Integrated Reporting and Financial Performance of Indian Banks
CA. Namratha Jain
Member of the Institute of Chartered Accountants of India. Contact: namrathahjain@gmail.com
Prof. Shurveer S. Bhanawat
Head, ABST Dept, Mohanlal Sukhadia University, Udaipur. Contact: eboard@icai.in
“A true integrated report is one which shows a clear link between sustainability and financial performance. Banking and financial services is the second top industry/sector using the International Integrated Reporting Framework (IIRF) within BSE 500 group (AICL, Dec 2020). Hence in the present study, our main purpose is to examine the relationship between Integrated Reporting (IR) and Financial Performance (FP) of Indian banks. The results show that Indian banks are at different stages of Integrated Reporting (IR) adoption as they published their first integrated report in different years and the sample scores are between 34% and 85%. Positive correlation was found between IRS and market based financial performance measures. Read on…”
Introduction: The Paradigm Shift Towards Holistic Value Creation
Integrated Reporting (IR) is a concise yet holistic form of reporting the value that businesses create through the representation of both financial and non-financial performance of an organization. Lately, progressive organizations across the world have realized that traditional corporate financial reporting takes an excessively narrow, short-term approach that is fundamentally inadequate to meet the multi-dimensional expectations of long-term investors, regulators, rating agencies, and wider societal stakeholders.
Therefore, the momentum towards integrated reporting is accelerating globally as the premier reporting architecture that establishes explicit guiding principles and eight core content elements. Designed to ensure cross-sectional comparability between reports and temporal consistency in disclosure, IR enables corporate enterprises to publish a unified, coherent annual report with comprehensive disclosures cross-mapped to multiple external reporting frameworks. The landmark initiative to merge the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) into the unified Value Reporting Foundation represents a decisive global step towards consolidating fragmented sustainability reporting standards, lending institutional credibility to disclosures, sharpening key performance indicators (KPIs), and driving intra-industry comparability (AICL, Dec 2020).
“The need for integrated reporting is gaining momentum across the world as one of the leading frameworks that lays down clear guiding principles and content elements, prepared with the objective of ensuring comparability between reports and consistency in reporting.”
As famously articulated by Mervyn King, Chair of the IIRC: “Business is a part of society, not apart from society.” This profound axiom proved irrefutable amidst the unprecedented disruption of the COVID-19 pandemic. Global business organizations were forced to prioritize the health, safety, and psychological resilience of their workforce, clients, and local communities over immediate accounting profitability—radically restructuring operational models to navigate crisis conditions.
Historically, disclosures within the commercial banking sector were strictly anchored in financial capital and, to a limited degree, human capital. However, the aggressive digitization of financial intermediation—creating vast intangible assets alongside cyber risks—demands that financial institutions demonstrate how they preserve and enhance the full spectrum of Six Capitals:
Integrated Reporting Worldwide and in India
The institutional concept of Integrated Reporting was formally pioneered in South Africa in 2009 through the King III Code of Corporate Governance, which mandated integrated reporting for all entities listed on the Johannesburg Stock Exchange (JSE). Recognizing the global imperative, the International Integrated Reporting Council (IIRC)—a high-level global coalition of financial regulators, sovereign wealth investors, transnational accounting bodies, multinational corporations, and non-governmental standard setters—was established in June 2010. Within three years of extensive worldwide consultation, the IIRC promulgated the official International Integrated Reporting Framework (IIRF) in December 2013.
Today, the adoption of integrated reporting has expanded to over 2,500 major corporations across more than 70 sovereign jurisdictions throughout Africa, Europe, Asia, and the Americas, with over 40 leading securities exchanges explicitly sign-posting the IIRF within their statutory ESG disclosure mandates.
In India, adoption was catalyzed by a landmark circular issued in 2017 by the Securities and Exchange Board of India (SEBI). SEBI formally recommended that the Top 500 listed enterprises (which were already required to file a statutory Business Responsibility Report or BRR under Regulation 34(2)(f) of the LODR) voluntarily transition to the International Integrated Reporting Framework. Propelled by this regulatory nudge, 50% of Nifty 50 corporations had formally embraced IR by December 2020, with progressive banking institutions leading the charge (Grant Thornton Bharat, Dec 2020).
Empirical Scope, Sample Selection & Methodology
The primary research objectives of this investigation are twofold:
- To rigorously evaluate the level of compliance of integrated reports published by leading Indian commercial banks against the International Integrated Reporting Framework (IIRF).
- To empirically examine the statistical relationship between the Integrated Reporting Score (IRS) and the Financial Performance Indicators (FPIs) of the sampled banking institutions.
The empirical investigation focuses exclusively on the Indian scheduled commercial banking sector. Within the Top 500 companies ranked by market capitalization on the National Stock Exchange (NSE) as on 31st March 2020, exactly 29 commercial banks were voluntarily eligible to adopt IR starting from FY 2017-18. Out of these 29 banks, 10 banks had formally published an integrated report as of 31st March 2020. To ensure statistical reliability and longitudinal consistency, the final sample was restricted to 7 commercial banks whose integrated reports were consistently available across a three-year observation period (FY 2017-18 to FY 2019-20, with mandatory minimum coverage in FY 2018-19 and FY 2019-20):
Construction of the Integrated Reporting Score (IRS)
To measure disclosure quality objectively, an exhaustive IR Disclosure Checklist comprising 43 granular items was synthesized across all eight content elements defined in the 2013 IIRC Framework, drawing upon empirical benchmarks established in prior international literature (Akhter & Ishihara, 2018; Sofian & Dumitru, 2017; Lee & Yeo, 2015).
Consistent with the methodological findings of Lee & Yeo (2015) noting the absence of theoretical justification for differential weighting, equal importance is assigned across each of the eight content elements. The IRS for each bank-year observation is formulated as:
A longitudinal panel of 21 observations (7 banks × 3 years, N = 21, n = 7, T = 3) was scored through comprehensive content analysis of integrated annual reports, standalone annual reports, and sustainability filings.
Empirical Findings: Descriptive Statistics & Content Element Compliance
Granular In-Depth Evaluation Across Content Elements
The highest scoring category. Axis Bank obtained the maximum score across all 3 years of study. State Bank of India (SBI) attained the maximum score in the last two years, while RBL Bank and Yes Bank reached full compliance in the final year. Except for Karnataka Bank, Indian banks achieved an average compliance rate of approximately 90%, demonstrating exemplary reporting on institutional vision, mission, ownership structure, operational presence, key quantitative indicators, and external macroeconomic forces.
HDFC Bank and Axis Bank led the cohort with benchmark scores of 84%. However, the majority of banks exhibited significant disclosure gaps in explicitly linking their business models to strategic objectives, risk appetite, resource allocations, and tangible value outcomes across multiple capitals.
Yes Bank secured the top disclosure score. While virtually all banks articulated principal sources of operational, credit, and market risks, their potential impacts, and mitigation controls, they substantially lagged in detailing concrete corporate initiatives undertaken to capture commercial value from emerging opportunities and quantify their strategic upside.
HDFC Bank (80%) and Axis Bank (76%) were the premier performers. Banks consistently articulated high-level corporate strategies and resource deployment budgets while factoring in environmental and social considerations. Nevertheless, the systematic alignment connecting strategic resource allocations back to stakeholder engagement matrices and core business models remained noticeably weak.
HDFC Bank and Yes Bank tied for the top ranking with approximately 78% compliance. Most reports thoroughly documented Board composition, director qualifications, specialized committee mandates, organizational values, and ethical culture. However, disclosures were severely deficient regarding the precise mechanisms through which Board oversight steers strategic risk-taking and how executive remuneration and incentive structures are tied directly to multi-capital long-term value preservation.
Performance and Outlook represent the two lowest-scoring dimensions across Indian banking reports, exposing an acute corporate reluctance to link empirical performance to pre-established non-financial targets or provide quantitative forward-looking disclosures:
- Selective Self-Serving Disclosures: Information was heavily slanted towards positive capital developments to manage external perception, while disclosures on negative capital degradation (e.g., carbon externalities, litigation costs, employee attrition) were conspicuously absent.
- Monetization of ESG Initiatives: Banks disclosed positive operational savings (energy conservation, water preservation, paperless transactions), green lending allocations, CSR disbursements, and Priority Sector Lending volumes.
- Absence of Integrated Hybrid KPIs: Metrics that bridge financial outcomes with non-financial performance (e.g., ratio of greenhouse gas emissions to net interest income, financial return on employee training outlays per IIRC 2013) were overwhelmingly missing.
- Inability to Quantify Future Macro Risks: While banks articulated qualitative macroeconomic headwinds, none quantified the financial balance sheet impact of future environmental shocks. State Bank of India (SBI) performed closest to best practice by establishing explicit capital-by-capital forward targets.
Axis Bank ranked first (96%), followed by Yes Bank (88%) and SBI (79%). While reporting boundaries, materiality assessment matrices, and stakeholder consultation protocols were adequately documented, banks failed to demonstrate how identified material matters directly dictate their organizational value creation and capital reallocation processes.
“Performance and outlook are the least disclosed category indicating that banks in the current study showed a low level of concern on performance link to previously identified targets and outlook disclosure.”
Econometric Analysis: The Empirical Relationship Between IRS and Financial Performance
To evaluate whether a statistically significant relationship exists between Integrated Reporting compliance and corporate financial health, the authors conducted univariate Pearson correlation analyses across eight comprehensive accounting and market-based Financial Performance Indicators (FPIs):
1. Positive Market-Based Valuation (MTB & TOBINQ)
A strong positive correlation was documented between IRS and both Market-to-Book (r = +0.545) and Tobin’s Q (r = +0.539). As forward-looking valuation metrics, this demonstrates that equity markets and sophisticated institutional investors place a valuation premium on banks demonstrating transparency and multi-capital stewardship, recognizing IR as a leading indicator of long-term sustainable compounding.
2. Lower Cost of Borrowing (COB)
A notable negative correlation was observed between IRS and Cost of Borrowing (r = -0.511). Commercial banks exhibiting higher integrated reporting quality and robust governance disclosures are perceived by debt markets as lower-risk credit counterparties, enabling them to raise wholesale funds and issue corporate bonds at significantly tighter credit spreads.
3. The Priority Sector Lending Paradox: Statistically Significant Negative Link (r = -0.889**, p = 0.007)
The sole statistically significant relationship at the 1% significance level emerged between IRS and Priority Sector Lending Ratio (PSLR) (r = -0.889, p = 0.007). This unexpected empirical inverse relationship reveals a profound operational paradox within Indian commercial banking:
Under Reserve Bank of India (RBI) mandates, banks must deploy 40% of Adjusted Net Bank Credit (ANBC) into designated priority sectors (small and marginal farmers, micro and small enterprises, affordable housing, student education, weaker socioeconomic groups, and renewable energy installations). While PSL constitutes an ideal strategic channel to build social, relationship, and natural capital in alignment with the UN Sustainable Development Goals (SDGs), the empirical findings indicate that banks with the highest IR disclosure scores treat PSL merely as a rigid statutory compliance mandate rather than internalizing integrated thinking into their core lending strategies.
“Banks are doing PSL only to meet the targets set by RBI and not considering it as social responsibility towards the society.”
Conclusion & Strategic Roadmap for Banking Regulators
The empirical findings confirm that Indian commercial banks reside at vastly divergent stages of Integrated Reporting maturity, with compliance scores spanning from a rudimentary 34.25% to an advanced 84.93% (averaging 64.91%). Within a voluntary regulatory regime where IIRF adoption is recommended but not legally compulsory, this represents a commendable baseline of transparency.
Nevertheless, Indian banking reports suffer from systemic structural asymmetry: compliance is exceptionally high for static, backward-looking descriptive narratives (organizational mission, ownership, risk matrices, and Board bios), but collapses precipitously when evaluating forward-looking Performance and Outlook disclosures. To evolve from surface-level compliance to genuine integrated thinking, Indian banking boards must implement three imperative reforms:
Move beyond isolated non-financial metrics by developing quantitative hybrid ratios that explicitly connect sustainability actions to financial metrics—such as carbon intensity per rupee of credit extended, green loan return on risk-adjusted capital, and training return on human capital.
Overcome the corporate impulse to publicize only positive capital developments. Reports must provide transparent accounting of negative externalities, environmental transition risks, and climate vulnerability within corporate loan books.
Transition PSL away from a mechanical, tick-the-box regulatory quota towards an intentional strategy that builds resilient social, relationship, and natural capital across India’s rural and renewable energy ecosystems.
Bibliographic References & Academic Literature
- AICL. (Dec 2020). India Adopts IR. Retrieved from www.aicl.in/ir/indiaadoptsir/
- Akhter, T., & Ishihara, T. (2018). Assessing the Gap between Integrated Reporting and Current Corporate Reporting: A Study in the UK. International Review of Business, 18, 137–157.
- Dey, P. K. (2019). Value relevance of integrated reporting: a study of the Bangladesh banking sector. International Journal of Disclosure and Governance. https://doi.org/10.1057/s41310-020-00084-z
- El-Deeb, D. S. (2019). The Impact of Integrated Reporting on Firm Value and Performance: Evidence from Egypt. Alexandria Journal of Accounting Research, 3(2).
- Grant Thornton Bharat. (Dec 2020). Integrated Reporting in India: Survey on adoption and the way forward. Retrieved from https://integratedreporting.org
- IIRC. (2013). The International Integrated Reporting Framework. International Integrated Reporting Council. Retrieved from https://integratedreporting.org
- Marx, A. (2019). Assessing the relationship between integrated reporting and financial indicators of selected JSE companies. Doctoral Dissertation, North-West University.
- Reserve Bank of India (RBI). (2021). Master Directions – Priority Sector Lending (PSL) – Targets and Classification. RBI/FIDD/2020-21/72.