CSR of Indian Public sector Banks

The idea, Business of Business is Business, proposed by Milton Friedman in the last century, can no longer suffice to be the guiding principle for businesses in todays world, specially in emerging economies like India, where substantial population is even devoid of basic amenities such as food, shelter and clothing. The banking sector is socially significant not so much because of its own, direct social engagements, but rather due to its indirect effects through its loans and investments in other businesses. Internationally, the issue of responsible and ethical banking has gained lot of importance, several initiatives are underway, of which the overarching initiative is the United Nations Environment Program Finance Initiative (UNEP FI). Other major international initiatives include the Global Reporting Initiative (GRI), Equator Principles, Collavecchio Declaration on Financial Institutions, London Principles, etc. , which have helped in increasing the awareness levels of CSR and sustainable development among all concerned stakeholders in the banking sector. The 21 public sector banks, along with 5 subsidiary banks of state bank of India, constitute 26 banks in the public sector banking domain in India. In this article we classify current CSR practices of Indian banks on six dimensions, namely, community welfare, rural development, education, health, environment and entrepreneurship development and explore the contemporary CSR initiatives, by Indian public sector banks. Responsibility Hierarchy of Public sector Banks in India Business for Social Responsibility (BSR) defines CSR as operating in a manner that meets and even exceeds the legal, ethical, commercial and public expectations that society has of business. Figure 1, below, represents Carrolls (1991) Pyramid of Corporate Social Responsibility. It depicts and explains the broad range of business responsibilities and also suggests a hierarchical relation between them. We discuss each of the responsibility with reference to the banking sector.

Philanthropic Ethical Responsiblity

Legal Responsiblity
Economic Responsiblity Figure 1 : Carrolls pyramid of corporate social responsibility (Carroll, A.B. 1991) The economic responsibility of any business organization refers to its principal role of producing goods and services that consumers need and to make an acceptable profit in the process. It is important to be committed for being reasonably profitable, maintain strong competitive position, high level of operating efficiency and constantly be defined as a successful enterprise. The public sector banks in India are reasonably profitable, adding value to its shareholders wealth, they are also competitive with their counterparts in private sector and leads in the area of technology implementation such as core banking, internet banking etc. The Legal responsibility of any business organization refers to comply with the laws and regulations of the land, where the business operates. Society has not only sanctioned businesses to operate according to the profit motive, it also expects businesses to operate in a legally defined manner. The banks in India are regulated by the Reserve bank of India (RBI) and all public sector banks in India, maintains a high level of legal compliance in following rules, regulations and guidelines such as keeping adequate cash reserve ratio (CRR), meeting the targets of priority sector lending fixed by government etc. The Ethical responsibilities of organizations embody those standards, norms, or expectations that reflect a concern for what consumers, employees, shareholders, and the community regard as fair, just, or in keeping with the respect or protection of stakeholders' moral rights (Carroll, 1991). It refers good corporate citizenship as, doing what is expected morally or ethically and defines corporate integrity and ethical behavior to go beyond mere compliance with laws and regulations. The public sector banks in India go a long way to understand their ethical responsibilities and as a result undertake various activities as part of their ethical responsibilities for example providing technical know how and expertise to the rural clients, rural start ups, educating farmers in crop diversification etc. The Philanthropy encompasses those corporate actions that are in response to society's expectation that businesses be good corporate citizens. This includes actively engaging in acts

or programs to promote human welfare or goodwill (Carroll, 1991). Examples of philanthropy include business contributions of financial resources or executive time, such as contributions to the arts, education, or the community. Most of the public sector banks report to pursue philanthropic activities such as activities for promoting healthcare, education to the unprivileged , animal welfare etc, provision of electricity run vehicles at railway platforms for the convenience of senior citizens and physically challenged people. According to the guidelines issued by the Reserve Bank of India (RBI), banks need to integrate the concepts of Corporate Social Responsibility (CSR) and Sustainability with their business strategy. Some of the ways proposed by RBI are as follows: 1. Commitment to Sustainability: Banks must expand their missions from ones that prioritize profit maximization to a vision of social and environmental sustainability. This includes opening branches in rural area, making the financial services available to the population at bottom of pyramid (BOP), and help in achieving financial inclusion. 2. Commitment to 'Do No Harm: Banks should commit to do no harm by preventing and minimizing the environmentally and/or socially detrimental impacts of their portfolios and their operations. This includes discouraging illicit money transfers, preventing money laundering and taking due diligence in related matters. 3. Commitment to Responsibility: Banks should bear full responsibility for the environmental and social impacts of their transactions. This represents making their transactions eco-friendly by promoting usage of e banking, solar powered ATMs, reducing paper wastage and consumption. One of the examples, is paper less banking offered by State Bank of India (SBI) where any customer can bank through green channel counters' offered at many of the SBI branches. 4. Commitment to Accountability: Banks must be accountable to their stakeholders, particularly those that are affected by the activities and side effects of companies they finance. This indicates that the bank should not promote industries which create ecological imbalance in the society by destructing environment such as chopping trees at unsustainable rates etc. The public sector banks in India should consider to adopt, the Equator Principles (EPs), which are voluntary set of standards, and help in determining, assessing and managing social and environmental risk in project financing. As of now, none of the Indian bank is member of Equator Principles Financial Institutions (EPFI), which has 74 banks as its member worldwide. 5. Commitment to Transparency: Banks must be transparent to stakeholders, not only through robust, regular and standardized disclosure, but also through being responsive to stakeholder needs for specialized information on banks' policies, procedures and transactions. This requires bank to be transparent in their operation for e.g. clearly describing their policies

and charges for their banking and other related services such as charges for not maintain minimum balances in saving bank accounts, overdraft charges, loan rates etc. The public sector banks in India are generally considered transparent in their relationships with their customers. Current state of CSR in Public Sector Banks All public sector banks in India, except Punjab and Sind bank and State Bank of Patiala reports some kind of activities being pursued by them under their corporate social responsibility initiative. Figure 2, as shown below depicts the current CSR activities of public sector banks in India on six dimensions, namely, community welfare, rural development, education, health, environment and entrepreneurship development. The number with each of the activities denotes the number of public sector banks involved in those activities as part of their CSR practices. Most of the banks involve in more than one kind of activities.

Education 12 Environment Health 7

CSR
Entrepneurship

Develop.
5
Rural Develop. 12

Community Welfare 15

Image 2: CSR activities of public sector banks in India Community welfare activities are those under which the banks work for welfare of various sections of society such as Philanthropic donations, promotion of inclusive growth. For example Andhra Bank mentions of providing banking services to the common man at an affordable cost as its priority area for its CSR activity Banks working for the cause of education are those which reports to promote education at different levels (primary, secondary or higher education) such as promoting child education, girl education, sponsoring scholarships, etc. For example State Bank of Travancore(SBT) as a part of its CSR activity, recently donated a bus to Chinnamma Memorial School, Poojappura,

Thiruvananthapuram , whose keys were handed over by Mr. Pradeep Chaudhary, chairman of State Bank of India (SBI) to the school authorities. Punjab National Bank (PNB), the second largest public sector bank in India, believes in enabling talent across all disciplines as one of the most important sources of growth and progress of the country and its philosophy is to catch the young and empower them through skill enhancement. The initiatives taken by PNB in the area of education includes maintenance of Library-cum-Reading Rooms in rural areas in Punjab, M.P., Haryana, Bihar, West Bengal, Himachal Pradesh, Uttar Pradesh and Uttaranchal states. According to 2011 census, 68.84 % of the Indian population lives in rural areas, which makes rural development an area of significant consideration, especially for public sector banks as rural population generally depends on them for their banking needs. Under their rural development initiatives, the banks carry out activities for the development of rural areas such as carrying out agriculture development activities, provisioning of street lights in rural areas etc. For e.g. Central Bank of India reports to be building capacity on Micro-finance in St.Lucia in West Indies which would help in developing rural economy in West Indies. Indian overseas Bank (IOB), has established Seed Banks in various villages for the benefit of farmers. Under their health initiatives, the banks work in the area of health care for the needful such as Rural health, preventing HIV/AIDS etc. For e.g. Canara Bank organizes Health Camps, Blood donation camps etc. for the needful population. Punjab National Bank (PNB) believes that healthy mind and healthy body in a healthy environment is essential for overall growth of society and the nation and hence it invests in areas that facilitate such enhancements. As a part of its CSR health initiatives, during year 2009-10, PNB organized 131 Human Health Check up Camps, 97 Animal Health Check up Camps and 25 Blood Donation camps with the active involvement of its staff Environmental CSR activities represent those, where the bank states a policy of minimizing negative environmental impact or positively benefiting the natural environment as a part of their business practices. For e.g. not lending to industries depleting Ozone layer, adopting green banking etc. The public sector banks in India have of late started converting their operations activities into green operations. The State Bank of India (SBI) has become the first bank in the country to venture into generation of green power by installing windmills for captive use. SBI, as part of its Green Banking Policy, has set up windmills to generate 15 MW of power in Tamil Nadu, Maharashtra and Gujarat for its own consumption. SBI is also giving incentives to customers who choose green projects, i.e. those projects which reduce carbon emissions and promote renewable energy. The new Green Home Loan Scheme supports environment friendly residential projects and offers various concessionsreduced margins, lower interest rate and zero processing fee (Bihari,2011). Union Bank of India (UBI) has decided to undertake an annual

electrical energy audit to reduce its impact on environment. It has installed solar water heaters at its various facilities, as a part of its energy/emission reduction program (Bihari,2011). Entrepreneurship development activities represent those activities, where the banks work towards promotion of entrepreneurial activities or help people to set up their own enterprises for earning their livelihood. Some of the activities includes imparting technical know how, provisioning of start up capital, etc. For example Central Bank of India (CBI) has introduced a number of self employment schemes to promote employment among the educated youth . CBI is committed to generate large number of youth entrepreneur and keeps provision of credit facilities for youth entrepreneurship under MSME sector. Oriental Bank of Commerce (OBC) promotes formation of Self Help Groups, Skill Development and entrepreneurship development for inculcating entrepreneurial skills among the rural population leading to the growth of rural India. Conclusion The article gives a glimpse of some of the CSR activities pursued by the Indian public sector banks. In light of the proposed CSR bills, wherein the organizations are required to spend 2% of their average previous three years profits, there would be provision of resources for the CSR initiatives of the banks. The CSR initiatives of the public sector banks could be driving force to raise India to the league of developed nations. The Banks needs to take more efforts towards corporate governance, transparency initiatives, ethical lending. References Bihari, S.C. (2011). Green banking-towards socially responsible banking in india International Journal of Business Insights & Transformation,( 4) 1 , P 82-87 Carroll, A. B. (1991). The pyramid of corporate social responsibility; Toward the Moral Management of Organizational Stakeholders. Business Horizons, (34)4, P.42
This article is based on data, most of which is collected by the authors during August 2011- October 2011