the Bank opened 317 branches in rural unbanked villages, taking the total count of branch in unbanked villages to 448. With this, the Bank has a total anetwork of 822 branches in rural areas.

The Bank has 1.8. million basic savings bank deposit account as at 31.3.2014.

CSR PRACTICE IN AXIS BANK

Axis Bank Foundation (ABF) was setup as a Public Trust in 2006 to carry out the Corporate Social Responsibility initiatives of Axis Bank. ABF has partnered with several NGOs to provide equitable education to various underprivileged individuals across 13 states of India. These programs aim at alleviating poverty and providing livelihood options for economically weak households.

ABF is also actively involved in making steps towards reversing the effects of our ecological footprint, by implementing several Sustainability Initiatives.

SUMMING UP Today the banking services are more effective in

comparison with the past and the bank have also started working towards social banking that is Corporate Social Responsibility.

After the involvement of RBI the CSR becomes the important part of Banking Sector but still more regulations and new policies are required to implement the concept of CSR in Indian Banking Sector.

RBI should made some criteria to distinguish between the banks conducting CSR practices and those not conducting, on the basis of their involvement in social banking and some percentage must be set for spending on CSR activities by all the established Banks and a proper monitoring is required by a committee on the working of Banks so that the Banks work for their profit along with contributing towards the society because

LAST BUT NOT LEAST

Corporate Social Responsibility is

just not the charity but a practical

implementation of ethical ideas

towards the society.

It is not the end It is the beginning of

CSR-Dr. RAJEEV BABEL

ACS, MBA, PH.D, LLB, AIIB,

M.COM, DBM, DFS, D T&D

Mail: [email protected]

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Corporate social responsibility role of banks