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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015 ROLE OF CORPORATE SOCIAL RESPONSIBILTY IN INDIAN BANKING SECTOR DR . SIMRAN JEWANDAH Associate Professor , Rayat Institute ofManagement,Railmajra, Distt. S.B.S. Nagar ABSTRACT A growing body of evidence asserts that corporations can do well by doing well. Well-known Banks have already proven that they can differentiate their brands and reputations, as well as their products and services, if they take responsibility for the well-being of the society and environment in which they operate. The Banks are practicing Corporate Social Responsibility (CSR) in a manner that generates significant returns to their businesses. This Study investigates the relationship between corporate social responsibility (CSR) and Indian Banking sector. Specially, we examine the effects of Corporate Social Responsibility (CSR) programme focusing on reputation, competitive advantage, risk management, employee performance and retention, government and regulatory impact and community involvement taken by the Indian Banking Industry, which can help them to enhance their overall performance. The objective of the research is to establish the key issues that the banks consider in embarking on their CSR programme within the social setting of the Indian banking sector. The analysis would be based on the sample drawn from ICICI Bank, HDFC Bank and Citi Bank. Key Words- Corporate Social Responsibility, Competitive Advantage, Banking Sector Environment, Performance and Risk management. INTRODUCTION Corporate Social Responsibility World Business Council for Sustainable Development defines Corporate Social Responsibility (CSR) as “The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.” The European Commission advocates CSR as “Being socially responsible means not only fulfilling legal expectations, but also going beyond compliance and investing more into human capital, the environment and relations with stakeholders.” Warhust (2001) points out, the three major elements of CSR are product use which focuses on contribution of industrial products which help in well being and quality of life of the society, business practice which focuses on good corporate governance and gives high impetus for the environmental well being and equity which tries for distribution of profits equitably across different societies especially the host community. According to Business for Social Responsibility (BSR), corporate social responsibility is defined as“achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment.” McWilliams and Siegel (2001:117) describe CSR as “actions that appear to further some social good, beyond the interest of the firm and that which is required by law.” A point worth noticing is that CSR is more than just following the law (McWilliams & Siegel, 2001). Alternatively, according to Frooman (1997:227), the definition of what would exemplify CSR is the following: “An action by a firm, which the firm chooses to take, that substantially affects an identifiable social stakeholder’s welfare.” A socially responsible corporation should take a step forward and adopt policies and business practices that go beyond the minimum legal requirements and contribute to the welfare of its key stakeholders. CSR is viewed, then, as comprehensive set of policies, practices, and programs that are integrated into business operations, supply chains, and decision-making processes 8

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015 throughout the company and usually include issues related to business ethics, community investment, environmental concerns, governance, human rights, the marketplace as well as the workplace. Corporate social responsibility (CSR) is also known by a number of other names. These include corporate responsibility, corporate accountability, corporate ethics, corporate citizenship or stewardship, responsible entrepreneurship, and “triple bottom line,” to name just a few. As CSR issues become increasingly integrated into modern business practices, there is a trend towards referring to it as “responsible competitiveness” or “Corporate sustainability.” The World Business Council for Sustainable Development has described CSR as the business contribution to sustainable economic development. Building on a base of compliance with legislation and regulations, CSR typically includes “beyond law” commitments and activities pertaining to: • Corporate governance and ethics; • Health and safety; • Environmental stewardship; • Human rights (including core labor rights); • Sustainable development; • Conditions of work (including safety and health, hours of work, wages); • Industrial relations; Responsible business is good business “We are committed to creating economic value, but we are not indifferent to how we do it. ... Progressive businesses are gaining competitive advantage by responding to societal signals. ... We prosper by helping society to prosper.” Idar Kreutzer, CEO Store brand, 2005 There is growing recognition of the significant effect the activities of the banking sector have—on employees, customers, communities, the environment, competitors, business partners, investors, shareholders, governments and others. It is also becoming increasingly clear that banks can contribute to their own wealth and to overall societal wealth by considering the effect they have on the world at large when making decisions. Business opinion polls and corporate behaviour both show increased levels of understanding of the link between responsible business and good business. Also, investors and banks are beginning to see that CSR activities that integrate broader societal concerns into business strategy and performance are evidence of good management. In addition to building trust with the community and giving firms an edge in attracting good customers and employees, acting responsibly towards workers and others in society can help build value for firms and their shareholders. ROLE OF CSR IN INDIAN BANKING SECTOR Banking Sector- Banking sector is considered to be a very indispensable part of our country. Banks act as a medium for the transfer of resources from net savers to net borrowers. It is a major source of longterm funds of the economy. The Government of India, in order to provide adequate supply of credit to various sectors of the economy, has evolved a well developed structure of banks in the country. At the national level, they provide long and medium term loans at reasonable rates of interest. They subscribe to the deposits, loans, cash payments, guarantee loans and deferred payments, mutual funds, insurance etc. In the Indian context, very little systematic documentation of CSR initiatives is available so far. Banks are beginning to recognize that they have a social responsibility to fulfill as they emerge from the shadow of traditional banking. Responsible banking is the new approach born out of the new market realities. Banks need to examine the effects of their lending and investment decisions. Banking and finances immediate environmental and social impacts are relatively low because most of those impacts 9

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015 are delivered through the activities of other businesses that rely on financial institutions – the businesses in a loan or investment portfolio. However, despite the relatively indirect nature of their environmental and social impacts, banks need to examine the effects of their lending and investment decisions. Incorporating environmental and social criteria into business decision-making can reduce the impacts of operating activities. 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 acts create can be legal, financial, and reputation, 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 clean up costs • Fines • increased waste handling costs • Costs from damaged assets with reduced value • Legal claims • Regulatory delays • reduced public regard, and reduced sales The risks that often get transferred to banks include: • increased loan defaults • decreased value of investment and loss of collateral due to decreased asset values • Liability for damages arising from negligent investment advice • Loss of reputation and standing as a result of association with polluting businesses 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. It, therefore, aims to participate in the all round development of the country by focusing on some of its fundamental needs. The Bank seeks to perform this role primarily as a funding agency, through a dedicated not-for-profit group, the Social Initiatives Group The changed economic climate in India, with a greater emphasis on the market, requires an informed and participatory socio-economic order. As a large participant in the financial system, it lies in the longer-term interests of the Bank to actively contribute in bringing the above to fruition. THE KEY ELEMENTS OF CSR IN INDIAN BANKING SECTOR 1. Reputation 2. Risk Management 3. Employee Satisfaction 4. Innovation 5. Access to Capital 6. Competitive Advantage Reputation Reputation is critical to the survival of businesses which have few physical assets, such as in the Banking sector where customers are frequently buying based on values and judgments (ABI, 2004). Trust is a key element in the sector, because the product is intangible and customers can not ‘see’ or ‘test/try’ it (BITC, 2002). CSR presents a platform for organization to influence the perception of their stakeholders through dialogue and continuous engagement. Engagement in CSR also enhances a company’s tendency toward transparency and integrity in business operations and stakeholders’ relationships, which has a positive impact on reputation. Risk Management Risks can be described as uncertainty, which can either be a source of threat or opportunities. Management of risks focuses on reducing the negative impact of uncertainty (threats) and/or harnessing 10

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015 the positive impacts (opportunities). Financial institutions cannot be successful if risks are ignored and understanding risk is essential to managing its various elements to ensure that shareholder value is maximized (ABI, 2001). There are various forms of risks that the banking sector is exposed to, some of which are: regulatory/legal risks, reputation Risk, credit risks, social risks and human capital risks. These risks arise as part of the business operations or strategic stakeholder relationships. These risks have some CSR connotations and can be effectively managed in an organization where CSR is effectively deployed. Embedding the key principles of CSR can help banks better identify, evaluate and manage these risks and possibly convert some into viable business opportunities. Employee Performance and Retention The nature of business in the banking sector necessitates a heavy reliance on human capital thus creating an atmosphere of ‘war’ for talent as a key competitive factor for business success; banks must therefore ensure that employees are attracted and retained. An inherent challenge in banks is that the sector has been traditionally regarded as a male dominated sector, thus making the issues of Diversity and Equal Opportunities critical. Diversity, which has its roots in non-discrimination on the basis of race or gender; Equal Opportunity in employment and advancement are fundamental paradigm to ensure business success in a global world (ABI, 2002). Employees should be trained and given chance to improve and enhance their skills. The CSR initiatives engaged by most banks are focused on addressing these challenges to ensure employee satisfaction and improve productivity. Competitive Advantage According to Marcel Ospel (2001), in an article titled “Corporate Responsibility as a factor in business success”, “a company, through good corporate governance will find its stock more attractive to investors. An asset manager who takes account of environmental Criteria will attract additional assets and a financial institution that has a strong stance in corporate responsibility will attract top talent” (Ogrizek, 2001). These are key contributors to competitive advantage. Government and regulatory impact The role of regulation in driving CSR and shaping the banks for CSR within the sector is a significant factor as the sector is one of the highly regulated sectors of the economy. Jeucken & Bouma have illustrated in their work that governmental policy is an important factor in designing the context that shapes some of the actions taken by the banking sector (Jeucken & Bouma, 1999). The CSR Triangle According to Archie Carroll (1999) (as illustrated in his CSR pyramid adapted below), corporations need to satisfy the Economic (“be profitable”) and Legal (“obey the law”) dimensions as a priority before moving on to the Ethical (“be ethical”) and Philanthropic (“be a good citizen”) dimensions of society’s expectations of business

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015

Ethical

Legal

Economic

Philanthropic

Figure 1: Adapted from Carroll’s model of CSR Community involvement For banks to effectively position themselves to ward off or reduce undue regulatory pressure and increase the likelihood of self-regulation, they have to understand the prevalent issues of the stakeholder groups and be able to influence institutions and their interests. In what has become a classic, Baron (1995) proposed that robust corporate strategies should incorporate elements of the market and nonmarket environments, respectively. LITERATURE REVIEW Almona (2005) found out that although banks were eager to engage in CSR, they are not proactive about addressing the relevant issues; thus merely reacting as issues arise. The study suggests that they may not derive adequate value for themselves or stakeholders Hohnen (2007) stated that businesses and organizations interested in implementing a CSR approach will use guide as a point of departure for CSR design and implementation. The complementary actions of all sectors of society—governments, nongovernmental Organizations, citizens and others—are also necessary. Vivek &. Sahay (2005) found that Companies have started reporting their CSR activities in their annual reports along with the financial results. They have understood it well that, financial performance is entwined with good social and environmental performance. However, there still is not sufficient literature to understand the symbiotic relationship between economic and social performance. Pohle & Hittner (2006) observed that Corporate Social Responsibility is the way Companies manage their businesses to produce an overall positive impact on society through economic, environmental and social actions. Well-known companies have already proven that they can differentiate their brands and reputations, as well as their products and services, if they take responsibility for the well-being of the societies and environments in which they operate. Tsoutsoura (2004) defined that corporate social responsibility (CSR) has grown exponentially in the last decade. this study explores and tests the sign of the relationship between corporate social responsibility and financial performance. The dataset includes most of the S&P 500 firms and covers the years 1996-2000. This indicates that the sign of the relationship is positive and statistically significant; supporting the view that socially responsible corporate performance can be associated with a series of bottom-line benefits. 12

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015 METHODOLOGY Problem: What is the role of CSR and Indian Banking Sector? Research Design: The functions of a research design are basically to provide appropriate direction for the research, to define the boundaries of the research, to focus the research efforts in a specific direction and anticipate potential problems in the implementation of the enquiry. The design of the study is qualitative research. Data collection: Primary data has been collected for the study. These include desk review of publicly available information, face-to-face interview, on-site observation and documentation. Interviewing will be the main tool for data collection and the questions will be designed as semi-structured having clearly defined purpose with some degree of flexibility in the wording and ordering of the questions. Database: For our research purpose we selected ICICI Bank, HDFC Bank and Citi Bank The sample size of 200 employees from ICICI Bank, HDFC Bank and Citi Bank has been considered. The Objectives of the study is two fold, first is to establish the key issues that the banks consider in embarking on their CSR programme and also to interpret the managers’ perception of the meanings embedded within the social setting of the Indian banking sector. Second is to find the impact of Corporate Social Responsibility on Indian Banking Sector. ANALYSIS OF PRIMARY DATA

Scale

Reputation 140 120 100 80 60 40 20 0

Agree Neutral Disagree

Trust

Brand image. Transparency and integrity

Goodwill

Parameter

Figure- 2. Reputation In case of reputation majority of managers agree to the fact that brand image, goodwill and trust plays major role rather than transparency.

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015

140 120 100 80 60 40 20 0

Agree Neutral

Innovative compliance strategies

Strong stance in corporate responsibility

Greater flexibility

Disagree

Focus on environmental criteria

Scale

Competitive Advantage

Parameter

Figure 3- Competitive Advantage While considering competitive advantage the majority of managers lay focus on strong stance in corporate responsibility and greater flexibility rather than innovative compliance strategies.

140 120 100 80 60 40 20 0

Agree Neutral

Personal Growth

Work profile

Training and development

Gender Equality

Diversity

Disagree

Employee satisfaction

Scale

Employee Performance and Retention

Parameter

Figure 4- Employee Performance and Retention In case of Employee performance and retention job satisfaction plays an important role along with chances for further growth while diversity is given the least importance.

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015

200 180 160 140 120 100 80 60 40 20 0

Agree Neutral

Financial risk

Human Capital risks

Business/ Commercial risks

Disagree

Regulatory or Legal risks

Scale

Risk Management

Parameter

Figure 5- Risk Management While going in for risk management the business risk, financial risk, and legal risk have major impact rather than human capital risk.

Community Involement 200

Scale

150

Agree Neutral

100

Disagree

50 0 Stakeholder groups

Public institutions

Government

Media

Parameter

Figure 6Community Involvement The government, media and public institutions are highly involved in community welfare rather than the stakeholders group.

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015

180 160 140 120 100 80 60 40 20 0

Agree Neutral

Philanthropic Dimension

Ethical Dimension

Legal Dimension

Economic Dimension

Disagree

Governmental policy

Scale

Government and Regulatory Impact

Parameter

Figure 7- Government and Regulatory Impact Legal Dimension, Governmental policy, Ethical Dimension are mainly focused on rather than the Philanthropic Dimension on the overall government and regulatory polices. FINDINGS  While considering reputation brand images plays a major role and banks need to focus on goodwill and trust while considering CSR activities in banks.  Banks need to focus on increasing corporate responsibility to gain competitive advantage.  . Employee satisfaction greater stances on personal growth help the banks to employee performance and retention.  Banks should consider financial risk along with legal while considering the overall Risk associated with banks.  Banks could stimulate participation of stakeholders group along with public institutions while considering community involvement in case of CSR.  The legal environment along with ethical dimension has to be kept in mind while framing the governmental and regulatory impact of CSR. CONCLUSION The banking sector is constantly under the media spot light and increasing pressure to behave responsibly in its business transactions. CSR appears to be a growing risk management and trust engendering factor for the sector. The research was conducted using the qualitative research methodology, with a preference for the interview method due to the high depth of personal experiences, opinions, attitudes and beliefs required for a social research such as this. To provide a context for the research, the CSR practices of these three banks were reviewed to establish the degree of similarity and/or differences. It was found out that there is a high level of similarity in the policies and programme of the banks focusing on the same issues such as reputation, competitive advantage, employee performance and retention.

REFERENCES-

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH VOL : 6, June , 2015 Almona Peace Chinyere (2005), “A review of the business case for corporate Social responsibility in the financial services sector”. Bonifant et al, (1995), “Gaining competitive advantage through environmental investments”, Business Horizons 38 (4), 37-47 (July-Aug 1995) Bhattacharya, C.B. & Sen., S. (2004). Doing Better at Doing Good: When, Why and how Consumers Respond to Corporate Social Initiatives. California Management review, vol. 47, No. 1, Fall 2004 Burke L & Logsdon J. (1996),”How Corporate Social Responsibility Pays Off, Long Range Planning”, Vol. 29, No. 4. pg 495 – 502 Gonzalez M & Guerrero M (2004),”New competitors in banking services”, Journal of Financial Services Marketing,. Vol. 9, 2.pg 126 – 137. Henry Stewart Publications, Dec 2004. Tsoutsoura Margarita (2004), “Corporate Social Responsibility and Financial Performance”, Applied Financial Project at Haas School of Business University of California at Berkeley, March, 2004 McWilliams, A., and D. Siegel (2000) “Corporate social responsibility and financial performance: Correlation or misspecification?” Strategic Management Journal, 21 (5): 603-609 McGuire et al. (1988); Corporate Social Responsibility and Firm Financial Performance, The Academy of Management Journal, 1988, Vol 31, pp 854-872 Pohle George and Hittner Jeff(2006),” Attaining sustainable growth through corporate social responsibility”, IBM Global Business Services Singh et al, 2001. Selling sustainable success: a guide to corporate responsibility for consulting and professional services firms. International Business Leaders Forum (IBLF), October 2001 Warhust, A. (2001). “Corporate Citizenship and Corporate Social Investment: Drivers of Tri-Sector Partnerships”, Journal of Corporate Citizenship, Spring, pp 57-73.

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