DOES CORPORATE SOCIAL RESPONSIBILITY ADD VALUE TO THE INDIAN BANKING SECTOR?

doi:10.46281/ijfb.v9i1.1612

Abstract

Corporate social responsibility (CSR) is assumed to have an indirect impact on the performance of the banking sector due to the sector's core non-manufacturing and complex functionalities. This paper examines the value creation for a bank through CSR initiatives considering their earnings persistence and risk exposure in India. The authors measure CSR disclosure through content analysis. CSR scores for 14 items are identified from the annual reports, National CSR Portal, Ministry of Corporate Affairs (MCA, 2021) and websites of 20 Indian banks. Applying OLS and panel regression models, the role of CSR in creating value for the banking sector is established. The study found that CSR commitment has a positive impact on the market value of the banks, along with an adequate liquidity position and business risk. CSR commitment and earnings persistence contribute to the bank's expected operating performance, highlighting its sustainability through CSR investments. Participation of banks for education, healthcare, skill development, and environmental sustainability is associated with higher returns from their lending activities to customers creating social value addition. Specific CSR activities encourage bank customers to repay banks with the implication of business risk reduction for banks.

Highlights

In the past few decades in India, banks are focusing more on meeting environmental, social, governance, and economic goals
This paper focuses on addressing the impact of Corporate social responsibility (CSR) commitment on a bank's market value, sustainable value and social value
For UCO Bank, which is having very high CSR commitment, if we increase commitment towards CSR by 1 %, market price will increase from INR 19.2 to INR 42.75 in 2019 while for a bank which has low commitment towards CSR if we increase CSR commitment by 1%, CSR commitment increases from INR 1839.45 to INR 1839.59 in 2019 (HDFC Bank)

Summary

Introduction

In the past few decades in India, banks are focusing more on meeting environmental, social, governance, and economic goals. Investment in CSR activities keeps the banks safe from indulging in unethical events due to their complex nature. They have been playing a crucial role in an economy as an agent of the financial inclusion process (Carbo-Valverde et al, 2015). In contrast to other sectors, are subject to stricter scrutiny in their reporting practices to stakeholders such as the government, media and lenders. This demands more attention in creating benefits for the society as they receive government bailouts or guarantees during tough times (Iannotta et al, 2013)

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Conclusion