Post on 25-Mar-2020
Stabilizing and strengthening of
CSDs’ operations against
Market Booms & Busts
Central Depository Services (India) Limited
ACG17 General Meeting, Dhaka, Bangladesh
20 October 2013
CDSL Today !
• 8.5 million
• Situated in over 80% of pin-codes in India BO Accounts
• 582
• Operating from over 10,000+ locations
DPs Registered
• 11,744
• Equity, Debentures, Bonds, Mutual Fund Units, G-Secs, CDs, CPs, PTCs
Issuer Companies
• Volume 1,60,870 million
• Value Rs. 93,34,400 million
Securities under Custody
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• Promoted by BSE Ltd. and cross section of leading Indian & Foreign Banks
• Depository Services
Central Depository
Services (India) Limited
• Wholly owned subsidiary of CDSL
• KYC Registration Agency
• 1st and largest KRA with 12million KYCs
CDSL Ventures Limited
• Promoted by CDSL (51%) and Insurance companies (49%)
• Facilitates policyholders to hold insurance policies in electronic form
Central Insurance Repository
Limited
CDSL Group
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20 October, 2013
Adding Value for Investors …
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20 October, 2013
• easi-electronic access to securities information
• easiest-electronic access to securities information
and execution of secured transactions
• SMART - SMS Alerts Related to Transactions
• TRUST - TRansactions Using Secured Texting
• e-Voting System
• e-Notices
Old Adage for Booms & Busts ‘Make hay while the Sun shines’
&
‘Save for a Rainy Day’
…….. but in a Depository environment;
• How do we do it?
• How quickly we do it?
• How much we do it?
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Booms – Problems of Plenty
• Rapid utilisation of capacity of infrastructure
• High degree of employee turnover
• Overlooking compliance and regulatory
requirements
• Extravagant expenditure
• Deterioration of service standards
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Busts - Problems of Few
• Unable to sustain income & expenditure
– Balance sheet to slim
• Retrenchment
• Shrinking of DP network-demand decreases
• Compliance cost to go up
• Contractual obligation to contribute to fixed
revenue expenditure for technology, etc.
• Lack of diversification
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Experience of CSD’s
• Revenue – Business is entirely market driven
– 98%+ of volumes are from Exchange trades
– Income & Profits entirely dependent on • No. of trades
• Delivery percentage
– Other income comprises mainly of Treasury income
• Expenditure – Major expenditure on
• IT infrastructure
• Staff
• Very little scope to reduce/curtail
• Revenue fall effects Business partners(DPs) – Losses reduce net worth
– Small DPs tend to close operations
– Risk of mis-appropriation of client stock increases
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Insulation Options
• Create alternate Revenue streams
– Vertical integration
– Horizontal integration
• Expand business - new market types &
instruments
– Fixed Deposits, Mutual Fund units, Insurance, etc.
(subject to approvals from respective regulators)
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20 October, 2013 9
Service expansion and business risk control ‘A stitch in time saves nine’
• Mitigate Risks through Monitoring – Sound risk management framework for managing risks
• Identification of risks – Financial, System, Operational
• Management of risks through Surveillance
• Dormant account
• Multiple accounts – various parameters • AVPS monitoring
• Insurance premium
• Review through internal/concurrent and system audits
– Eliminate risks at participants end by using Technology
– SMS alerts
– Internet service ‘easi’ acts as an alternative access for users
• Build systems & procedures to reduce compliance cost for participants – Statement sending
– Centralization of audit functions of DPs at CSD
– Providing net based system to eliminate cost of hardware, software and network
• Build robust Business Continuity & DRS to eliminate systems risks
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Bolstering financial standing
• Building reserves & cash
• Stable Dividend Policy
• Tracking & collection of Receivables
– “Revenue received late is interest income
lost”
• Conservative Treasury Management
• Expenditure control @ All times –
‘Habits Die Hard’
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20 October, 2013 11
Managing Resources-Human Capital
• Booms & Busts
– Emphasis on succession planning
– Roadmap for growth of employees
• Foraying into new avenues - optimum
utilization of talent
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Fee strategy
“All in the same Boat”– CSD’s, DP’s, RTA’s, Issuers, etc.
• Booms – MAKE Money …..
• Identify all Revenue sources
• Charge as Business Does
• ‘SAVE’ – to stay afloat
• Busts – Considerate in fee structure
– “Don’t cook the golden goose”
– Innovate on cost reduction procedures
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20 October, 2013 13
IT investment strategy
• Choose scalable systems
• Need based IT Upgradation
• Look for New Technologies – for Systems
– for Networking
• Use excess capacity in time of Busts for other activities/products – This may require regulatory approvals
• Policy for upgrade to include buy back
• Regular System Audits
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Governance
• Define Objectives – It’s a ‘FACT’
• Fair/Equitable, Accountable, Compliant, Transparent
• All Actions to Reflect - the ‘FACT’
• Disclosure of clear & direct lines of responsibilities and
accountability
• Accountability to owners, participants, etc.
• Role and responsibilities of Board of Directors
• Effective control through various Committees
• Clear & documented risk management framework-
independent internal control function with access to the
Board
• Committees to review and assess different type of risks
• Audit committee headed by Independent Director
• Major decisions to reflect interests of various stakeholders
• Senior Management to Walk the Talk
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Coordination with interested parties including
Depository Participants, etc.
• Support DPs in Busts • Approved Person Registration
• Training - Uploaded on ‘You Tube’
• Help weak Participants - assign business
• Regular meetings with DP’s, RTA’s, Issuers, Auditors
• Aid in building client base – Investor Education Programs
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Moral of the Story
An optimist sees the opportunity in every difficulty- Boom or Bust.
Who you are?
“We (CDSL) can try to canalize economic trends; we (CDSL) can’t run against them in a head-on
collision”.
– Mahatma Gandhi
ACG17 General Meeting, Dhaka, Bangladesh
20 October, 2013
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ACG17 General Meeting, Dhaka, Bangladesh
20 October, 2013
www.cdslindia.com
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