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

2 ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013

• 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

3 ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013

Adding Value for Investors …

4 ACG17 General Meeting, Dhaka, Bangladesh

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?

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 5

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

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 6

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

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 7

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

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 8

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)

ACG17 General Meeting, Dhaka, Bangladesh

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

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 10

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’

ACG17 General Meeting, Dhaka, Bangladesh

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

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 12

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

ACG17 General Meeting, Dhaka, Bangladesh

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

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 14

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

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 15

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

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013 16

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

17

ACG17 General Meeting, Dhaka, Bangladesh

20 October, 2013

www.cdslindia.com

18