News Update

Govt plans CSR rule for PSU banks, LLPs

• ByAyushi Ray     |    August 18, 2021

Govt plans CSR rule for PSU banks, LLPs, Limited Liability Partnership. At present, CSR is mandatory for only those corporate entities that are incorporated under the Companies Act, 2013. LLPs and public sector banks (PSBs) are outside its preview as they are governed by different laws—the LLP Act, 2008, and the Banking Regulation Act, 1949. But it has been revealed by a close source that many big corporate entities take the LLP route to avoid spending on mandatory CSR and the new proposal is to provide a level playing field. Section 135 of the Companies Act, 2013, makes it mandatory for every company to spend in every financial year at least 2% of its average net profits made during the three immediately preceding financial years on CSR activities, but the laws governing LLPs and PSBs are silent on this matter.

The ministry of corporate affairs (MCA), the department of financial services (DFS) and SBI did not respond to an email query on this matter. DFS is an arm of the finance ministry that regulates PSBs and state-run insurance companies such as Life Insurance Corporation of India (LIC). “The existing provisions anyway exempt small firms from mandatory CSR, hence small LLPs should not worry. Formalisation of CSR laws for LLPs and PSBs to bring them on a par with other companies is desirable to create a level-playing field and plug any loophole that would push many profitable firms to take the LLP route,” one of the officials said. Publicly available data suggests that of the total 12 PSBs in India, average profits of four PSBs are positive and amount to ₹15,732 crore; 2% of the amount would be at least ₹300 crore, said Saguna Sodhi, partner, Forensic & Integrity Services at consultancy firm EY.

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