Impact of Corporate Social Responsibility on Financial Performance of Indian Commercial Banks An Analysis Rajnish Yadav 1 & Dr. F. B. Singh 2 1 Research Scholar (JRF), Faculty of Commerce, Banaras Hindu University, Varanasi. 2 Professor, Faculty of Commerce, Banaras Hindu University, Varanasi Abstract: The present paper is an endeavour to study impact of CSR on financial performance and trends of CSR spends of selected banks. Two public (State bank of India and Punjab national bank) and two Private (ICICI and Axis) banks has taken as sample for study on the basis of Net worth. To find out impact of CSR on financial performance of banks regression model has used. In this paper net profit has used as financial indicator to represent financial performance. Major Findings of the study is that impact of CSR on overall banking performance is significantly positive but individually it s different. In Public sector banks impact of CSR on net profit insignificantly positive and in private sector banks impact of CSR on profit significantly positive. Trends of CSR expenditure in all selected banks is increasing. Keywords: CSR, Financial Performance and Commercial Banks. INTRODUCTION: CSR is concept in which a company integrates social concern with their business operations. CSR is not new concept it is done in ancient India in the form of donation, charity and religious works. The concept of CSR is changing with the passage of time. In ancient India it is performed by king, samrat for the development of society in the form of donation i.e. king harsh was the biggest example. Today the CSR concern very vast activities. It is based on giving back to society because every company utilize resource like water, land, Money, people which are the part of society. A company utilize these resource in its business operation without help by society a company cannot run and never achieve their business objective mainly profit. So it is responsibility of company to develop the society s economic, social, cultural and environmental condition. Profit maximization is the primary aim of a capitalist economy. The mantra of hardcore capitalism is profit, more profit and only profit, but recently a new concept has emerged called cooperational capitalism or co-op capitalism. This new capitalism, though focused on the profit motive, also incorporates the essence of cooperation, accountability, and values in the social context. Such an idea of modern capitalism is reflected in corporates, too. For the new generation of corporate leaders, profit optimization is more important than only profit maximization. Hence there is a shift in accountability from shareholders to stakeholders (including employees, consumers and affected communities), and a growing realization that long-term business success can be achieved only by companies that recognize that the economy is an open subsystem of the earth s ecosystem which is finite, non-growing and materially closed. LITERATURE REVIEW: This section provides a review of the theoretical literature on CSR activities in Indian banking sector. ( Malte Kaunfmann and Marieta Olauro, 2012), The impact of Corporate Social Responsibility on Business performance- Can it measured, and if so how? found that influence of CSR on Business performance directly. (Aile and bausys, 2013,) submitted a master thesis on the topic Corporate Social Responsibility and financial performance: the example of Estonia, lativia and Lithuania and fount that overall CSR activities have no significant impact on ROA. However certain individual CSR activities were found to affect CFP. (Ioannou and Serafeim, 2014), contributed study The impact of corporate social responsibility on Investment Recommendations and found that positive relation between CSR and business investments. (Vijay.P and Divya.N, 2014,), conducted a study on the topic Impact of Corporate Social Responsibility initiative of Indian Banking sector and found that higher structural break between pre and post period of implementation of CSR in commercial banks. (Sharma and Gautam) 2015, conduct a research on Corporate Social Responsibility and financial Page 1113
performance: Evidence from Four leading Banks in Indian banking Sector and found that significant impact of CSR on Financial Performance of the Banks. OBJECTIVES OF THE STUDY: The objectives of present study are following 1. To find out the impact of CSR on financial performance of selected banks. 2. To analysis trend of CSR expenditure in selected banks. HYPOTHESIS OF THE STUDY: H0: There is no significant impact of CSR on Financial Performance of the banks. H1: There is significant impact of CSR on Financial Performance of the banks. RESEARCH METHODOLOGY: A. Data Sources and Type The study is collected based on the secondary sources of data collected through annual report. B. Sampling Units For analyzing the impact of Corporate Social Responsibility on Banking financial performance a sample of 2 Public and 2 Private Banks has been taken from the population on the basis of net worth. C. Data Collection & Classification To meet the objective the data for the study is collected through annual report of Banks for the year 2009 to 2016 DATA ANALYSIS: To find out the impact of CSR on Financial Performance of four banks (State bank of India, Punjab National bank, ICICI Bank and Axis Bank of India) regression model was used. Y= A0+A1Xi where Y= Financial Performance of Banks (Profit) dependent variables, A0= intercept term (constant), Ai= slope, Xi= independent variable (CSR expenditure). The confidence level for the present study has been taken as 95%. The Statistical Package for Social Sciences (SPSS) version 20 was used to analyse the data collected. The coefficient of determination, R squared measure was used to test the significance of the regression model in explaining the relationship between CSR and Financial Performance of the banks. R squired is a measure of goodness of fit and shows the percentage variance in the dependent variable that explained by the independent Variable. The higher R squired the better the model. The P value and t test used to test the individual significance of the predictor variables used to the study. STATE BANK OF INDIA (Amount in Rs. Crores) Table.1: Financial Indicators of SBI Year CSR Profit 2009 19.72 9121 2010 24.44 9166 2011 71.18 8265 2012 71 11707 2013 127 14105 2014 148.93 10891 2015 115 13102 2016 143.92 9951.00 (Source SBI Annual Reports) Chart-1 Page 1114
200.00 150.00 100.00 50.00 0.00 CSR Expenses of State Bank of India csr Table-1 and Chart -1 shows CSR spends amount in crores of SBI during year 2009 to 2016. Figurue-1 Amount in Crores 200.00 150.00 100.00 50.00 0.00 CSR Trends of State Bank of India csr The above figure-1 represents the trend of CSR spending of SBI during last eight year. Figure shows increasing trend of CSR spending of SBI. Impact of CSR on Profit: Model R R Adjusted R Table.2: Model Summary Std. Error of the Estimate R Statistics F df1 df2 Sig. F 1.536 a.287.168 1878.52048.287 2.413 1 6.171 a. Predictors: (Constant), CSR The above tables provide R and R2 values. The R value Represents the simple correlation and is.536, which indicates a low degree of correlation. The R2 value indicates how much of the total variation in the dependent variable Profit can be explained by the independent variable CSR. In this case 28.7% can be explained which is very low. Table.3: ANOVA Model Sum of s df Mean F Sig. 1 Regression Residual 8515088.920 21173035.080 1 6 8515088.920 3528839.180 2.413.171 b Total 29688124.000 7 b. Predictors: (Constant), CSR Page 1115
The above ANOVA table reports how well the regression equation fits the data (predict the dependent Variable). The table indicates that regression models did not predict dependent variable significantly because p value.171 is more than.05. Table.4: Coefficients Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 8845.314 1416.316 6.245.001 CSR 21.555 13.876.536 1.553.171 The coefficient table provides the necessary information to predict profit from CSR, as well as determine whether CSR contribute statistically significantly to the model. To present the regression equation as: Profit = 8845.314 + 21.555(CSR) Testing of Hypothesis: P value is.171 which is greater than.05 therefore we did not reject the null hypothesis. Interpretation: So we can conclude that the impact of CSR on Profit of SBI is not significant PUNJAB NATIONAL BANK OF INDIA: (Amounts in Rs. Crore) Table.5: PNB Financial Indicators. Year CSR Profit 2009 2.35 3089.00 2010 3.37 3905.00 2011 4.36 4433.00 2012 4.50 4884.00 2013 4.00 4748.00 2014 3.00 3343.00 2015 3.67 3062.00 (Source PNB Annual Reports) Chart-2 Table-5 and Chart -2 shows CSR spends amount in crores of PNB during year 2009 to 2015. Figure-2 Page 1116
The above figure-2 represents the trend of CSR spending of PNB during last seven year. Figure shows increasing trend of CSR spending of PNB. Impact of CSR on Profit: Table.6 :Model Summary Model R R2 Adjusted Std. Error Statistics R of the Estimate R F df1 df2 Sig. F 1.133 a.018 -.179 845.43535.018.090 1 5.777 a. Predictors: (Constant), CSR The above tables present R and R2 values. The R value Represents the simple correlation and is.133, which indicates a low degree of correlation. The R2 value indicates how much of the total variation in the dependent variable Net Profit can be explained by the independent variable CSR. In this case 1% can be explained which is very low. Table.7 :ANOVA a Model Sum of s df Mean F Sig. 1 Regression 64041.047 1 64041.047.090.777 b Residual 3573804.667 5 714760.933 Total 3637845.714 6 b. Predictors: (Constant), CSR The above ANOVA table reports how well the regression equation fits the data (predict the dependent Variable). The table indicates that regression models predict dependent variable significantly because p value.777 which is greater than.05(i.e., it is not good fit for data) Table.8: Coefficients a Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 3629.811 1031.653 3.518.017 CSR 114.951 384.028.133.299.777 The coefficient table provides the necessary information to predict Net profit from CSR, as well as determine whether CSR contribute statistically significantly to the model. Page 1117
To present the regression equation as: Net Profit = 3629.811 + 114.951(CSR) Testing of Hypothesis: The P value of profit.777 is greater than.05 so in this case we do not reject the null hypothesis. Interpretation: From above proof we found that there no significant impact of CSR on Net profit of PNB. ICICI BANK: Table.9: Financial Indicators of ICICI Bank (Amount in Rs. Crores) Year CSR Profit 2009 9.40 3758.00 2010 10.79 4033.00 2011 11.29 5151.00 2012 27.50 6465.00 2013 96.57 8325.00 2014 192.27 9810.00 2015 174.33 11175.00 2016 172.00 9726.00 (Source: ICICI Banks Annual Reports) Chart-3 250.00 200.00 150.00 100.00 50.00 0.00 CSR Expenses of ICICI Bank CSR Table-9 and Chart -3 shows CSR spends amount in crores of ICICI during year 2009 to 2016. Figure-3 The above figure-3 represents the trend of CSR spending of ICICI during last eight year. Figure shows increasing trend of CSR spending of ICICI. Page 1118
Impact of CSR on Profit: Table: 10 - Model Summary b Model R R2 Adjusted Std. Error Statistics R of the Estimate R F df1 df2 Sig. F 1.950 a.903.887 956.08600.903 56.122 1 6.000 The above tables provide R and R2 values. The R value Represents the simple correlation and is.950, which indicates a high degree of correlation. The R2 value indicates how much of the total variation in the dependent variable Profit can be explained by the independent variable CSR. In this case 90.3% can be explained which is very high Table: 11 - ANOVA a Model Sum of s df Mean F Sig. 1 Regression 51301471.259 1 51301471.259 56.122.000 b Residual 5484602.616 6 914100.436 Total 56786073.875 7 b. Predictors: (Constant), CSR The above ANOVA table reports how well the regression equation fits the data (predict the dependent Variable). The table indicates that regression models predict dependent variable significantly because p value.000 which is less than.05(i.e., it is good fit for data) Table: 12 - Coefficients a Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 4442.542 510.193 8.708.000 CSR 32.994 4.404.950 7.491.000 The coefficient table provides the necessary information to predict profit from CSR, as well as determine whether CSR contribute statistically significantly to the model. To present the regression equation as: Net Profit = 4442.542+ 32.994(CSR) Testing of Hypothesis: The P value of profit.000 which less than.05 so we in this case reject the null hypothesis. Interpretation: From above analysis we found that there is great significant impact of CSR on Net Profit of ICICI Bank. AXIS BANK OF INDIA: Table: 13 Financial Indicators of Axis Bank (Amount in Rs. Crores) Year CSR Profit 2009 18.15 1815.36 2010 25.15 2514.53 2011 18.85 3388.49 2012 42.42 4242.21 2013 51.80 5179.43 2014 62.17 6217.67 2015 135.38 7357.82 2016 138.96 8223.66 (Source Axis Bank Annual Reports) Page 1119
Chart-4 Table-13 and Chart -4 shows CSR spends amount in crores of Axis bank during year 2009 to 2016. Figure-4 The above figure-4 represents the trend of CSR spending of Axis Bank during last eight year. Figure shows increasing trend of CSR spending of Axis bank. Impact of CSR on Net Profit: Model R R2 Adjusted R Table: 14 -Model Summary Std. Error of the Estimate R Statistics F df1 df2 Sig. F 1.933 a.871.849 891.20691.871 40.353 1 6.001 a. Predictors: (Constant), CSR The above tables provide R and R2 values. The R value Represents the simple correlation and is.933, which indicates a high degree of correlation. The R2 value indicates how much of the total variation in the dependent variable Net Profit can be explained by the independent variable CSR. In this case 87.1% can be explained which is very high Page 1120
Table: 15 -ANOVA a Model Sum of s df Mean F Sig. 1 Regression 32050748.977 1 32050748.977 40.353.001 b Residual 4765498.503 6 794249.750 Total 36816247.480 7 b. Predictors: (Constant), CSR The above ANOVA table reports how well the regression equation fits the data (predict the dependent Variable). The table indicates that regression models predict dependent variable significantly because p value.001 which is less than.05(i.e., it is good fit for data) Table: 16 -Coefficients a Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 2074.835 540.864 3.836.009 CSR 44.472 7.001.933 6.352.001 The coefficient table provides the necessary information to predict profit from CSR, as well as determine whether CSR contribute statistically significantly to the model. To present the regression equation as: Net Profit = 2074.835+ 44.472(CSR) Testing of Hypothesis: The P value of profit.001 which less than.05 so we in this case reject the null hypothesis. Interpretation: From above analysis we found that there is great significant impact of CSR on Net profit of Axis bank. IMPACT OF CSR ON OVERALL BANKING FINANCIAL PERFORMANCE: Impact of CSR on Profit of Public and Private Banks Table: 17-Model Summary Model R R2 Adjusted R Std. Error of Statistics the Estimate R F df1 df2 Sig. F 1.766 a.586.572 2215.38144.586 41.098 1 29.000 a. Predictors: (Constant), CSR spends Public and Private Banks The above tables provide R and R2 values. The R value Represents the simple correlation and is.766, which indicates a high degree of correlation. The R2 value indicates how much of the total variation in the dependent variable Net Profit can be explained by the independent variable CSR. In this case 58.6% can be explained which is high. Table: 18-ANOVA a Model Sum of s df Mean F Sig. 1 Regression 201705301.587 1 201705301.587 41.098.000 b Residual 142329532.594 29 4907914.917 Total 344034834.181 30 a. Dependent Variable: Profits of Public and private sector banks b. Predictors: (Constant), CSR spends Public and Private Banks The above ANOVA table reports how well the regression equation fits the data (predict the dependent Variable). The table indicates that regression models predict dependent variable significantly because p value.000 which is less than.05(i.e., it is good fit for data) Table: 19-Coefficients a Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 4246.714 564.243 7.526.000 Page 1121
CSR spends Public and Private Banks 41.278 6.439.766 6.411.000 a. Dependent Variable: Profits of Public and private sector banks The Coefficients table gives regression equation for prediction of Dependent variable (Net Profit). This table also represent significance of model (.000) which high significance. Regression equation: Net Profit = 4246.714 + 41.278(CSR) Testing of Hypothesis: P value is.000 which is less than.05 so we reject the null hypothesis. Interpretation: From above result we found that the strong significant impact of CSR on Net Profit. CONCLUSION: Impact of CSR on overall banking performance is significantly positive but individually it s different. In Public sector banks impact of CSR on profit insignificantly positive and in private sector banks impact of CSR on profit significantly positive. Trends of CSR expenditure in all selected banks is increasing. SUGGESTION: It is observe from finding that impact of CSR on profit in public sector banks is insignificant because they do not follow the CSR practices properly and their investment in CSR is also inconsistent. They do not follow the provision of companies act 2013 for spending of CSR that is 2% of net profit whereas private sector banks follow companies act provision properly and their result is also positive. RBI or Govt. should issue guideline for public sector banks in regards of CSR. LIMITATIONS: Like every study this study has also following limitations 1. Study has based secondary data therefore findings are also depends upon accuracy of data. 2. Data for this study has taken only eight years. 3. This study has done on only four banks. SCOPE FOR FURTHER STUDY: 1. The present study is based on secondary data so one can conduct study on primary data. 2. This study is done in banking sector so there is scope for research in other sector i.e. manufacturing, PSU and other service sector. 3. Sample for this study has only four banks therefore, One can also conduct research more than 4 banks. REFERENCES: 1. ( Malte Kaunfmann and Marieta Olauro, 2012), The impact of Corporate Social Responsibility on Business performance- Can it measured, and if so how?, the Berlin Intrnatinal Economics Conference 2012. 2. (Aile and bausys, 2013), Corporate Social Responsibility and financial performance: the example of Estonia, lativia and Lithuania, the Stockholm school of economics. 3. (Ioannou and Serafeim, 2014), The impact of corporate social responsibility on Investment Recommendations Horward Business School. 4. (Vijay.P and Divya.N, 2014), Impact of Corporate Social Responsibility initiative of Indian Banking sector International research Journal of Business and Management, ISSN- 2322-083X volume 7, issue 12. 5. (Sharma and Gautam 2015) Corporate Social Responsibility and financial performance: Evidence from Four leading Banks in Indian banking Sector international journal of business management and scientific research, ISSN: 2394-6636, vol: 3. 6. State Bank of India, Annual reports 2009 to 2015-16, http://www.sbi.com, accessed October 2016. 7. Punjab National Bank, annual reports 2009 to 2014-15, http://www.pnb.com, accessed October 2016. 8. ICICI Bank, Annual reports 2009 to 2015-16, http://www.icici.com, accessed October 2016. 9. Axis Bank, annual reports 2009 to 2015-16,http://www.axisbankcom, accessed October 2016. 10. http://www.rbi.org Page 1122