Statement of Shri D Basu, Chairman of the Board of Directors, at the Fourteenth Annual General Meeting of the Company held on Wednesday the December 17, 2008

It is my pleasure to welcome you all to the Fourteenth Annual General Meeting of your Company. The Directors' Report for the Financial Year 2007-08 along with the Audited Balance Sheet, Profit & Loss account and the Auditors' report have already been sent to the members and with your permission I would take them as read.

BUSINESS IN FY 2007-08

The business environment that prevailed in the markets in which your Company and its subsidiaries operated last year and the financial results achieved have been discussed in the Directors' Reports of the Company and the subsidiaries. I am therefore not dwelling on these aspects except to say very briefly that with the onset of a phase of monetary tightening by Reserve Bank of India , the environment for fixed income business remained difficult during major part of the year. The environment for brokerage and investment banking business, however, remained positive except in the last quarter. Your Company posted a pre tax profit of Rs.36.09 crore (including a profit of Rs. 7.15 crore on sale of stake in a subsidiary) during the year which evidenced a return to profitable operation after the loss of Rs. 13.56 crore last year.

A YEAR OF BUSINESS RESTRUCTURING AND CONSOLIDATION

STCI Primary Dealer Ltd

During the year, further progress was made towards restructuring of your Company's business and in setting the stage ready for further diversification in future. The Primary Dealership (PD) business of the

Company was transferred to its newly set up subsidiary STCI Primary Dealer Limited which was incorporated in October 2006 and commenced operations in June 2007. This subsidiary has fully taken over your Company's PD business which earlier was its sole business if one ignores the marginal activities of equity trading and mutual fund distribution. It may be recalled that a decision was taken in 2006 to spin off your Company's highly regulated primary dealership business into a smaller subsidiary to permit a diversified business model for the main Company in future. Furthermore, over the years, it was felt that a capital base of Rs. 500 crore was too high to be deployed in primary dealership business given the somewhat limited and slow development of the market for government securities in India. I am happy to report that this phase of restructuring was completed last year and the Company's PD subsidiary ended the first year of its operation (only 9 months) with a net profit of Rs.15.53 crore on a reduced capital base of Rs. 200 crore.

Standard Chartered--STCI Capital Markets Ltd (SC--STCI Cap)

Another development that I wanted to touch upon relates to SC--STCI Cap. As you would have noted from the Directors' Report, Standard Chartered Bank (SCB) exercised its call option with respect to further 25.9% of the former Company's equity, over and above the 49% stake they had acquired during FY 2007-08. Following receipt of all necessary regulatory approvals, the second stage stake sale has just been completed and SC--STCI Cap has now become a subsidiary of SCB with the latter's holding rising to 74.9%.

Your Company has received the amount of the agreed price of Rs.77.70 crore for this part of the stake sale. It may be recalled that STCI acquired 100% of the equity of UTI Securities Limited at a price of Rs.265 crore in April 2006 and the total consideration so far received in respect of sale of 74.9% thereof to SCB is Rs.224.7 crore. Your Company has a put option with respect to the remaining 25.1 % of the equity of SC--STCI Cap, which can be exercised after its accounts for FY 2009-10 are finalized, at a price in the band of Rs. 80 crore (minimum) to Rs. 120 crore (maximum) depending on the actual financial result of that year. As against the above, your Company has made a payment of Rs.10 crore to SC--STCI Cap by way of indemnity payment in respect of frauds that surfaced at one of the branches of the SC--STCI Cap just before the first stage stake sale. Another payment of Rs.15.65 crore has now been made by way of debt collateral in respect of certain unsecured debtors as provided in the shareholders' agreement between SCB and your Company. An investment of Rs.3.87 crore has also been made in acquiring the commodities broking subsidiary of SC--STCI Cap.

STCI Commodities Ltd

As you would have observed from the Directors' Report, your Company also acquired the above named commodities broking subsidiary from SC--STCI Cap at a cost of Rs.3.87 crore to ensure compliance with the terms of the regulatory approval for the stake sale. Following a detailed review of the business prospects of the subsidiary, it has been decided to scale down the commodities broking business in the absence of an immediate synergy between that business and the business of your Company.

FUTURE BUSINESS MODEL

The position that has now emerged is that your Company has a primary dealership subsidiary with a paid up capital of Rs. 200 crore and with a clear, established business model. It has a minority stake of 25.1% in SC--STCI Cap which is engaged in brokerage and investment banking business. There is also the commodities broking subsidiary which is being scaled down. After providing for investments in these entities, your Company still has substantial surplus networth in the region of Rs.500 crore and the management has been deliberating on an appropriate business model on which this networth can be deployed and which would provide a much needed diversification for your Company in the non banking finance space.

Following consultation with an experienced firm of strategy consultants and on the basis of management's analysis and recommendations, your Board has concluded that an appropriate new line of business for your Company will be an NBFC to be engaged in lending – initially to participants in capital market and to mid-corporates. Feasibility study and business projections have been carried out and your Board has approved in principle the entry into this business with an allocated capital of Rs.200 crore to start with. The necessary organizational blue print has been prepared and assessment of manpower requirements made. It is our intention to move into this business at the earliest. However, as we all now know, the global economic downturn and financial market meltdown have affected markets in India too. This has raised business risks significantly, calling for caution in taking up new business lines particularly in the lending area.

Your Company is fully cognizant of this situation and is therefore moving with caution. It is, however, expected that it will be possible for the Company to enter this new business in a meaningful way in FY 2009-10 after necessary preparations, including bringing on board the requisite skilled personnel, which processes will begin in the current year itself.

OUTLOOK FOR THE CURRENT YEAR

In the current year, your Company has largely been in a ‘holding operations' mode pending identification and adoption of a new business model for itself. Accordingly and in the prevailing uncertainties in the financial markets, STCI has largely deployed its resources in bank deposits and other forms of high quality cash equivalence. The Company has taken up lending against shares but in view of the collapse of the stock market, the book for this business has remained limited. Other activities of the Company currently are trading in fixed income instruments, equities and commodities futures. The financial result from the stand-alone activities of your Company is expected to remain positive but not large.

The Company's PD subsidiary passed through a difficult business environment during the first seven months of the year as a result of continuing - in fact stepped up - tight money policy of Reserve Bank. However, with RBI loosening its monetary policy stance in the past two months, resulting in a sharp decline in interest rates, the fixed income market has begun to regain its buoyancy. It is expected that the PD subsidiary will end the year with a reasonably good profit.

The business environment for SC--STCI Cap has been rather difficult in the current year because of the down turn in the stock market as well as reduced opportunities in the investment banking area. It is unlikely therefore that there will be any significant income contribution to your Company from SC--STCI Cap.

On the whole, the consolidated results of STCI and its subsidiaries for the current year are expected to be better than that of the previous year. However, many uncertainties continue to dog the financial markets and therefore any assessment of the future must be subject to these uncertainties.

ACKNOWLEDGEMENTS

I take this opportunity to thank the Government of India, the State Governments, Reserve Bank of India , Securities and Exchange Board of India, Bank of India, other Commercial and Co-operative Banks, Insurance Companies, Mutual Funds and other clients for co-operation and support. I would like to acknowledge the hard and committed work put in by the Company's officers and staff during the FY 2007-08.