CSR: Now Coercion & Penalty

Overzealous implementation of CSR is a wrong strategy. Why is BJP-led government doing this?


In July this year, I wrote that the United Progressive Alliance (UPA) had stopped just short of prescribing penalties for those corporates who fail to spend the mandatory 2% of their net profit on corporate social responsibility (CSR) projects. The CSR provisions in the Companies Act 2013 (the Act) were clearly structured to introduce such penalties, but had stopped at asking companies to explain the failure to comply.


The Narendra Modi government was expected to put CSR rules under the Act on hold and also rework some of its more draconian provisions. Nothing of that sort happened. In fact, The Economic Times reports that Modi sarkar seems set to outdo the UPA-2 on this front.


The paper reports that the government is already planning to introduce penalties for failure to meet CSR targets for two or more years. This is regressive and contrary to the prime minister’s poll promise to eliminate bureaucratic hassles and unnecessary red-tape and make it easier to do business in India.


Consider how things have played out on the CSR front. In July this year, we applauded the ministry of corporate affairs for expanding the scope of CSR eligibility. We believed that CSR ought to be voluntary, or at least not prescriptive, and must include a company’s core strengths.


Instead of doing this, the Modi government is headed in the opposite direction. Industry continues to lobby against CSR, while an army of consultants, who see this as a lucrative business opportunity, are lobbying for stringency.


Meanwhile, public sector undertakings (PSUs) and nationalised banks are pulling in different directions on the issue. SCOPE, the apex body of Central government-owned units, reportedly made an audacious suggestion that ‘angel funding’ or takeover and revival of sick-undertakings should be considered part of public sector CSR. A clear recipe for massive write-offs.


Meanwhile, banks are being pushed to please the PM by building toilets all over India. The finance ministry and the Reserve Bank of India (RBI) also want banks to conduct ‘financial literacy’ seminars in schools and colleges, leading to much irritation. School managements say that say that election duties and frequent holidays have them struggling to complete their syllabus; they have little time to cooperate with companies wanting to meet CSR ‘targets’ with perfunctory workshops aimed at disinterested students. But nobody seems to care.


CSR is laudable when done voluntarily and diligently. It will only lead to mis-directed efforts, fudging and squandering of precious funds when forced upon reluctant companies. The real losers will be entities that are doing genuine and dedicated work for public benefit. With over 14,000 companies expected to spend Rs15,000 crore on CSR, we hope that good sense will prevail about spending scarce funds.


Wilful defaulter definition will cover directors too says Rajan

Talking about the norms for non-cooperative defaulters, the RBI governor said the guidelines have been formulated to tackle those borrowers who resist repaying at every corner and hold up the entire repayment process


Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday said the central bank is in the process of redefining the definition of wilful defaulters to bring directors of defaulting companies under its ambit.


"The (Calcutta High) Court had some questions about whether all directors could be declared wilful defaulters and we have looked at that. We are in the process of modifying the definition so that the directors, if seen, as culpable in actively participating or being grossly negligent of wilful default," Rajan said at the customary post-policy interactions with the media.


According to the current definition, a wilful defaulter is somebody who has essentially not used the funds for the purpose it has been borrowed or when he has not repaid when he can do so; when he has siphoned off the funds or when he disposed of the assets pledged for availing of loan without the bank's knowledge.


Recently, United Bank of India declared Kingfisher Airlines as well as some three of its directors as wilful defaulters. The decision of the single bench, that accepted the bank's position, was later stayed by a division of the Calcutta High Court last weekend.


Talking about the norms for non-cooperative defaulters, Rajan said the guidelines have been formulated to tackle those borrowers who resist repaying at every corner and hold up the entire repayment process.


He said in such cases, the recourse to legal remedy, allowable by the laws from a prudential perspective, imposes a cost to the system because banks cannot get their money using the existing laws such as the Sarfesi Act.


"Therefore, in those situations where there is a deliberate attempt to delay the process of recovery after due process is being followed, can we find a way of declaring these borrowers as non-cooperatives?," Rajan asked.


On the rising non-performing asset (NPA) levels in the system, the RBI governor said the central bank is following the issue very closely and banks have been asked to take timely action to deal with the matter.


In the banking system, NPAs rose to 4.1% as of the June quarter, while the total stressed assets including the recast loans rose close to 11%.



Anil Agashe

3 years ago

Excellent move. Hope it happens quickly and in this case may be retrospectively! We need show no mercy to willful defaulters. Distressed that HC has stayed calling Mallya one. Let the lender decide that. Courts need have no say in the matter.

RBI to keep interest rates at current level, says Nomura

Although vegetable prices moderated sharply in September, the central bank will keep the interest rates at current levels for a prolonged period, says Nomura


The Reserve Bank of India (RBI) will keep the interest rates at current levels for a prolonged period to achieve an inflation at around 6% by January 2016 based on consumer price index (CPI), says Nomura in a research report. The RBI will announce its fourth bi-monthly monetary policy on Tuesday.


Nomura said, "Positive real policy rates, lower minimum support prices and a moderation in rural wages all suggest that, while the inflation path will be bumpy, a gradual disinflation should continue."


According to the data from Ministry of Consumer Affairs, vegetable prices moderated sharply (by about 8% month-on-month) in September following sharp increases over the previous two months. "This significant fall in addition to favourable base effect should help lower CPI inflation to nearly 7% y-o-y in September from 7.8% in August," Nomura said.


According to the research note, base effects over the next two months remain significant, and if the downtrend in vegetable prices continues, CPI inflation will likely drop significantly over the next three readings before rising back up in first quarter of 2015 to the 7.0%-7.5% range.


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