IOD SPECIAL TALKS - CSR: An Untapped Opportunity for Growth

Good Afternoon. Today is a very important day for me. Thanks for the opportunity. Today, December 21, is the shortest day and longest night; it is called the solstice. I think I should thank IOD for deciding on a day where the day is shorter that it calls for a bigger celebration, and I think this sort of small information is what we have started missing in life-and this is the beginning part of ESG. So in my discussion, I would like to cover two things: What are ESG and SDG all about, and what's happening? And what are we doing at Equitas, and where are we heading together?

ESG is by itself a very vast and complicated subject, but everyone can contribute to it, whether it's an individual or a corporation. I don't think there's any line of division. 'E' predominantly is about environment now; very soon it will be ecology, because environment is what we create, and ecology is what we are part of. So that being the reality, very soon, E will transform into ecology. This is predominantly driven by the UN and international organisations that will decide the E concept. S is society and has to do with local society, ethics, legality, country, and boundaries driven-so how are companies, corporations, and individuals going to adopt?. G is governance. Governance is by design, where most things are regulated and compelled. How will we make the spirit into ethics? How will we achieve diversity and inclusiveness in governance? So ESG is the criteria on which we develop SDG.

As a business, wherever you are present, it's about 'can you make a difference in others' lives?' I think that those are the businesses that will prosper.

So, today in India, we are seeing one phenomenal thing happening. I think we are one of the few countries at this point in time that is exploding in terms of infrastructure. There is physical infrastructure growth. We are looking at more than 100 airports coming up and 26 sea ports. The quantum of roads that's getting built up is, I think, bigger than Europe and North America's put together. The quantum of activity that's going on in the physical and digital infrastructure is going to by itself be a growth leader, and that way itself will create an environment issue. So how are we going to handle that? That's one set of problems. The second set of opportunities and problems is: how are we going to create jobs? That's one bigger problem that is waiting, with a large youth population. How are we going to create entrepreneurs and employee-employer relationships going forward? That's one addressable issue. The third thing is 'water and food', which is taken for granted. If, incrementally, the world temperature is going to go up by 1°C, somewhere I was reading that at 2°C, fish are going to vanish from the ocean bed. So what are we going to do about that? So there is a global problem on E; there is a societal problem that every community and every state by itself can address, and governance plays a very compelling role in terms of diversity and inclusiveness because otherwise most of the rules and regulations everybody follows.

So we at Equitas-I keep saying-'a role model became a business model'. Our proud founder and director, Mr. Vasudhevan, started this as a small entity. How do I empower women, and how do I empower the unserved and underserved?-that was the Genesis with which it was started 16-17 years ago. Then we became NBFC-MFI. Then we got the banking license seven years ago, and this entity or this business model is dimensionally different from any other entity. One needs to handle the duality here. On one side, you are actually catering to an unserved and underserved set of segments who are on the bar side as well as within India. So how are we going to empower them? That is one part of the story. How are we going to become forced entrepreneurs? Most of the people we see in our society are forced entrepreneurs by choice because they lack skills and proper education. They come from a poor background; they sit and wonder what to do, so how are we going to make this forced entrepreneur move towards a journey called 'entrepreneurship', which means that the intent is not to create borrowers alone? How do you create entrepreneurs? So this, by itself, is a mission. If we have to do that, how are we going to train these people?

Today, we have the largest number of women as customers. That is the biggest diversity. We have 2.5 million female customers who look up to us with trust and hope that this is an entity. We have trained, till now, 7-8 lakh women, and we also do skill training programs on multiple skills. Skill has two levels: one is 'skill for survival', and one is 'skill for specialization'. As you go to the bottom of the pyramid, the requirement for 'skill to survive' is very high. So how are we going to skill them? We run continuous-skilling programs. The third is the ecosystem. We provide 'medical camps' around the area where we are present, which means sustained efforts to do eye checkups because even one small disease can throw a family out of life, out of their routine for days and months together. So we create an ecosystem where health is in focus, where skill training is done, and where people are empowered towards starting an entrepreneurial life. Today, I can comfortably say that in our book of 4.5 million dollars of assets, the average ticket size is two lakhs. Which means that's the quantum of customers we have impacted; that's the quantum of society we have gotten. The good part is that as you keep doing this, you are creating the 'E' side of the business.

Which means you're creating an ecosystem and environment where you are present. Now we are one of the few institutions-maybe the only institutions-where we give back 5% of a profit every quarter into CSR activity. I don't think there's any entity at this point in time that is actually doing that.

Just for a simple reason: where we exist, we cannot exist alone, and we have to co-exist. That's the ultimate aim. We leverage technology, but more to understand the biology and demography of where we are present. It's not that you leverage technology only for productivity. So our entire core model is tuned, magnified, and rolled in such a direction that we actually go and make a difference in people's lives as a key thing. I can stand with pride about our E part.

In the 'S' part, all our products have to be stable. Equitas by itself in Latin means 'fair and transparent'. So we believe that the stability of the team, of the product, and of the market we are in is very important. We have to sustain what we are doing. Which means we don't go and create a borrower and collect back; in most of the locations, we go and create entrepreneurs because when we go, we don't go there to make returns. We make hope and trust as guiding lights in people's lives. So the second part of stability is very important. 'Scalability' is what we actually look for wherever we go. So the3S of Stable, Scalable and Sustainable are inherent in any product or market in which we are present, so this is a very key theme.

Adding to the 5% CSR, we also run six schools in the name of EDIT, which means it's not those schools where one of the compelling reasons I can say is that the combined annual income of the parents cannot exceed Rs. 3 lakh, which is one of the primary conditions. So we have 16,000-17,000 students funded by EDIT; we call it the 'Equitas Development Initiative Trust' that runs schools, skill camps, and medical camps. The ecosystem behind the bank is very strong, and the bank is there for what is called purposeful work. We are in a very profitable business. I think hearing this, you should not think, What are we doing? We are at the lowest entry, close to 1 percentile, which is the industry benchmark we are operating on of 9%. So if someone is interested in the real business model side of it, is it a charitable institution? – No. But we do the purposeful work to create CSR, which is a benchmark that will create an ecosystem by itself that is sustainable. So these are the very key leads to governance.

How are we integrating? We are present in those locations and in those cities, where, actually, we should have started a long time ago. Our model is assessment-driven, which means we go to the unserved and underserved and give the money unsecured up to only 15% or 17% of the book, where the balance is secured. We go assess the tea shop, sit with the mechanic, and understand the mechanic's work. We assess his income, we create a balance sheet, and then we give him the money-not a rupee more, not a rupee less-only the amount he deserves for a simple reason: Our main intent is not to keep adding borrowers; we want to create more and more entrepreneurs. That is why we are present in the commercial vehicle segment; we are present in micro labs and retail labs; we are present in uplifting women; we provide skill training, etc.

I was very happy when the ESG topic came in, because 70 years ago, all organisations used to talk about profits, productivity, and efficiency. Today the world is migrated, where we started speaking about CSR. Maybe in 2014–15, we are at a tipping point where so much development is happening. I was happy to listen to Mr. Lakshminarayan take multiple initiatives. Sometimes, you know, you learn from your big brother, and Tata does many things. Recently, we opened a cancer specialist hospital, again run by Equitas Hospital Trust. It's not about what you are doing or where you are doing it. As a business, wherever you are present, it's about 'can you make a difference in others' lives?' I think that those are the businesses that will prosper; those are the businesses that are going to have a foundation. Brands have a typical recall value. It may not be very profitable. But still, people relate to and respect the brand, and that is the stage where we are entering, where people are going to evaluate what you are giving back and what you are doing, adding to the profitability index, and net zero can be the net best profit that the world is expecting in the coming days.

Because two things are going to happen: decarbonization, for which all the manufacturers are working; and the second important thing is: how do we get a net zero effect by digitizing? By automating, we could bring down the movement of cameras and transmission, which is a very significant thing that we were not aware of, so I think these are all impactful things happening at the manufacturer level, at the banker level, and from an overall perspective. If you see, we have started connecting the dots. The number of dots we need to connect is far higher than I was reading recently. The simplest addiction for the new generation of people is called gaming. We have 34 million gamers at any given point in time playing and consuming something like 34 or 35 KW of power, which is equal to some 5-6 million cars just running at a given point in time. So how are we going to come out of these wrong addiction practices? How are we going to develop the next generation, saying that what is integrity? What is ethics? What is going to be the next skill needed? There's quite a lot of skill development in the education segment format, which needs a very contractual agreement.

In the morning, somebody was saying that we just roll out degree holders. How are we going to create a differentiation between need, greed, necessity, and overconsumption? Most of us end up buying the same phone because the RAM went up or the GB went up, because all these things are going to leave a carbon footprint in the temporary custodian world we are in.

How are we going to change the habit? So along with ESG, habits are going to be one critical thing. Financial services play a very important part, and I keep saying that most of the banks say, 'We want to be plastic-free', but most of the debit cards and credit cards are plastic. How are we going to come out of all these opportunistic things that have happened in the past?

As we inch forward, I think as sustainable finance, as most of us know, today chases green bonds because the 'E' part is fairly higher in that, but I want to just give you multiple things that will come in. For example, blue bonds are there that will take care of marine life because we can't forget about water. There are yellow bonds, or solar segments, which we are talking about. Then we need a lot of money inside this system for transition bonds, where we need to look at high-carbon to low-carbon if we have to become net zero.

'Where are we going to generate this much money to get a very sustainable future' - is something that all of us start thinking about, and when these things happen, it's imperative that people actually consume these products as - one, an investment opportunity, and two, a sensible responsibility.

So maybe 10 years from now, most of us in this room, along with our FD and mutual fund, will be saying, 'I have a blue bond', 'I have a yellow bond', and 'I have a green bond'. That will be the actual time for bond markets; that will be the time when there will be the participation of an individual in a progressive country; and that will be the point where we will stand up and say that we are reforming and transforming.

Till that point in time, this journey will continue. We look forward to your support, and as they keep saying, all of us have a duty to perform. 'Lifting the next guy and no one left out' is the fundamental SDG philosophy. We cannot make everyone a millionaire, but everyone can live a life with dignity, and for that, we need to go deeper and reach those sets of society, which, I assure you, wherever we are present, we will do. We need your continued support in multiple consumptions of other products too.

Thank you for the time.

*Excerpts from the ‘Keynote Address' delivered by Mr. Murali Vaidyanathan, Senior President and Country Head – Branch Banking - Liabilities, Products & Wealth, Equitas Small Finance Bank Limited at 'Plenary Session- II' of the 18^th International Conference on Corporate Social Responsibility, held on December 21, 2023 in Hotel Taj Lands End.