A REPORT ON ROYAL BANK OF SCOTLAND

RBS India offers an unparalleled suite of client services in India. Using our global reach and drawing on the expertise of our team of research, sales and trading, equity capital market and mergers & acquisitions (M&A) advisory professionals, we have led many of the biggest and most innovative landmark transactions in India for our Corporate and Institutional Clients. We offer a broad range of transaction banking, fixed income and foreign exchange products and services, including sales and trading, fixed income origination, derivatives, structured lending and commodity financing. Additionally, we provide a diverse range of product offerings including personal loans, credit cards, savings accounts, financial planning, investment and insurance services, to meet the everyday financial needs of over a million Personal Banking clients in India. Asset Management is among the fastest growing asset managers, with just two years of operations in the country. We have ever-increasing distribution and aim to emerge as a leading player in the Indian asset management industry. Leveraging the Group's comprehensive research and diverse range of investment products, we offer our clients investment options in fixed income, equities, money markets and structured products. Our Microfinance program, the largest amongst its peer foreign banks in India, is aimed at delivering credit to our target community of impoverished rural woman through intermediaries called microfinance institutions.

CORE BUSINESS OF RBS(INDIA)

The bank has diversified its business operations in India since its inception.The core business includes, Consumer Banking. Private Banking. Van gogh preferred banking. Markets and international banking. Commercial banking. Wealth manangement.

Consumer Banking: Consumer Banking is the provision of products and services to meet the financial needs of individuals with a steady and verifiable income flow.

Some products of consumer banking are, U Fist. Generic savings account. First instant account.

Private Banking: Private banking is banking, investment and other financial services provided by banks to private individuals who invest sizable assets. The term "private" refers to customer service rendered on a more personal basis than in mass-market retail banking, usually via dedicated bank advisers.

Markets and International Banking: M&IB meets clients needs by bringing together capabilities including debt capital markets, international transaction services, FX and rates, as well as providing balance sheet advisory and structuring. Solutions are developed and delivered by committed experts with deep client and sector knowledge.

Commercial Banking: It is indeed lending money and providing transactional, savings, and money market accounts and accepting time deposit. Few products of commercial banking,

Revolving Lines of Credit Term Loans Letters of Credit Specialty Banking Syndication Asset-based Lending Corporate Depository and Investment Accounts CDARS.

Wealth management: Wealth Management has been expressly created to offer an enhanced level of service to demanding individuals. Attention is given to every fine detail in the crafting of innovative products with a comprehensive range of financial planning and wealth management capabilities to deliver an unique investing experience to the customers.

Some functions are,

-Deferred Exchange Services.

BUSINESS AND STRATEGY OF RBS

Strategic Plan The new RBS is built on businesses that are customer-centred and highly competitive. Together these are the 'Core' business. They are reshaping each business to perform better, more sustainably and to meet new external challenges. The Core business is a strong, balanced and valuable whole, thanks partly to vital links between the businesses. Non-Core division The weaknesses uncovered by the financial crisis - of leverage, risk concentration and business stretch - are being fixed. This is mainly through the sale of assets in Non-Core division. RBS's assets are already 712 billion less than at their peak in 2008. This is more than any other company in the world has achieved. Key facts Strong balance sheet metrics

Customer deposits 435bn Group loan to deposit ratio: 104% (92% in Core divisions) Liquidity portfolio: 156bn Group Core tier 1 capital ratio: 11.1% Total funded assets 929bn.

Customers

Over 30m customers worldwide Around 26m customers in the UK.

Employees

143,000 employees worldwide Over 90,000 in the UK.

Business Approach The Bank has three over-riding goals:

to serve customers well to restore RBS to a sustainable and conservative risk profile; and to rebuild sustainable value for all shareholders.

There are important inter-dependencies between these goals. It cannot serve customers well if the Group is not safer and more resilient. It cannot be sustainable without rebuilding shareholder value. And it cannot rebuild shareholder value if we do not serve customers well. So while each of these goals is important on its own, it will succeed only if we consistently achieve them together. Serving customers well Customer service is the cornerstone of our strategy. They have embedded it in our operational objectives, our Customer Charters and in our 'How we do business' framework, which is described on these pages. Because serving customers well matters, it measures how they do. Encouragements are made to gain on various measures in most of Core franchises in 2011. But they are not complacent. Customers' needs change over time, and good service today does not guarantee good service tomorrow. They face strong competitors in all of markets. So, they work hard to improve the service given to the customers. Restoring RBS to a sustainable and conservative risk profile This is crucial. In 2011, capital and liquidity positions are made stronger.

In addition:

We continued to improve how we manage risk The Group Board agreed the Groups risk appetites Risks are catalogued, measured and assessed how they might relate to each other; and Enhanced risk control frameworks.

Rebuilding sustainable value for all shareholders It will take some time to rebuild sustainable value for all shareholders. The Core businesses provide a strong foundation for the Group, generating a 10.5% return on equity in 2011. They are confident that the Core businesses will generate strong value in their own right and as a cohesive whole. How they do business It deliver products and services to millions of customers around the world. So it is important that they are consistent in the way of doing business, from managing risks to how customers and employees are treated. To achieve this, they have made six statements to do business. The business statements of RBS are,

Our customers
o o o o

We understand our customers We know who we are dealing with We treat our customers fairly We treat all customer information as confidential.

Our people
o o o

We value our people We recruit, develop and reward people based on their ability to do the job We manage our people responsibly and fairly.

Our reputation
o

We conduct ourselves in a way that protects our reputation

o o o o

We work within all relevant laws and regulations We are a responsible and engaged member of the community We conduct our business in a sustainable manner We deliver essential customer services and critical business processes at all times.

The security of our environment

o o o

We operate in a secure environment We protect access to our premises, systems and data We operate our processes, systems and controls to minimise loss from fraud or error.

The risks we take

o o

We understand and manage the risks we are taking We identify and manage the level of risk we are prepared to take.

Our finances
o o o

We manage our finances carefully We use the Group capital and resource efficiently We account for and report our transactions properly.

Managing Risk An integral role for Risk Management Risk Management is essential to making RBS safer and more sustainable. A stronger culture of risk management and control provides the foundation for this. Financial strength and resilience are at the heart of our Strategic Plan. The plan targets a credit rating in line with those of our strongest peers, without government support.

Risk objectives In 2009, the Group Board set four strategic risk objectives aligned to the Strategic Plan. These link the Group's business strategy to the way the risk appetite is set and manage risk in the business. These objectives are to:

maintain capital adequacy deliver stable earnings growth ensure stable and efficient access to funding and liquidity maintain stakeholder confidence.

Risk appetite are set at Group level. It expresses the maximum level of risk that it will accept as they deliver the business objectives. It cascades this to each of the divisions through two channels. Each division:

has its own risk appetite statement, based on its own business plans but also aligned with those of the Group

sets clear guidance on acceptable limits for all material types of risk, again aligned with Group targets.

By setting a clear risk appetite and embedding a strong risk culture throughout the businesses, it can identify, measure and control risk exposures, and respond effectively to shocks. Key developments in 2011 In 2011, it strengthened the approach to risk management amidst a challenging external environment. Areas of progress included:

redefining the responsibilities of key risk committees to meet future needs

refining understanding of the risks faced and their scale reducing exposures in line with objective of being safe and sustainable enhancing Group Policy Framework and continuing assurance improving the quality of data, including forward-looking measures. improving stress-testing capabilities and embedding them across the Bank.

Corporate Governance
The RBS Group continually seeks to maintain high standards of corporate governance whilst remaining on the forefront with compliance best practice. It aims to comply to all materials respects within the Corporate Governance Code issued by the Financial Reporting Council (June 2010). Who runs the company? The company is governed by a framework of Boards and committees. The Group Board is the principal decision-making forum for the company. It has overall responsibility for leading and controlling the company. The Board approves the strategy across the group and monitors performance. It has adopted a formal schedule of matters detailing key aspects of the company's affairs and this schedule is reviewed annually. The Board recognises the value of diversity and has issued a diversity statement.

Corporate Social Responsibility

RBS FOUNDATION Using enterprise to tackle poverty and environmental degradation The RBS Foundation India (RBS-FI) supports the development of sustainable livelihoods in the rural communities of India. We do this through various channels. Access to credit is of fundamental importance, and our Technical Assistance programme helps create more robust, sustainable microfinance institutions located in the under-banked regions of the country. In 2011 37 small MFIs underwent an 18 month structured programme which made it possible for them to scale up their operations, access bank funds and increase the number of loans provided to unbanked communities. In January 2011 New Economy magazine pronounced RBS India the Best Sustainable Financial Institution in India. Enterprise has the power to change lives. Our livelihood projects, which are delivered in partnership with NGOs, provide practical support and advice which can range from sharing agricultural expertise to creating an eco-friendly tourist attraction. Over 64,000 households have benefitted from this programme. Supporting local enterprise in India A proportion of the Indian population are dependent on the country's natural resources to make their living. Critically the RBS-FI helps these communities find prosperity whilst becoming environmentally sustainable too. Barley is the only grain crop that is grown in the trans-Himalayan area. The water needed for cultivation would have been traditionally provided by the melt water from mountain top glaciers. Climate change, however, has meant that the natural rhythm of this eco-system has been altered, proving problematic for local farmers.

The glaciers are receding which means at the time of sowing the farmers dont have any water, explains N Sunil Kumar, head of the RBS Foundation, India. The solution to this problem is as simple as it is innovative; snow is impounded in December and January in a series of check dams close to the villages. The snow compacts and then melts at the right time to be used for sowing the barley. The project created interest internationally and attracted a small amount of overseas funding. Local NGOs then made a formal approach to the RBS Foundation. "This is a typical case of a local response with very low cost technologies, to meet a local need that has been forced on them by the changes of global warming. Its ingenious." says Sunil.

Supporting the green economy

RBS Group is committed to support the renewable energy industry through both financing and advisory services. In 2011 it loaned more than any other bank to large-scale renewable energy projects. Rankings compiled by Infrastructure Journal showed RBS loaned more than double the amount of the next biggest lender. Infrastructure Journal uses industry data to monitor all major project finance deals around the world. RBS arranged and distributed $1,782m of debt capital directly to renewable energy companies, or to finance assets that directly support renewable energy. It co-led the largest ever solar-related equity deal in Asia-Pacific. The broad product offering and depth of experience means are involved in some of the most complex and large scale renewable energy projects across global footprint.

Safety and Security

Physical security Banks operate in an increasingly challenging context for physical security. It has responded to global economic instability, regime change and political uprisings, the ongoing threats from domestic and international terrorism and emerging threats from domestic extremism and hactivism (the act of hacking, or breaking into a computer system, for a politically or socially motivated purpose) throughout 2011. The safety of employees and customers is paramount. In 2011 we strengthened the resilience of building stock internationally. To enable effective local management, they have delegated control to Chief Building Officers (CBOs) who received extensive training. The CBOs are senior business leaders who co-ordinate and drive local decision-making in the event of an incident. There will be CBOs appointed in all of our buildings globally in 2012. It continues to strengthen the security of our branches across the globe on an ongoing basis. In the US, it invested $1.4 million in improved physical security for 215 branches. In the UK and Ireland, it spent 2.8 million. These improvements included upgrades to cash transfer units, branch counter screens, CCTV and alarms. Information security Protecting customer and employee information is a fundamental responsibility of the Group. In 2011, it invested 10 million on data protection and further investment is planned in 2012. An updated Information Security Policy Standard was launched in 2011 to take into account new threats and changing technology. The Policy Standard sets out minimum controls to enable Group information to be protected securely. It uses third parties to host some of data. These arrangements are covered by strict contracts covering information security. The RBS Group demands that third parties provide the same level of control as if it hosted the data internally and it carries out assurance activity to validate this.

It is imperative to manage our records safely. A new Records Management Policy Standard was launched in 2011 focusing on the controls required to manage high risk records those that include customer information. These controls improve the sustainability of records systems to reliably create, maintain, retrieve and dispose of records in accordance with the expectations of key stakeholders and legal and regulatory obligations. Anti money laundering In 2011 RBS Group continued to enhance the overall controls and governance around Antimoney Laundering (AML), and Sanctions and Counter Terrorist Financing (STF), supported by a group-wide change programme. It also enhanced the Group-wide controls against Anti-Bribery and Corruption (ABC) to comply with the UK Bribery Act which was launched in July 2011. In 2012 it will continue to embed enhanced AML, STF and ABC programmes across the group to ensure they best serve the evolving structure of RBS group, and remain in line with regulatory expectations. Safety The majority of RBS people work in low risk environments and are not exposed to significant occupational health and safety hazards. However, incident and accidents do happen and in 2011 it set out to reduce the number of them through a targeted programme of initiatives. As a result of these initiatives, the total number of incidents (accidents, occupational diseases, dangerous occurrences, fires, near misses and natural causes incidents) was reduced by 18% and our reportable injury rate fell by 43%, bringing below the industry sector average. In 2011 the number of accidents that resulted in members of the public attending hospital increased from nine to fourteen. The majority of these accidents, and reportable accidents to our employees, were due to slips, trips and falls. We have implemented a number of actions to reduce these types of injuries. For example, within the UK Retail division, employees were given training sessions to help them better identify slip, trip and fall hazards. This complements the mandatory training given to all employees on this subject.

Sustainability
We are rebuilding an RBS that is stronger and safer. The work we are doing on sustainability is an integral part of this, contributing to the long-term performance of the company and the return to ongoing profitability. Within the Bank there is a robust governance framework in place for the management of sustainability. The Group Sustainability Committee (GSC) is a Board level committee, chaired by our Senior Independent Director, Sir Sandy Crombie. The GSC reviews sustainability strategy, values and policy. The Committee is supported by the Group Sustainability Forum, a network of senior sustainability managers from across the organisation. This forum is responsible for driving actions agreed at the GSC. Our stakeholder engagement programme allows us to understand the issues that matter most to those who have an interest in our business. The outcome of these engagements informs decision making across the Group. Treating customers fairly, supporting enterprise, being a good employer, keeping customer money and data safe, and managing our wider ethical, social and environmental impacts remain among the key concerns of our stakeholders. Through our ongoing opinion research we continue to measure the views of stakeholders including the general public, opinion formers (politicians, regulatory and industry bodies, journalists, media) and employees.

Chairmans message

It is my privilege to present to you the annual report of the RBS Foundation India (RBS-FI).

greater survival prospects for mothers and their infants, better educated children, equal opportunities for women, and a

Our mission is to attempt to address the core issues of poverty and environmental degradation in India through the tools of Financial Inclusion and Financial Literacy.

healthier environment. Sadly, we are still a long way from realising these shared goals in India.

The role that the Corporate Community voluntarily adopts in

In this we are guided by the vision stated in the Millennium Development Goals: A world with less poverty, hunger and disease,

addressing these issues will determine our own sustainability. Key stakeholders whose views shape our on-going success, namely Clients, Employees &

Regulators are increasingly demanding that Banks & Financial Institutions invest meaningfully in the communities on which they rely for their profits.

rural India, women are denied these opportunities. They are perceived as not having the ability to generate an income, and hence, relegated to household duties and/or cheap labour. Without the

The objective of this report is to share with you the outcomes of work of the RBS Foundation India in Community Investment during

power to work and earn deserving incomes, their voices are silenced and traditional perceptions remain unchallenged.

2010-11. In India, the areas of poverty, equity and environment are key socio-economic indicators and as a result, these areas have been the focus of our efforts.

The RBS Foundation thus focuses on women as the primary beneficiaries of our Livelihood assistance projects. As education is critical in helping to empower women, the RBS-FI focuses on

The empowerment of women is widely recognised as a key determinant in improving the social and economic conditions of a community. Empowerment in turn is determined by economic opportunity, social equality, and personal rights. In many parts of

entrepreneurial training for women, with the objective of creating economic opportunities, improving financial literacy and connecting these women to relevant financial services.

As important as What we do is How

we do it.

a range of hands on opportunities at our projects and equips our staff

We strongly believe that by harnessing the collective talent pool of our employees we can bring both knowledge as well as passion to solving the challenges of community work. To encourage employee volunteering involvement in community work, RBS Business Leaders in India encourage their staff to participate in MAGIC HANDS at WORK our Employee volunteering programme. The Foundation offers

with training and tools to conduct impact assessments on Poverty & Biodiversity.

I take this opportunity to thank you for your continued support. I hope that the insights outlined in this report strongly evoke our passion for proactive social change and our commitment to making it happen.

-Meera H. Sanyal