'Donations are different from Corporate Social Responsibility'. Comment in the background of guiding principles issued by Reserve Bank of India (RBI) in 2005, for donations by banks in India.

The Companies Act, 2013 has introduced the concept of CSR by mandating companies to set aside 2% of their net profits and utilize the same for approved CSR Activities. The private sector banks incorporated as companies under the Companies Act, 2013 are covered by the provisions of section 135 of the Act, and accordingly required to ensure the compliance of CSR provisions. Since the Nationalized Banks are not incorporated as a company under the Companies Act, 2013, they are not covered under section 135 of the Act and accordingly, the requirement to spend 2% of net profits on CSR activities remains voluntary for such banks. However, they are required to spend 1% of net profits through donations as specified by the Reserve Bank of India (RBI). In terms of RBI circular no. RBI. No./ 2005-06/237, DBOD. No. Dir. BC 50/13.01.01/2005-06 dated 21st December, 2005, donations by Banks are capped at 1% of the published net profit. Donations are plain contributions as opposed to CSR which is a collaborative and monitored exercise. The said circular set the following guiding principles for donations by banks in India: The profit-making banks may make donations during a financial year aggregating upto 1% of the published profit of the banks for the previous year. In some cases, banks create funds for specific purposes to encourage research and development in fields related to banking. The Board of the banks may determine the amount of contribution to be made to such funds. The contribution made to such funds in a year will be reckoned for computation of the 1% ceiling. The donations out of the research and development funds should normally be made for setting up professional chairs, granting fellowships/scholarships for studies and research at universities and approved institutions and for commissioning special projects for investigation, analysis and research for areas pertaining to banking, finance, statistics, management, and economics, etc. The donations to Prime Minister's National Relief Fund and subscriptions / contributions to professional bodies / institutions related to banking industry like Indian Banks' Association, National Institute of Bank Management, Indian Institute of Banking and Finance, Institute of Banking Personnel Selection and Foreign Exchange Dealers' Association of India may be excluded from the limit indicated in para (i) above. Loss-making banks can make donations totaling ₹ 5 lakh only in a financial year including donations to exempted entities / funds indicated in para (iii) above. Unutilised portion of the limit of 1% should not be carried forward to the next year. The banks may continue to submit annual review of donations to their Boards of Directors.