SHANTI BUSINESS SCHOOL

Report on Standard Chartered Bank

Management of Financial Institutions
Nikita Jain 8/17/2013

INDIAN BANKING SECTOR

In India, Banking in modern sense originated in the last decade of the 18th century. The first banks were Bank of Hindustan (1770-1829) and The General Bank of India, established 1786 and since defunct. The largest bank, and the oldest still in existence, is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955. For many years the presidency banks acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935. Banking in India was generally fairly mature in terms of supply, product range and reach-even though reach in rural India and to the poor still remains a challenge. The government has developed initiatives to address this through the State bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development with things like microfinance. Indias Rs 77 trillion (US$ 1.30 trillion)-banking industry is well at par with global standards and norms. Prudent practices and conventional framework adopted by the regulator, Reserve Bank of India (RBI), have insulated Indian banks from the global financial crisis. The country has 87 scheduled commercial banks with deposits worth Rs.71.6 trillion (US$ 1.21 trillion) as on 31 May, 2013. Of this, 26 are public sector banks, which control over 70 percent of Indias banking sector, 20 are private banks and 41 are foreign banks. Of the total, 41 banks are listed with a total market capitalization of Rs.9.35 trillion (US$ 158.16 billion) as per the recent statistics. According to the RBIs Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, September 2012, Nationalized Banks accounted for 52.0 per cent of the aggregate deposits, while the State Bank of India (SBI) and its Associates accounted for 22.3 per cent. The share of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was 13.6 per cent, 4.8 per cent, 4.3 per cent and 2.9 per cent, respectively. Nationalized Banks accounted for the highest share of 50.9 per cent in gross bank credit followed by State Bank of India and its Associates (22.1 per cent) and New Private Sector Banks (14.7 per cent). Foreign Banks, Old Private Sector Banks and Regional Rural Banks had shares of around 4.9 per cent, 4.9 per cent and 2.6 per cent, respectively.

Indias foreign exchange (forex) reserves stood at US$ 280.19 billion for the week ended July 12, 2013, according to data released by the central bank. The value of foreign currency assets (FCA) - the biggest component of the forex reserves stood at US$ 252.14 billion, according to the weekly statistical supplement released by the RBI. The number of mobile banking transactions doubled to 5.6 million in January 2013 from 2.8 million in January 2012. The value of these transactions increased three-times to Rs 625 crores (US$ 105.73 million) during the month from Rs 191 crores (US$ 32.31 million) in the corresponding month last year. Moreover, non-resident Indians (NRIs) parked deposits aggregating US$ 14.18 billion in the financial year ended March 2013, depicting an increase of 19 per cent over the previous year.

STRUCTURE OF INDIAN BANKING SECTOR

STANDARD CHARTERED BANK

Standard Chartered is a leading international banking group. It has operated for over 150 years in some of the world's most dynamic markets and earns around 90 per cent of its income and profits in Asia, Africa and the Middle East. This geographic focus and commitment to developing deep relationships with clients and customers has driven the Banks growth in recent years. Standard Chartered PLC is listed on the London and Hong Kong stock exchanges as well as the Bombay and National Stock Exchanges in India. With 1,700 offices in 70 markets, the Group offers exciting and challenging international career opportunities to over 88,000 staff. It is committed to building a sustainable business over the long term and upholding high standards of corporate governance, social responsibility, environmental protection and employee diversity. Standard Chartereds heritage and values are expressed in its brand promise, Here for good. Standard Chartered PLC was incorporated in England and Wales on November 18, 1969 and is registered as a public limited company pursuant to a merger of the Chartered Bank and The Standard Bank. Both banks were established in the mid-nineteenth century and their origins lie in financing trade in the emerging markets of Asia and Africa. In Asia the chartered bank expanded by opening offices including Myanmar in 1862, Pakistan and Indonesia in 1863, Philippines in 1872, Malaysia in 1875, Japan in 1880 and Thailand in 1894. Some 34 years after the chartered bank appointed an agent in Sri Lanka it opened a branch in 1892 to take advantage of businesses from the tea and rubber industries. During 1904 a branch opened in Vietnam. Both the chartered and the standard bank opened offices in New York and Hamburger in the early 1900s. The chartered bank gained the first branch license to be issued to a foreign bank in New York. The company changed its name from Standard Chartered Bank Public Limited Company to Standard Chartered PLC on January 1, 1985. The Chartered Bank opened its first branches in Mumbai, Kolkata and Shanghai in 1858, followed by Hong Kong in 1859 and was given a license to issue Hong Kong bank notes in 1862. The company shares and preference shares are listed on the official list and traded on the London Stock Exchange. The company shares are listed on the premium segment of the official list and the company preference shares are listed on the standard segment of the official list. Its shares are also listed and traded on the Hong Kong Stock Exchange. The company is headquartered in the UK where it is regulated by the FSA. The group head office provides guidance on governance and regulatory standards across the group network.

STANDARD CHARTERED IN THE 1990s Even within this period of apparent retrenchment the Standard Chartered expanded its network, re-opening in Vietnam in 1990, Cambodia and Iran in 1992, Tanzania in 1993 and Myanmar in1995. With opening of branches in Macau and Taiwan in1983and 1985 plus a representative office in Laos, the Standard chartered now has office in every country in the Asia pacific region with the exception of North Korea. In 1998 standard chartered concluded the purchase of a controlling interest in Banco exterior de Los Andes an Andean region bank involved in trade finance. With this purchase standard chartered now offers full banking services in Colombia, Peru and Venezuela. In 1999, standard chartered acquire the global trade finance businesses of union bank of Switzerland. This acquisition makes standard chartered one of the leading clearers of the dollar payment in the U.S.A. standard chartered also opened a new subsidiary, standard chartered Nigeria Ltd. in Lagos, acquired 75% of equity of Nakornthon bank Thailand and agreed terms to acquire 89% of the share capital of metropolitan bank of Lebanon.

RECENT DEVELOPMENTS Standard Chartered Bank has been actively engaged in acquisitions and expansion, and acquired Grind lays Bank from ANZ Bank in the year 2000 which considerably increased its banking operations in the nations of India and Pakistan. The bank defeated HSBC Bank in a bid to acquire Korea First Bank in the year 2005, which was renamed as SC First Bank after the acquisition. In the year 2006 the bank announced to have acquired an 80% stake in the Union Bank of Pakistan for a sum of US$ 511 Million, making the Standard Chartered Bank (Pakistan) the 6th largest bank in the nation of Pakistan. Standard Chartered announced an agreement on 27 April 2010 to buy the African custody business from Barclays PLC. On 13 May 2010, Standard Chartered PLC launched the first-ever Indian Depository Receipt IDR offer. On 17 June 2010, Standard Chartered Bank and the Agricultural Bank of China (ABC) strengthened their strategic partnership. Hong Kong has been identified as a potential pilot region for the two banks' co-operation journey. The two banks' declared aim is to co-operate to provide their corporate and individual customers with world class financial markets products. A joint co-operation committee will be formed by both banks to drive the strategic direction of the partnership. The committee was to be co-chaired by Peter Sands, CEO of Standard Chartered, and Zhang Yun, President of ABC. In December 2010, Standard Chartered was recognized as the Global Bank of the Year in The Banker's Bank of the Year 2010 awards.

PRESENCE IN INDIA In India, the Standard Chartered Bank introduced its first branch in Kolkata on 12th of April 1858. Later on, when Mumbai took over Kolkata as the financial capital of India, the bank administration was shifted to Mumbai from Kolkata. Currently, the bank offers a wide variety of banking services and products to the Indian customers under Personal Banking, Private Banking, SME Banking and Wholesale Banking categories. The services being offered include Regular Banking Services, Credit Cards, Debit & Prepaid cards, Loans & Mortgages, NRI Banking Services, Executive Banking and Insurance & Investment products. As of April 2009, Standard Chartered bank is located in all the prominent cities of India, including New Delhi, Mumbai, Kolkata, Bangalore, Hyderabad, Ahmedabad etc. Over time half the output of the second largest gold field in the world passed through the standard bank on its way to London. In1892 the standard bank opened for business in Zimbabwe and expanded into Mozambique in 1894, Botswana in 1897, Malawian 1901, Zambia in 1906, Kenya, Zanzibar and the democratic republic in Congo in 1911 and Uganda in 1912. Of these new businesses, Botswana, Zanzibar and the D.R.C. proved the most difficult and the branches soon closed. A branch in Botswana opened again in 1934 but lasted only for a year and it was not until 1950 that the bank reopened for business in Botswana.

BUSINESS AREA OF THE COMPANY The company operates through a number of subsidiaries including SCB, one of the leading international banking and financial services company. SCB particularly focuses on the markets of Asia, Africa and the Middle East. The company has no significant operations or assets other than its 100% interest in SCB. Business Division

Consumer Banking: Consumer Banking products and services include banking services, deposit-taking services, credit cards, personal loans, mortgages, and auto finance and wealth management services. Major markets include Hong Kong, Singapore, Malaysia, Indonesia, Korea, Pakistan, India, Taiwan and the UAE. Wholesale Banking: With business operations located in Singapore and a delivery footprint that spans its network, Standard Chartered Wholesale Banking business provides corporate and institutional clients with trade finance, cash management, securities services, foreign exchange and risk management, capital raising, corporate and principal finance solutions.

Product Mix of the company

Transaction Banking: The group is a global leader in the provision of transaction banking services. It provides basic lending services, as well as a full suite of trade finance, securities services and cash management products and services. Financial Markets: The financial market at Standard Chartered is a globally integrated business spanning Asia, Africa, the Middle East, the UK and US. Financial Markets includes trading functions such as equities, commodities, fixed income trading (rate, foreign exchange and credit), the group capital markets business and structured products. Corporate Finance: The corporate finance business at the group has shown growth in recent years. It is one of the key focal points for the wholesale banking strategy of adding sophisticated product and service capability and as such, accounts for an increasing proportion of the company overall business. The corporate finance offers corporate advisory services focusing on mergers and acquisitions advisory services and leveraged finance. Principal Finance: Standard Chartered principal finance business focuses on corporate private equity, infrastructure and real estate (through a dedicated fund in each area) and alternative investments. The focus in private equity is on investing in mid-to-late stage companies and management buy-outs and focuses on companies across the Standard Chartered footprint.

MAJOR ASSETS AND LIABILITES OF THE BANK ASSETS

INVESTMENTS AS ON 31ST MARCH 2013 (000) 251,012,887 140 4624841 100 51,485,833 307,471,112 AS ON 31ST MARCH 2012 (000) 222,296,819 182 1602778 100 49,198,934 273,238,813

Government securities Shares Debentures and bonds Subsidiaries Others (including Cps, CDs, etc.) Total

The major investments of the bank are in government securities which ensure the security of the investments. Also a fair increase is seen in the debenture and bonds which suggests that these investments are for the purpose of better returns on investments

AS ON 31ST MARCH AS ON 31ST MARCH 2013 2012 Cash and Balances with Reserve Bank of India 31,400,947 33,353,316 Balances with banks and money at call and short 23,737,895 15,271,405 notice PARTICULARS There is a reduction in the cash and balances with the RBI which ensures more money supply for loans and advances. Also, the call money and money at short notice is a considerably high amount which shows that the bank is in a position to fulfill its short term requirement for SLR purpose as well as for immediate money requirements for payment purposes.

ISSUER COMPOSITION OF NON-SLR REQUIREMENTS

PARTICULARS PSU Financial institutions Banks Private corporate Subsidiaries/Joint Others Total

AMOUNT (IN000) 539,700 2,260,292 18,041,005 5,344,212 100 31,184,553 56,458,225

The major investment is in the others which include deferred tax assets, tax paid in advance, stationary stamps, etc. and the second major investment is in other banks.

ADVANCES

Bills purchased and discounted Cash credits, overdrafts and loans repayable on demand Term loans Secured by tangible assets (includes advances secured against book debts) Covered by bank/ Government guarantees

53,068033 300,023,491 266,451,377 379,915,769

49,277,810 297,513,984 208,908,294 338,957,543

21,702,586 217,924,546

9,038,242 207,704,303 146,627,906 108,612 500,000 408,463,570

Unsecured 177,440,543 Priority sector 173,904 Public sector 78,940 Banks 441,849,514 Others

The major advances are the secured loans, the term loans and priority sector lending. We can say that this composition shows the policy of the bank in such a way that it is in a position to recover from its advances and reduce its NPAs

LIABILITIES

DEPOSITS
PARTICULARS Demand deposits From banks Demand deposits from others Savings bank deposit Term deposits from banks Term deposits from others AS ON 31ST MARCH 2013 5,987,748 136,176,503 94,778,542 16,425,205 366,648,698 AS ON 31ST MARCH 2012 13,259,085 147,638,704 95,849,763 17,882,241 365,017,178

The deposits composition shows that the majority deposits are from others and that are the demand deposits which are payable on demand. Hence, the bank is required to maintain healthy cash balances in order to maintain its credibility. Also, the term deposits are from the other sources than the banks like individuals, HNIs, etc.

BORROWINGS
PARTICULARS Reserve Bank of India Other institutions and agencies Others AS ON 31ST MARCH,2013 50,050,000 64,112,602 40,117,519 AS ON 31ST MARCH 2012 31,800,000 40,976,838 27,967,733

The borrowing structure is 32%, 42% and 26% from RBI, other institutions and other sources respectively.

SWOT ANALYSIS

STRENGTH Strong presence in India 150 years of banking in India The most profitable foreign bank in India (year 2012-13) Strong market position Cost advantage from proprietary know-how Shareholders return has grown more than 7 times Has maintained the position as a leading Asian cash management provider Improved product proposition Better geographic balances Multi-cultural organization that offers opportunities to grow Provides the convenience of online banking to access information about various accounts and also transfer money Inclusion of social and environmental development with economic growth Leaders in Asia Pacific and Africa Diversified portfolio of services that includes Credit cards, Consumer banking, corporate banking, finance and insurance, investment banking, mortgage loans, private banking, wealth management, Sponsors of major sports events and teams

WEAKNESSES Fewer locations as compared to other MNC banks Tough competition from banks like HDFC, ICICI, ABMAMBRO, KOTAK and HSBC ATM coverage not as good as other private banks Advertising is not aggressive Lesser emphasis on Small enterprises Has disadvantage due to last entry Service delivery reception is weak

OPPORTUNITIES Branch expansion for rapid growth Growing interest of people in derivatives and foreign exchange market Increase focus on value creation in whole banking Improve shareholders return Build market share in consumer banking as consumer banking continues to offer highest potential for growth Broadening of the demographic base Tie ups with master card networks Scope for more effective use of their brand name Can start new departments like a brokerage firm Integrated sales and service approach

THREATS Highly competitive environment Government policies and global financial crises Emergence of Indian private banks Nationalization of banks these banks have many more branch networks than foreign banks IDBI is pitching in quite aggressively Citibank is expanding in new markets Competitive products and offers from ICICI and HDFC Reduced business in OECD business