The focus of this research is in the area of corporate social responsibility within the Indian banking sector and how it affects profitability and growth. This study is highly important because enables individuals within the corporate world to adopt sustainable business practices and become more CSR sensitive by dedicating funds to this purpose. The research approach adopted in this research is adopted from CSR practices within the Indian Banking sector and the findings from this research provide enough evidence that CSR activities may hurt short-run profitability and growth but contribute a lot towards long-term profitability and growth. This dissertation recommends that all organizations should strive to implement CSR strategies within their organizations.
Background of CSR
The CSR concept has evolved slowly over forty-five years starting in 1900 but has now become a fully-fledged business phenomenon with the corporate Social Responsibility (CSR) movement becoming a common practice especially amongst corporate entities since the 1960s (Wood 703). The main aim of business ethics ensure that commercial enterprises can be able to carry out their commercial objectives in a more decent, serene, and justified way by incorporating ethics in their business programs. Corporate social responsibility is a means by which businesses get the chance not only to carry out business within legal boundaries but also ensure that aspects of morality that involve doing what is either right or wrong are also taken into consideration in the ordinary course of business (Paluszek 7-9). Corporate social responsibility manifests itself in the corporate world through charity and stewardship whereby businesses organizations help in improving the overall position of the community/society of which it is part of (Buchholtz 8).
Most of the time, corporate social responsibilities efforts target improving the lives of less privileged people within the society and also ensuring that the welfare of individuals affected by their business activities is also put into consideration ( Kytle, Beth & paramveersingh 12). Since businesses are often accused of being overly aggressive and commercially oriented it only makes sense that businesses show some sort of kindness and give back to society especially less privileged individuals within the community and those who live in the less developed countries not excluding those in industrialized nations. Activities of corporate social responsibility are usually expected to look beyond the requirements of the law go a step further and put into consideration the interest of shareholders to cater to their social and ethical concerns (Clarkson 113-115). The contemporary corporate social responsibility crusade has become so strong and all multinational corporations have put into place corporate social responsibility charters despite the scuffle amongst people and corporations that have different and contrasting concerns (Blowfield, 683: Bryson 142)
Different schools of thought have emerged and many organizations have hidden behind their arguments which are against CSR to justify their minimal involvement in corporate social responsibility concerns (Luetkenhorst, 157-159). A substantial number of specialists argue that commercial organizations must take part in corporate social responsibility because this, in turn, means that this is the only way that profit-oriented corporations can be able to achieve the desires that are intended to please the majority of the society. These experts believe that the agency theory is a theory that takes a look at the various conflicts of interest amongst people who have different interests in the same assets which are owned by corporations (Bryson 122). Managers are forced to bring into existence selfish organizations that are driven by growth and profitability because this is what they are employed to do by shareholders, this fact makes it hard for them to partially give up their intent of maximizing profits from their business activities and consequently attempt to meet the prospects of the majority/stakeholders (Buchholtz 45: Lin-Hi 231: Bartlett 36)
Other scholars of contrasting thought hold on to the fact that corporate social responsibility often prevents commercial organizations from achieving their strategic intentions by preventing commercial organizations from realizing optimal profit-making. Because businesses spend financial resources in corporate social responsibility activities instead of investing the resources back into the business, then shareholder interests are put aside to incorporate the desires of the majority (Wood 699-705). Whichever the case, it should be known that corporate social responsibility refers to the social obligation that a corporation is somehow predisposed to maintain and improve the society under which it runs its business activities as it pursues its corporate intentions (Crowther 120: Waddell 326: Saether 98)
The Indian Banking Industry overview
The Reserve Bank of India (RBI) together with the Indian government through the ministry of finance has urged all banks operating within India to incorporate aspects of corporate social responsibility into their businesses to ensure that social and environmental concerns are incorporated within their business operations. The Reserve Bank of India and the Indian government are insisting on this because putting in place corporate social responsibility programs will in the long-run benefit the business ambitions of these banks by improving the overall well being of the society and also by ensuring sustainable development practices within the country are taken seriously by other sectors within their economy. (The Indian Bank Ltd)
The RBI and the Indian government are concerned with the current environmental effects that are large as a result of activities of commercial enterprises hence, emerging calamities such as global warming and adverse climate change will eventually affect business activities in the long run. Indian banks are the source of funds that are responsible for development and industrialization in India as they finance the largest industries hence; they are directly/indirectly linked to current environment trends (Gulbrandsen 816: Eisingerich 32). Additionally, by fact that Asian corporations are turning a blind eye and underestimating the impact that they have brought to the environment which is quite dangerous and may lead to the destruction of the society and environment, and without these two there will be no business for them (Paluszek 142). The authorities believe that the excellence of environment and social systems are directly linked with business models and if Banks join in the forefront of corporate social responsibility practices, then sustainable development can become a more plausible reality in the long run thus, the recently formed private and foreign banks have complied and even went a step further to put in place active corporate social responsibility departments and charters to guide CSR activities. (Clarkson 114)
This research intends to evaluate the impact of corporate social responsibility (CSR) within the Indian banking sector and how it affects profitability and growth within the industry, with the main areas of focus being to assess whether CSR is used appropriately if it is an efficient strategy and if it is ethically being handled within the Indian banking industry.
Based on the research topic, the researcher used primary sources of information obtained from data collected from semi-structured questionnaires through telephone interviews/ email correspondence. The researcher used his discretion which enabled him to go through very large volumes of relevant data collected from primary data which formed the basis of the findings and analysis section. The research carried his research by ensuring that he observed ethical standards of scholarly work.
The corporate social responsibility movement is becoming stronger and stronger and as a result, several people in the corporate and non-corporate world have been forced to simply join the course as part of their business strategy with hopes that the long-term benefits will be very fruitful and of great reward. Although in the short run CSR expenditure often dilutes earnings by reducing gross profits, net profits, earnings per share and reduces the rate of growth of organizations because it consumes funds that would have been invested in growing the long-term benefits are numerous.
Thus from Statistics, Corporate social responsibility has entered into the global market and many multinational corporations are more vigorously adapting to these practices of corporate social responsibility. The tipple bottom line (TBL) is a set of financial, social, and environmental principles that businesses have put in place to ensure that their business models make them sustainable commercial organizations ( Saether & Aguilera 45-48). Numerous nations especially in Western Europe are now more compatible with these practices which are commonly part of the triple bottom line (TBL), which means that corporations are responsible for taking care of profits, people, and the planet simultaneously (Wood 696). Nations like Japan and North America have developed a culture of not only, overstating the importance of maximizing profits, but at the same time paying attention to the needs of the majority. In the United Kingdom and the United States particularly, corporate social responsibility is a norm and almost every multinational company originating from this country has put into place the necessary mechanisms to supports corporate social responsibility practices (Habisch, Jan Jonker &Martina 54). Corporate bodies in these regions have also ensured that some form of social accounting framework is being developed so that a socially responsible organization can be able to report some of their corporate social responsibility activities for the public to access. (Crowther 124: Hemingway 69: Prieto-Carrón 988)
The different schools of thought of CSR
The deliberation surrounding the potential of CSR and its ability to contribute positively to the process of developing both the social and commercial organizations at the same time has generated a lot of opinions and has been intense since the inception of corporate social responsibility was conceived in numerous organizations (Visser 63). Observers and experts on this topic have not come into a single agreement but rather have formed two opposing camps of optimists and pessimists (Crowther 122). The optimists hold firmly to the belief that commercial organizations have a duty and obligation to contribute to the social and economic development of the environment in which they carry out business activities. Conversely, pessimists argue that commercial enterprises have one objective and that is to make money and grow and it is not within their jurisdiction to entertain CSR activities (Habisch et al 139-141: International Business Report 161).
Optimists strongly hold on to the belief that businesses cannot separate themselves from the communities in which they do business it is hence logical for businesses to become a part of solving people and planet problems within that society (Blomstrom 169-172). Optimists see no harm if businesses decide to open schools, hospitals, and even plant trees because after all this will improve society and in the long run, a happy society means a happy business (Crowther, 115: Hedley 10).
Pessimists who are skeptical disbelieve that CSR does have the ability to decipher social problems and create a much better society and businesses at the same time. Some of their arguments first and foremost include, businesses were founded on the principle of making profits and they hence have no reason to deviate from doing this as this will compromise their ability to make profits and grow (Bhattacharya 42: Payne 290). Secondly, CSR activities are only worthwhile only if they contribute towards making the firm more profitable; pessimists do not believe that CSR contributes to the long-run success of commercial organizations as suggested by optimists, they believe CSR efforts are only short-lived (Roux 56). To support their arguments pessimists insist that the government must see to it that the society and the environment are well catered for by the taxes that they pay to the government. To pessimists, firms lack the precision and understanding to apprehend and cater to the needs of society and other stakeholders because their primary concern is to do business. (Habisch, Jan Jonker &Martina 56)
Various forms of CSR
Corporate social responsibility is not only about giving and philanthropy; organizations are expected to comply with rules and morality, be philanthropic and at the same time maintain good financial records and growth patterns. By compliance, corporate social responsibility accentuates the importance of organizations to conform to the letter of the law, notwithstanding the commercial consequences of doing so (Williams 759: Shumate 600)
. Every country has its own set of laws and statutes that govern business to business relations, person to person relationships, and person to business relationships examples may include occupational health laws and safety laws, forgery laws, industrial/labor relations laws, consumer protection laws, and many other forms of legislation. When businesses comply with laws then the outcome is that businesses are more likely to run their business smoothly and stay out of court. When businesses do not comply with the law then the most likely outcome is that they are shut down in extreme circumstances. (Ite 1-11: Maignan 457:Davis 52).
Philanthropy is another tactic of corporate responsibility that encompasses corporations to give back to the community. Philanthropy is one of the most publicized and most rewarding tactics of corporate social responsibility because it is usually taken as an act of kindness (Griffin 18). Corporations can give to society in both financial and non-financial avenues, such as donations in the form of money or materials, corporate sponsorship to sports teams, and key events such as festivals, business support, and education programs that target community members and staff volunteering for community projects (Prieto-Carrón 980). The philanthropic approach to corporate social responsibility is particularly useful when an organization wants to reach out to the people and make a visible impact that is more tangible to the eyes of the community (Holton 95).
The commercial approach to corporate responsibility emphasizes that if organizations desire to succeed in the short-term and long-term it is appropriate for them to take into consideration the environmental and social context in which the business operates. That is why Indian Banks now are aware of the fact that corporate social responsibility is not rooted only in philanthropic activities but rather, other wider considerations must be taken into consideration while developing a CSR charter (Holton 95). Triple bottom line (TBL) reporting enables an organization to capture a much wider range of organizational success, economic/commercial, environmental/planet, and social/people (Jastram 38: Johnson, 233: Jones 24).
The Triple bottom line approach is a good way of measuring corporate social responsibility because it offers a chance for the organization to report its social achievements in some form of qualitative summary (Habisch et al 124). Managers can account for non-financial indicators which are very important to the overall success of the organization. This way a commercial organization like Indian banks can successfully inform them how the needs of majority stakeholders were catered for by the company. The Triple bottom line (TBL) and sustainability reporting is hence a good way for which organizations can successfully polish their image and publicize their efforts by showing how much they care for the society at large. (Kytle & paramveersingh, 25).
CSR in India
Although India has a long way to go as compared to the U.S.A, Japan, and the United Kingdom, there are several examples of good corporate social responsibility practices going on within that country especially within the banking sector. The Punjab National Bank is one such institution that has been at the forefront of social accountability whereby, the bank has donated close to 25 million rupees which are well over 5 million dollars to the Indian Society for Educational Welfare & Economic Development (SEED), a non-government organization that is responsible for ensuring that millions of people within India have access to education and information through various education programs (Griffin 26-3: Menon 59: Frynas 590:Branco 10)
The move made by Punjab bank has enabled individuals who live within rural areas to become more aware of the financial activities of banks and hence empower them on the importance of banking. Additionally through this program, the bank through SEED has employed thousands of villagers all over 1400 villages where educational programs were carried out along Northern India (Sharp 214: Gorrod 156)). Top ranking officials from the bank have communicated through various media outlets that they are proud to be involved with the various initiatives that have been taken up by the bank with the aim of uplifting villagers within various parts of Northern India as a part of their corporate social responsibility campaign. The bank’s action to pick small villages within northern India and educate them on various aspects of financial management has been applauded by various organizations because it has resulted in empowering communities and lifting them from poverty (Habisch et al 126).
The Indian Bank Ltd for example has been at the forefront of ensuring that individuals within various parts of India voluntarily submit themselves into Blood Donation Camps (Gray 20:Korschun 141). Over the last 20 years, the bank has been recognized as one of the most respected institutions when it comes to issues of blood donations (Saether, Kim & Aguilera 67). Due to high levels of blood shortages within various parts of India, the bank has been at the forefront of ensuring that blood banks remain full of blood in case of emergencies (Joseph 94:Michael, 119). In 2007-2008 the bank was instrumental in bringing together over 7200 blood donors during the year, this fact earned the bank 3 Rolling Shields by the Madras Voluntary Blood Bank for the second decade in a row (www.karmayog.org). The bank’s efforts have been recognized by numerous individuals within the media and the government and the top manager (C.E.O) has received numerous awards. The bank has a very good image and a reputation within the community enabling it even to carry out business activities more efficiently (www.karmayog.org).
Saraswat Bank has not been left behind in this noble quest of social responsibility among businesses within the Indian Banking Industry. The bank has been instrumental in initiating cleaning programs for the village tanks within various parts of India where villagers are in search of cleaner and more dependable water sources (Maignan b 462). Since millions of individuals in India face water shortages and others face dangers that arise out of consuming contaminated water, the Bank has put in place an education program under the rainwater harvesting scheme to spread awareness on better water storage practices. This way individuals’ can be able to not only access water which is essential for life but access clean water which lessens their chances of getting the waterborne disease and other health risks that particularly affect children more (Rea 136).
Saraswat Bank has other corporate social responsibility projects underway which mainly aims at strengthening the education system within India and bringing up future generations that are aware of technology and well versed with computer systems. Due to high poverty levels in certain parts of India, it is quite hard to access computer systems and the Internet but the bank has put in place a program that can successfully provide the necessary resources to schools for them to have access to the Internet (Orlitzky, 409:Matten 100). The internet is an information superhighway and responsible for educating billions so long as they have access to it, this is why the bank has seen it is important to donate funds to various schools so that students can access information on cropping patterns, weather, finance, sports, education topics and prevailing prices of various commodities because the information is a key ingredient of empowering communities and creating a better future. (Chakraborty 56: Wubbolding 124)
Since banks all around the world and particularly India have been accused of being quite ferocious and aggressive some banks, Saraswat bank being among them, have taken corporate social responsibility to another level by directly targeting to solve the plight of its customers (Steiner 63). Due to economic difficulties and unfortunate events some customers have failed to repay their loans and hence the company has stepped forward and sanctioned waiving off loans among specific groups of customers particularly women (Sen & Daniel 159). A loan of 30lakhs was handed over to one customer who wished to pursue her faith by fulfilling the dream of mountaineering. This initiative aims to encourage and instill faith among female customers and account holders. The bank insists that it is also their responsibility to see that there is religious prosperity and fulfillment amongst its customers hence encouraging them to go mountain climbing to realize their faith. Moreover, because the bank has a lot of its business activities centered on the State of Maharashtra, the bank has decided to aid in the publication of a book that depicts the Chronology of the most influential individuals who have arisen out of the region over the years (Visser, 2007).
Example of Cadbury and W H Lever CSR in the UK.
In the UK, Cadbury Schweppes is a good example of a company that has incorporated CSR into the framework of its operations. Unlike other companies that adapted to CSR due to public and government pressure, Cadbury’s CSR was incorporated into the company by the company’s founder while the company was still young whereby its CSR program was brought forth by its founder’s philosophy that called for fair treatment of employees and philanthropy in the society at large. The company is a beverage and Snack manufacturing company that realized that to remain profitable, it required a healthy society thus back in 1879, it promoted healthy drinking of tea and coffee as an alternative to drinking alcohol that was harmful to one’s health. Hence from 1879 to date, the company has carried on with its CSR program whereby Neil Makin, the external Affairs Director notes “Today our CSR is still about this – promoting prosperous, sustainable, educated and inclusive communities because they are good for business” (Habisch et al 142). As the business environment changed, so did the CSR program of the company, thus it developed a 5-year review program whereby it would be analyzing its CSR strategy after the given timeframe. “Its CSR is based on five core fundamentals, human rights and employment standards; ethical sourcing and procurement; marketing, food and consumer issues; environment, health and safety; and community investment.” (Habisch et al 83).
Another example is the Unilever –UK, company. It has been noted that Unilever is the leading company in the UK with the best CSR program whereby after research conducted in the UK by BITC, it reported that Unilever’s CSR program produced the most effective and positive results for both the company and the community at large. Just like Cadbury’s CSR program, the Unilever CSR program is also based on a 5 year planned focus. To achieve business sustainability, the company focused on three key issues which were vital to society, they included: Fisheries, water and agriculture. The company chose the three issues as it felt they were key areas where it would make a positive influence.
Hence by doing so, the company ensures that the link between its sustainability and it operating as a going concern is always maintained. “ It focuses on, improving operating margins and increasing top-line growth, and ‘to add Vitality to life – meeting everyday needs for nutrition, hygiene and personal care with its brands to help people feel good, look good and get more out of life”. (Holton 95)
The link btw CSR and Strategic success
Business managers and experts believe that the main aim of the strategy is to a distinguish the operations of one business from the other and help it in achieving competitive edge above the rest of the competitors within the industry and hence this is why many managers believe that becoming a socially responsible company by investing in the society helps companies build good reputations and build long-term success (Bradford 230). Corporate social responsibility is therefore a key strategy which businesses can use to achieve business excellence in the long-run (Korschun 140). Corporate responsibility practices are progressively being placed on Indian Banks as part of normal business. It is becoming increasingly essential that corporate social responsibility is incorporated in every institution because it is considered as a part virtuous business management practice that also serves as a cornerstone of corporate strategy and competitive advantage (Bartlett 37). Concurrently, many Indian businesses including Banks have resorted to recognizing that corporate responsibility and business ethics play a big role in shaping brands, image and reputation which is a key part of corporate Identity (Appelbaum 290: Blowfield 518).
The banking industry in India has not been left behind and is quickly conforming to global corporate responsibility trends. Many banks are taking up corporate responsibility practices and hence are getting into programs that validate their obligation towards social and environmental performance without necessarily and negatively affecting profitability and growth. Banking institutions that have embraced corporate responsibility soon realized that instead of it being a bother it is actually a good and effective way of maintaining positive and constructive stakeholder engagement. In order to boost public images, organizations have gone further to create social charters and at the same time introduce internal frameworks under which social accountability reports can be published on a more regular basis. The Voluntary commitment by Indian banks (after being urged to do so by the government and the RBI) reflects the growing importance of CSR that the banks themselves have realized after embracing the concept (Bartlett 36-39).
Social Reporting and accounting
Corporate social responsibility experts are provided with numerous triple bottom line/sustainability reporting outlines which they normally use when it comes to accounting for corporate social responsibility activities within their organizations. the terms “social impact report, stakeholder impact report, environmental impact report, community engagement report, CSR report, sustainability report” are used by CSR experts to refer to the aspects of social accounting within organizations. The Global Reporting Initiative (GRI) is one such initiative that has been on the forefront of pushing various economies within the world including leading multinational corporations to become more responsible by offering them a more generally acceptable guideline under which organizations can report
and account for their corporate social responsibility efforts. The issue of social accounting is a very contentious one because it is very hard to quantify some elements of the triple bottom line. The Global Reporting Initiative (GRI) provides a set of Guidelines which offer specific contents which serve as indicators that basically direct a company on how to think especially when it comes to drafting/preparing social reports. (Luetkenhorst, 158)
The GRI guidelines have become quite common and many organizations worldwide have decided to standardize their social reporting to a more acceptable format and this has enabled cross comparisons within the industry to become a reality. Indian banks themselves on the other hand have not been left behind and they have taken up social reporting seriously using a social accounting format that is highly compatible with Global Reporting Initiative. In a detailed report bulleting which was circulated to all Indian banks in the fall of 2007, the Reserve Bank of India requested that all Indian banks will be required to have aspects of corporate social responsibility in their business models but at the same time ensure that all banks followed a more harmonized social accounting format (Wheeler 124). Despite the fact that there exist no mandatory legislation to govern social accounting principles the RBI insisted that relevant stakeholders within the Indian banking industry should come together and discuss social concerns and hand over their suggestions and recommendations concerning a more uniformed method of social accounting which can be put into place. Moreover the advantages of carrying out corporate social responsibility practices were highlighted additionally, industry stakeholders discussed Reporting Guidelines (GRI ‘s) and how such a framework of reporting could be incorporated within the industry to encourage more companies participate in corporate social responsibility practices which are beneficial to the society and to businesses in the long run. (Wood, 50: Wubbolding 287)
However no matter how much the Global Reporting Initiative has contributed to program within the organizations, there are a number of hurdles still in the way of accounting when it comes to corporate social responsibility activities these are: the absence of standardized or indefinite performance measuring criteria that provides reporting indicators that are similar to financial management accounting indicators. Secondly, accounting within corporate social responsibility lacks a framework that guides corporations and organization can successfully report intangibles in social activities. Since guidelines of the global reporting initiative are not enforced by law like accounting and finance laws, organizations have a choice of volunteering to conform to them or use other social accounting frameworks, this fact has made it hard to compare performance within the industry and different organizations in particular.(Blomstrom 2010:Davis 56)
Finding and Analysis
How CSR expenditure affects profitability of Indian Banks
According to data available from the National Punjab Bank which was collected by the help of the semi structured questionnaire that was approved by a manager who took part in filing the questionnaire, the following portion of the income statement suggests that CSR expenditure is subtracted from organizational profits therefore diluting the earnings of the bank therefore reducing the level of profits. This fact means that besides the reduction of profits, earnings per share (EPS) of the bank also reduce significantly. The manager was part of the respondents explained that this effect is only visible in the short-run and the bank saw a rise in the number of accounts opened and customer turnout in periods following community based CSR projects. Although CSR activities in India are voluntary an expenditure of $ 1.2 by the bank would have been enough to invest in new branches and expand their business ambitions but the bank sees this as a worthwhile expenditure equating its returns in the long-run similar to advertisements and promotions.
The National Punjab Bank
|ITEM||Gross profit (2010)||Net Profit (2010)|
|Profitability before CSR expenditure||$ 5.649 Billion||$ 882.4 Million|
|CSR expenditure(executed)||$1.2 Million||$1.2Million|
|Profitability after (CSR expense)||$5.648 Billion||$881.2 Million|
Figure 1. An extract of the National Punjab bank indication how CSR activities affected their profitability.
From the above illustration it is clear that CSR expenditure of the National Punjab bank which was in the tune of 55 million rupees dilutes the profits of the organization and also dilutes the earnings per share of shareholders. There are a number of reasons why Indian banks have decided to dedicate a lot of time in developing corporate social responsibility strategies within the banking industry since it is believed that not only corporate social responsibility and sustainable business has became a global trend but rather because of the benefits/advantages arising out of it. When banks initiate CSR programs they are in turn investing in the present and future though the only opposition to CSR activities is that it impacts negatively on short-run profits and growth ambitions due to the fact that it adds expenses to a companies income expenses nonetheless, the truth is that it actually in turn increases the chances of the business to survive and stabilize its business model in the future.
According to the 48 questionnaires containing four questions which were distributed equally among all banks which were filled by employees of the Punjab bank, Saraswat bank and the Indian Bank ltd. 92% of the employees insisted that CSR was very important and directly linked to profitability and long-term growth, 5% echoed their sentiments stating that CSR was a waste of time and expensive thereby diluting profits and earnings per share while lastly 3% of employees were not sure as to the benefits of CSR.
Out of all the respondents 90% of them stated that they were aware that their institutions took part regularly in CSR activities and that this made them proud to be associated with changing the society. Out of those who agreed that CSR was good and that it contributed tom overall success of the organization, a high percentage of them 40% insisted that an improved image and good reputation was the most important benefit of CSR that assisted it contributing to long-term growth and profitability. 20 percent of them insisted that a good relationship between business and society brought about by CSR activities was a key contributor of future success and profitability. A good 15%, 10%, 10% and 5% believed that long-term profitability and growth could be linked to human resource benefits, saving costs in the long run and stimulated growth and creativity respectively that usually are as a result of CSR activities.
How CSR activities will long-run profitability and growth within Indian Banks according to respondents
According to data collected by the semi-structured questionnaires, bank officials of the 3 banks suggested that they are optimizing the long-run growth and profitability that comes about as a result of CSR activities some of these benefits of CSR are discussed below and are guided by the responses of the primary data which came from the questionnaire.
Human resource benefits contributing to profitably and growth in the long run
CSR is responsible for upsurges in employee self-esteem, organizational motivation, devotion, high retention rates that reduce employee turnover and even increased performance. Among the reasons that the stakeholders in the Indian banking industry have voluntarily submitted their will to develop corporate responsibility strategies and charters is because studies from other nations such as Japan have indicated that due to Japan’s fully-fledged corporate social responsibility culture, has resulted in improved employee performance. Corporate social responsibility efforts that are carried out periodically by employees are good because it helps employees to build a sense of identification which in turn is transposed unto the organization. Employees, therefore, see their employer as some sort of hero who reaches out to society giving the employees a purpose in life. Human resource managers and psychologists have found out that the majority of employees within organizations are more proud of their organizations especially if their organizations take seriously issues concerning ethics and corporate social responsibility.
When employees are part of an organization’s corporate social responsibility efforts and sustainable business practices, then employees are more likely to develop a sense of trust and allegiance towards the organization. This is hence one of the reasons why the Indian banking industry has decided to step up sustainable business practices within the Industry. When employees are happy and have developed a bond or a sense of trust with their organization, then they are more likely to perform their duties more efficiently and hence increase the quality and quantity of work that they perform within the organization. The high levels of employee morale, performance together with reduced employee turnover arise thus workers become more proud and satisfied in the achievements that they experience especially in the course of volunteering on the behalf of the organization. Employees are often more concerned about the new skills and opportunities that they realize particularly in the field during social corporate activities and in turn export these new skills into their various workstations which helps in improving their performance when executing their duties. Indian banks such as the bank of India limited have encouraged employees to volunteer and inform society on the importance of donating blood and gather troops to go and donate blood to such a cause. Where corporate organizations support employees volunteering in the organization, it sends a clear message of how much the organization cares about them.
Thirdly, corporate social responsibility activities offer an avenue under which organizational, members can be able to develop additional skills and experience because many corporate social responsibility programs developed by organizations targeting the community require human involvement and interaction which normally assists in helping employees gain more skills. It is evident that when employees get the opportunity to volunteer then their involvement and efforts assist them towards increasing their competencies. The nature of volunteering in a social setting ensures improvement in their teamwork skills, additionally, employees also become much better planners and communicators. Volunteer work can be equated to projects this fact means that employees become well in project management which is a very important skill, especially while working for the organization. When an organization hands the entire decision-making process during volunteering, employees usually end up becoming better managers, problem solvers, and more efficient in carrying out their duties. The skills gained by employees, in turn, cultivate a culture of innovation and creativity within the organization thus enabling employees to improve the way they carry out official duties within various functional areas within the organization.
Virtuous corporate social responsibility programs initiated within the organization can also be credited for healthier human resource departments. Many human resource advantages normally arise out of taking part in CSR activities. A manager indicated that employees also move around searching for certain qualities in their prospective employers and this fact, therefore, adds weight to the fact that employees prefer to work for socially responsible organizations Companies are often finding the process of acquitting and recruiting employees very tiring, many organizations also find it challenging to retain their best employees additionally as the job market becomes more complex, talented individuals normally opt to work with organizations that are known to have a good track record as far as business ethics is concerned.
Accomplished workers will always be on the move from one organization to another if they feel that their current employer is not sensitive enough when it comes to paying attention to corporate social responsibility practices. There is clear evidence that prospective and current employees either consciously or subconsciously make the link between their employer’s action and business ethics and when employees fail to meet their expectations then they most likely become demotivated.
The global academic community has got Students now even more interested in corporate social responsibility and business ethics in the commercial environment hence the actions of the worlds leading organizations are now under the microscope and they are expected to give back to society and not damage the society by adapting to nonsustainable business activities. The students of today are the professionals of tomorrow this fact simply means that if organizations are singled out by future generations as socially irresponsible due to incompatible business practices then the likely hood of them acquiring highly talented individuals in the future becomes harder for them and this will affect their future business stability. It is hence necessary that Indian banks understand and comprehend that if they resist putting in place sustainable business procedures and mechanisms, they are headed for doom in the future.
Corporate social responsibility is also highly advantageous because it develops an avenue under which organizational members can work together and develop their Team working Culture. Volunteering especially in course of CSR programs can bring employees from very different heterogeneous backgrounds and enable them to work with a particular objective in mind for the good of the organization. Group activities offer an avenue under which employees can bond with each other and also understand the various pressures that can arise especially in the course of carrying out business within the organization. This technique is particularly good for newly-merged organizations departments within organizations because it assists in the process of understanding each other and solving problems within organizations. On occasions whereby staff has limited knowledge about each other, it becomes easier for conflicts to arise in the ordinary course of business and this ultimately affects the corporations such as Indian banks negatively. Alternative teambuilding mechanisms can often be very expensive and take a long time to bear fruit but volunteering employees together help build friendships and familiarize employees with each other much faster. Henceforth Corporate social responsibility programs that involve volunteering offer a very lucrative means under which organizational leaders can develop training and development programs that strengthen teams within the organization.
Human resource experts from the Punjab bank insisted that they can analyze field reports of volunteering activities and as a result use this as a basis by which the organization can be able to cater for the training and development needs. In the ordinary course of business, it can become very hard for human resource managers to track the needs of employees due to the routine nature of the work but when their volunteering performance is analyzed, various gaps in their skillset can be identified and the necessary programs developed to make them better employees. Volunteering activities can be developed in such a way that their creative/critical thinking, problem, communication, teamwork solving, and are tested and developed at the same time. Because volunteering most of the time requires employees to think out of the box and even operate outside normal organization guidelines, it provides a simple way for which employees can be able to grow and learn. The Indian banking industry has therefore discovered that corporate social responsibility activities are good because they assist in the process of developing all-rounded employees that are not only perfect while at their desks but also good when it comes to fieldwork this way employees can be able to think outside the box when they come across hard nuts to crack when in the workplace do to the fact that the organization’s human resource department would have prepared them.
Saving costs in the long run
Secondly, data collected suggests that corporate social responsibility strategies help an organization achieve cost benefits and save on funds in the long run. When organizations can see to it that the labor force is working at optimum levels, then opportunity costs that arise out of absenteeism and high staff turnover drastically fall as a result. Improved levels of motivation within the organization bring’ up output and reduce wastage of resources. The ultimate expense that an uninformed organization is to pay for ignoring the welfare of the society is business closure and hence it is justifiable if organizations pay more attention towards ensuring that they implement proper business sustainability initiatives to cater to their business continuity concern.
Improved Image, Reputation
Among the biggest advantages of participating in corporate social responsibility, programs are that it is a tool that improves an organization’s image, reputation, and brands. When business organizations actively develop corporate social responsibility programs, they become more notable and visible to society. Favorable coverage within the media then occurs and even in the eyes of the community citizens end up appreciating the efforts of the organization more. The efforts of the Punjab national bank of India is one clear example, simply because the bank has invested in education programs and donated a lot of computers and internet equipment and also gone a step further to ensure that there is safe drinking water in many villages within India, then this fact formed some form of association within the community. When individuals living within that community do business with the bank or even the mere mention of the Punjab National bank, they associate it with its corporate social activities which are treated as a personality of the bank. Data collected also suggest that there is a very strong correlation between corporate reputation/image, actual financial success, and the competitive advantage of organizations. This is hence why Indian Banks are now conforming to global social responsibility trends to experience the 3 to 1 benefit in attracting not only investors but also business associates, new talented employees, and also wooing customers.
Increased loyalty amongst consumers
When organizations establish good CSR practices, then it is almost definite that customer goodwill and loyalty also increase making business even better for the organization. Organizations that are known to conform to commercial laws and take part in philanthropic activities are more likely to attract customers because customers usually end up trusting their business intentions and preferring to do business with them especially when regions witness economic hardships and as a result increase in prices of commodities, hence taking part in corporate social responsibility activities often makes the difference and through community investment, the organization may end up gaining competitive advantages as compared to its rivals due to its CSR efforts that have developed loyalty among consumers.
Good relationship between the business and society
Another key benefit of CSR is that it advances good relationships between the community and the business. Data collected by the researcher indicated that the public expects companies to ‘give back’ more to their communities, and often views negatively the companies that are not perceived as doing their fair share. In the long run, community investment helps build community capacity, creating a stable, sustainable, and healthy local community that will often supply a large proportion of the company’s employees and sometimes customers.
Stimulating creativity and Innovation
CSR is also responsible for stimulating innovation and creativity within organizations when business organizations invest in society both employees and the organization can access numerous networks that enable them to exchange networks and vital information and hence this is why Indian organizations are paying more attention to CSR activities. Information is power and when employees are exposed to power they, in turn, become more aware of the rapid complexities in the business environment enabling them to assist their organizations to respond to change. Moreover through CSR activities that require high levels of interaction employees can learn different ways in which they can approach and handle complex situations in the ordinary course of business.
Although the two opposing camps of pessimists and optimists may not agree on whether corporate social responsibilities are effective and rewarding to the organization the truth speaks for itself. The efforts of Indian banks in the form of corporate social responsibility have contributed immensely towards improving the society and the community in India and the respondents of this research have reinforced this suggestion. Just because there is no legal framework governing issues of corporate social responsibility business organizations must shy away from business ethics but become more vigorous because future profitability depends on CSR.
As the saying goes you cannot bite off the hand that feeds you, hence it is completely wise for business managers to understand that healthy people and the planet will benefit their business in the long run and it is hence necessary to develop sustainable business practices. If a business knows what is best for it then organizational leaders will understand that the advantages of taking part in corporate social responsibility programs will in the long run benefit the organization in numerous ways. It, therefore, makes no sense for organizational managers to shy away from corporate social responsibility programs on the premise that it dilutes their profits. If a business draws inputs from its surrounding society without replenishing the society through corporate social responsibility programs then the business will have no future because the society will demise due to destruction arising from the commercial activities of these corporations.
The worth of corporate responsibility is immense because the future of businesses depends on how well organizations contribute to the development of society, despite CSR efforts being voluntary organizations they should be kind enough to realize that numerous benefits that arise out of CSR activities outweigh the cons. Organizations should be vigorous enough to create social responsibility charters and put the needs of stakeholders and shareholders at the forefront. Although corporate social responsibility might be expensive and may affect profitability and growth to a certain extent, it should also be taken as an investment that will bring benefits back to the company in the short run. Organizations usually spend a lot of money on advertising and public relations activities and hence they should approach corporate social responsibility issues with the same amount of zeal and enthusiasm.
Indian banks might have been urged by the reserve bank of India to step up their corporate social responsibility efforts and even go a step further to initiate social accounting mechanisms and frameworks, and hence all banks should do so gladly and voluntarily because corporate social responsibility is for their good. When Indian banks volunteer and understand the avenue of growth and business excellence that corporate social responsibility offers then, the Indian banking industry will develop more flexible frameworks and guidelines that will enable industry members to invest more in corporate social responsibility practices.
Philanthropy is expensive but it is very important to know that philanthropy is not the only arm of corporate social responsibility within an industry, Indian banks are obligated to comply with the rules implement fair business practices and shy away from aggressive exploitative business practices. The Reserve Bank of India should put in place a policy framework and offer the necessary infrastructure that will encourage and develop the culture of operating sustainably within India. Moreover, since many banks shy away from fully-fledged corporate social responsibility because there is no ascertained disclosure of framework tying together business organizations in India, it would be advisable for the country to develop its social accounting framework and Industry ranking system that is similar to FTSE 4 good so that CSR can be taken more seriously in the country’s banking industry. Saraswat Bank and the Indian Bank Ltd have now developed an identity within the Indian market for their efforts to empower culture, women, and blood donation respectively, their actions have enabled the bank to gain the trust of individuals within the community making it even easier for them to carry out business and realize their corporate ambitions, and hence other banks and corporations from other industries should follow this precedence.
Corporations cannot separate their business ambitions from the community whether they want to or not consequently, they are obligated by ethics and morality to initiate long-term sustainable business activities that will the desires of the majority. Constructing shareholder value through the help of well established corporate strategies and by additionally volunteering and making guarantees that go beyond an industries legal boundaries usually ensures that Indian banks will assist in creating a better society, a healthy and empowered people who in turn will in the future invest back in the Indian banking industry.
It is hence the duty of Indian banks to bring into existence the innovation that encourages sustainable economic growth within the Indian economy this is because in the long-run Indian banks will be able to enjoy amplified profitability, happier communities /customers together with heightened investor confidence. The Indian Banking sector has realized the paramount significance that an organizations’ CSR contributes to more suitable business practices and corporate social accountability all over the industry, additionally, CSR activities improve the skills and output of employees, the image of the organization, and innovation and creativity within the organization which is all vital for success in the long-run. For business operations to be completely clear and transparent, it is essential that the Indian banking sector becomes more vigorous as far as implementing corporate social responsibility programs within the Industry is concerned because it is a key contributor when it comes to long-term profitability and growth.
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Appendix A: Questionnaire to be answered by offcials of indian banks
I am a student at the School of Management doing my masters. The purpose of this survey is, to investigate whether corporate social responsibility within the Indian banking sector and how it affects the profitability and growth.This research is also being conducted in partial fulfillment of the requirement for my degree of Master of Business Administration at my University and therefore I would be very grateful if you could take a few minutes to fill this question either through email correspondence or over a telephone interview. Your opinion is very important and your response will be kept in strict confidence.
Thank you for your assistance.
General information about the Bank
- Name of the Bank:…………………………………………
- Date of Interview:…………………………………………….
Corporate social responsibility questions
- 1Do you think that CSR activities are essential for your company?
- In your opinion how does CSR contribute to the growth and profitability of your institution?
- If YES explain why and how (then go to 3).
- If NO, explain?………………………………………………………………………………………………………………………………………………………………………………………………………..
- Which long-term and short-term benefits which are directly linked to growth and profitability are banking institutions likely face if they vigorously continue to actively participate in CSR activities?………………………………………………………………………………………………………………………………………………………………………………………………………………
- What kind of CSR does your banking institution engage in?……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………