Riyaz Ahmed Bhat
The corporate social responsibility (CSR) initiatives of various banks in India in recent past have come under serious debate. In this renewed debate the ethical aspects of Indian banks spending under CSR have come into public focus. The recent communication by CM of west Bengal to GOI to allow contributions, made by corporate, to CM’s relief fund to be included under CSR has opened a Pandora box regarding fight for slice of this cake. It is also being in public discussion whether there is need of regulating the CSR exercise involving huge cache of funds spent by the bank managements in the name of public welfare. It is a common belief that CSR initiatives are standard charitable measures undertaken by corporates to reciprocate to the expectation of society from which it receives much more than operational benefits which are beyond material consideration hence hard to be quantified. Presently in backdrop of this ongoing debate the banks may have to adhere by the principle that good corporate governance is interlinked with exercising of CSR initiatives in most ethical and transparent manner.
The emphasis laid on CSR initiatives of banks in recent past is outcome of enhanced awareness of activists amongst citizenry who have organized themselves in various pressure groups to extract a major share out of the cake for the benefit of their preferred class or section of population. After enactment of the legislative mechanism by the Govt of India, Ministry of corporate affairs, through section 135 of Indian companies act of 2013 all the influential people amongst population like bureaucrats, politicians, social activists or community leaders have found an easy way to enhance their public image through influencing of corporate spending of the banks under CSR responsibility. Such a situation has lead to banks lagging in having a well defined CSR policy which should ensure the proper and scientific approach in spending of funds under CSR so that population at large could be benefitted from these initiatives. The board of any bank under sub section (3) of section 134 of ICA has to disclose the composition of CSR committee and this committee will have to formulate a CSR policy for the bank. Complying with this direction some banks have formulated well defined guidelines for spending of funds under CSR but in some cases particularly Public sector banks the rules are often bent to accommodate certain requests from influential quarters. In such a scenario the demand for transparent and regulated framework for spending of CSR funds is more justified.
To study the essence of CSR in Indian context one has to take into account that banks operating in India though work as business enterprises yet enjoy so many privileges and lot of goodwill from the environment of citizenry within which it operates. Hence it is incumbent on any bank to reciprocate this goodwill by spending a fraction of its profits for over all benefit of society. There are no concrete guidelines from RBI or ministry of corporate affairs except the section 134 and 135 of ICA 2013 which deals with quantification and activities to be undertaken under CSR. The law prescribes that minimum of 2% of average net profit of preceding three years is to be spent for CSR initiatives during the year. Regarding the activities to be undertaken with this amount most of the times banks in their own wisdom contribute towards providing for purchase of machinery for healthcare, basic amenities for travelers using public transport or taking on encouragement programmes of arts and culture. In terms of legislation the local area where the bank operates has to be given preference in terms of sponsoring the projects. This is done in the interest of overall society and its members. Yet sometimes it has been observed banks have been sponsoring private concerts in the name of art and culture, financing healthcare machinery in the name of public health and developing playing fields like Golf Courses for elite class in the name of sports to spend the CSR funds resulting in generating of ill will from the common masses instead of goodwill expected from such initiatives. In light of these happenings the allotment of spending of CSR funds to the wisdom of Executives of banking industry has not been a good experience. Of late, to avert controversies, some banks have opted for engaging of several firms or NGOs or social enterprises to run CSR initiatives funded by them. This experience by the banks has allowed them to professionally tackling of the issue and spending the funds in an efficient manner benefitting the target groups of the population. Sideways this practice has encouraged a mushroom growth of social enterprises who are interested to run the CSR initiatives on behalf of corporate. Somehow certain banks are still regulating the spending on CSR initiatives through their in-house mechanisms and it is here the conflict of interests have been surfacing. In this in-house mechanism the funds have been reported to be spent on the initiatives where influential individuals or groups including politicians, social activists have been making hay on bank spending in the CSR segment.
The CSR funds if seen in right perspective are a cess imposed on profits, by a legislative action of the Govt., to be used for public welfare. In this backdrop the Govt has allowed the contribution made to PM relief fund to be included in CSR funding. If observed and analysed progressively it will be factually correct to state that the CSR funding of banking may collectively add up to several thousand crores hence such huge funding has been attraction of several sections to initiate the steps for public welfare to further their own individual standing in society. However it may be correct to note that if these funds are spent with a professional approach they will not only deliver results for public welfare but also add to efforts of banks in furthering their business interests. In this direction various suggestions regarding utilization of this corpus were mooted out by experts from time to time. One such suggestion which was forwarded to RBI and GOI, by renowned economist and former J&K minister Dr. Haseeb Drabu, included funding of rehabilitated loan exposures of banks, hit by natural calamities or social strife. Surely such an inclusion would not only help in encouraging an honest repayment culture necessary to reduce default trend in credit exposures but also will generate enormous goodwill in favour of banking in General population. Furthermore, the corpus could be used for funding of already prescribed activities under CSR initiatives. This is going to help in regulation of spending of these funds in a transparent way having least chances of manipulation by vested interests. The activities could include projects like imparting financial education and skill development helping in acquiring sustainable livelihood for masses. The undertaking of these types of projects can be useful in increasing the business for the banks by lending to viable projects of budding entrepreneurs nurtured under these CSR initiatives thus helping in national economic development of the country.
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