The stress in the financial system is taking a toll on corporate social responsibility (CSR) spending by banks.

The Reserve Bank of India (RBI) has advised State Bank of India (SBI), the country’s largest lender, to not spend 2% of its profit on CSR till the stress in the financial sector eases, according to the bank’s chief executive.

“We are a statutory corporation and as a result we have to take RBI’s consent to be able to meet 2%. RBI felt that we should do it a little later due to the stress in the banking system. That’s the reason we continued with the 1%," said Arundhati Bhattacharya, SBI’s chairperson in an telephonic interview.

The 2% comes from a provision in the Companies Act, 2013 and is mandatory. However, banks such as SBI that were set up under a different statute (and not the Companies Act) do not need to adhere to it. Still, RBI has not issued any directions or instructions to banks on CSR spending, a spokesperson for the central bank said. She added that all scheduled commercial banks can, however, voluntarily contribute up to 1% of their previous years’ profit as donation.

SBI spent Rs.143.9 crore or 1% of its net profit on CSR in fiscal 2016.

The Companies Act of 2013 mandates that companies with a net worth of Rs. 500 crore or revenue of Rs1,000 crore or net profit of Rs. 5 crore should spend 2% of their average profit in the last three years on social development-related activities.

The banking sector has been plagued by rising non-performing assets for at least two years.

In June, RBI in its latest edition of financial stability report warned that risks to the banking industry’s stability have increased sharply, indicating more pain ahead.

The SBI chairman said the bank has been spending 1% of its profits since the 1970s. But till the stress eases CSR spending from banks could remain muted.

In fiscal 2016, even private banks (set up under the Companies Act) spent Rs. 681.80 crore, which is 73.7% of the prescribed Rs. 924.27 crore spend, according to data from CSR management firm Next Gen.

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