The MBA is alive and well, post covid

The world has not fallen apart after Covid-19. Greed is not dead and capitalism is not buried. And the MBA, contrary to forecasts, is alive and well, says an article in the Economist. Although the article is about US B-schools, much of it would apply elsewhere.

During the pandemic, B-schools saw online programmes posing a major threat. They saw applications falling as students felt that an MBA minus the social interaction may not be worthwhile. And foreign applicants to US schools fell following travel restrictions and reports of American universities getting foreign students to leave the campus, which also meant having to leave the country. European,  Chinese and Hong Kong schools benefited as a result.

But the American MBA is now back. The trend towards falling applications has been reversed this year. There is a rise in interest among the usual recruiters. How come? The article explains how US B-schools adapted and learnt:

MBA applications typically rise in recessions, when a weaker job market means lower forgone salaries. But business schools deserve credit for adapting their business models—as their professors preach others to do. Many delayed the start of semesters, offered generous scholarships, waived exam requirements and liberalised policies on deferrals. Harvard Business School allowed students it admitted to postpone studies for one or two years. GMAC reckons that deferrals globally have shot up from about 3% to 7%.

Schools also boosted online and flexible degrees, which are surging, and integrated digital teaching into core MBA courses.

The biggest learning, perhaps, is that online is not the threat it seemed to be. By intelligently combining classroom learning with digital teaching, B-schools can enhance their appeal. Their experience is akin to that of mainstream banks that at one point seemed threatened by online alternatives. By embracing online technology and combining it with brick and mortar branches, the leading commercial banks have strengthened and broadened their appeal. Ditto for B-schools. 

On a slightly different note, an article in the FT suggests that while B-schools may be booming, their appeal to women may be waning. It appears that women are more concerned about the rising cost of MBA education than men are. The move to online also seems to have cheesed off women but, as suggested above, that should not be a factor hereafter.

Indian banking poised for revival in 2021

Indian banking has weathered the pandemic storm of 2020 and is poised for a revival in 2021. The improved outlook is reflected in the rally in banking stocks. All right, the stock market may be experiencing a bit of a bubble. But the fundamentals tell the same story. The bad loan problem has been largely dealt with- through aggressive provisioning and through recapitalisation of banks.

The RBI's Financial Stability Report of January 2021 has some gloomy projections based on stress tests it has carried out. The RBI's stress tests show that, in a baseline scenario, bad loans could rise from 7.5 per cent in September 2020 to 13.5 per cent in September 2021. In an adverse scenario, bad loans could rise to 14.8 per cent for scheduled commercial banks as a whole. For public sector banks (PSBs), the scenario could be worse.

The RBI qualifies these estimates with caveats:

By design, the adverse scenarios used in the macro stress tests are stringent conservative assessments under hypothetical adverse economic conditions,” the RBI said. “It’s emphasised that model outcomes do not amount to forecasts.” The RBI also introduced a caveat in its stress test for ban

Read more at: https://www.bloombergquint.com/economy-finance/rbi-fsr-bank-bad-loans-could-rise-to-135-by-september
Copyright © BloombergQuint

 By design, the adverse scenarios used in the macro stress tests are stringent conservative assessments under hypothetical adverse economic conditions. It is emphasised that model outcomes do not amount to forecasts.

....considering the uncertainty regarding the unfolding economic outlook, and the extent to which regulatory dispensation under restructuring is utilised, the projected ratios are susceptible to change in a nonlinear fashion.

In other words, with loan restructuring and other forms of forbearance, the  bad loan ratios may not be that bad. 

I am willing to bet they won't be. I have seen the estimates of market analysts. Some of them estimate bad loans at about half the level of 13.5 per cent indicated by the RBI's base line scenario. Many bankers felt at the height of the pandemic that bad loans could rise by up to 50 per cent over the previous year. A 50 per cent rise over 7.5 per cent amounts to around 11 per cent. That was before we learnt that the Indian economy is recovering faster than thought and that very firms have opted for loan restructuring.

I notice that KV Kamath is also inclined to an optimistic view: 

Kamath said one should overreact and talk about bank capitalisation and cleanup, which he believes has already been done.

Hand-holding might be required, but that is completely different from cleanup. Recapitalisation of banks (by the government) has been done, and nothing has been broken, because banks have been prudent and continue to make provisions. Having said that, had a large number of corporate restructuring happened, there would have been noise in the market. There is no noise in the market.

In a recent article in BS, I set forth the reasons I think 2021 will be a year of recovery for Indian banking:

• GDP growth of 10 per centin 2021-22 will translate into credit growth of 15 per cent. This will boost bank bottom lines
• Thanks to increased provisioning, NPAs were down to 2.8 per cent in March 2020. 
• We will be about ten years into the banking crisis in 2020-21. That's a long enough time to emerge from the crisis given that the typical banking crisis, according to Reinhart and Rogoff, lasts eight years

I also argue that the impending improvement in banking, including at PSBs, means that the recipes for banking revival given so far - a bad bank, a Bank Investment Company, wholesale privatisation- are not meaningful. 

It makes more sense to recapitalise PSBs, wait for an improvement in valuations and attempt strategic sales in two or three PSBs as an experiment. Wholesale privatisation and a fall in government shareholding below 50 per cent will jolt depositor and investor confidence in Indian banking at a time when the outlook appears promising.

By design, the adverse scenarios used in the macro stress tests are stringent conservative assessments under hypothetical adverse economic conditions,” the RBI said. “It’s emphasised that model outcomes do not amount to forecasts.”

Read more at: https://www.bloombergquint.com/economy-finance/rbi-fsr-bank-bad-loans-could-rise-to-135-by-september
Copyright © BloombergQuint

By design, the adverse scenarios used in the macro stress tests are stringent conservative assessments under hypothetical adverse economic conditions,” the RBI said. “It’s emphasised that model outcomes do not amount to forecasts.” The RBI also introduced a caveat in its stress test for ban

Read more at: https://www.bloombergquint.com/economy-finance/rbi-fsr-bank-bad-loans-could-rise-to-135-by-september
Copyright © BloombergQuint

By design, the adverse scenarios used in the macro stress tests are stringent conservative assessments under hypothetical adverse economic conditions,” the RBI said. “It’s emphasised that model outcomes do not amount to forecasts.”

Read more at: https://www.bloombergquint.com/economy-finance/rbi-fsr-bank-bad-loans-could-rise-to-135-by-september
Copyright © BloombergQuint

 

By design, the adverse scenarios used in the macro stress tests are stringent conservative assessments under hypothetical adverse economic conditions,” the RBI said. “It’s emphasised that model outcomes do not amount to forecasts.”

Read more at: https://www.bloombergquint.com/economy-finance/rbi-fsr-bank-bad-loans-could-rise-to-135-by-september
Copyright © BloombergQuint

By design, the adverse scenarios used in the macro stress tests are stringent conservative assessments under hypothetical adverse economic conditions,” the RBI said. “It’s emphasised that model outcomes do not amount to forecasts.”

Read more at: https://www.bloombergquint.com/economy-finance/rbi-fsr-bank-bad-loans-could-rise-to-135-by-september
Copyright © BloombergQuint

Management "lessons" from Brisbane test

 This may sound cliched but cliches are often true and worth repeating. So, here are some management "lessons" from India's great win at Brisbane.

It is said that India won the Brisbane test despite the absence of  many stalwarts- Kohli, Shami, Jadeja, Ashwin, Bumrah, Yadav, Rahul. A badly depleted side managed to pull off a fantastic victory. It's worth asking: was it despite their absence or because of it?

Stars don't have to go all out. They don't have that much to lose if they don't play well. Not so with debutants or novices such as Siraj, Natarajan, Sundar. They have to go all out, make the most of an opportunity. They have so much at stake. 

Stars don't easily make good team players- and this is not with reference to our senior cricketers, it's  a general statement. And yet performance is more  about team performance than about stars.Team performance is more than the aggregation of solo effort- cooperation, collaboration, mutual support, give and take, all these matter.

Above all, nobody is indispensable. It may appear that, sans the stars, an organisation will be nowhere. However, there is always talent that can be found and the collective team effort can compensate for lack of individual greatness. Indeed, the test of an organisation is whether it can perform once a star or stars have departed.

In light of the above, I see merit in the suggestion, gathering steam, that Ajinkya Rahane should be retained as captain for tests:

Rahane collected the Border-Gavaskar Trophy, held it aloft, called his team-mates, handed over the trophy to T Natarajan and left the scene. On ABC Grandstand radio commentary, legendary former Australia captain Ian Chappell was impressed.

“That’s Rahane for you. When the BCCI will hang a picture of this at its office, the captain will be missing from the group photo. His team mates love him and respect him. They are playing for him,” Chappell said.

I think I would have really considered keeping @ajinkyarahane88 as Captain for @BCCI !!! Allowing @imVkohli to be the Batsman only would make India even more dangerous & Rahane has an incredible presence & tactical nous about him,” former England captain Michael Vaughan wrote on Twitter.

The team leader does not have to be the best player in the team. He has to be a competent player who can get the best out of his team- by motivating them, by involving them in decision-making, maintaining good relationships. Rahane appears to meet these requirements in ample measure. Besides, Kohli may be able to focus more on his batting, as Vaughan points out.

It's interesting that while many people warm to the idea, they seem to think the selectors will find it difficult to put it to it Kohli, given that he's a superstar. There, you have the familiar Board of directors syndrome- the board not wanting to annoy a star CEO. Let the selectors make bold to try. They must know that the principles of managing for the long run are behind them.

Trump baiters need to chill

 I wasn't impressed at all by the coverage of the events in Washington last week.

The mobs storming into Capitol Hill last week were a disturbing sight. But this was hardly an armed insurrection or a coup d'etat. President Trump believes the election was stolen- and he has made no secret of it. His followers and admirers think likewise. A large number of them decided to vent their feelings last week. 

Sorry, but that doesn't amount to an insurrection nor was it President Trump inciting violence. And the calls to restrain Trump from using the nuclear option were really over the top. What's happening is that the liberal media and the Washington establishment are desperate to see Trump off. They have wanted badly that he should concede defeat. They are miffed at the legal challenges he has mounted. Never mind that all that President Trump has do so far falls within the ambit of the law.

So when a large mob- estimated at anywhere upwards of 200,000- showed its support to Trump, the anti- Trump brigade seem to lose perspective and we had shrill hysteria from politicians and the mainstream media, with social media such as Twitter jumping into the fray.

It was refreshing to read this article in Russia Today that asked Trump-baiters to tone down the rhetoric:

A coup attempt, an insurrection, sedition – whatever wonderfully evocative term you care to reach for – is not some strange-looking dude with a painted face and horns on his head posing for the cameras inside the Capitol's hallowed halls.

It's not an incredibly dim, grey-haired bloke sitting in the House leader's office chair and scrawling notes. It's not a bunch of not-very-bright people tearing through the corridors of power with Confederate flags and MAGA hats stealing a laptop or two.

That's not a coup d'etat, it's a much smaller thing – it's called ‘crap security’.

An armed insurrection is a leader pointing his army at the Capitol, and tanks driving up the steps and smashing through the doors. Rifle-wielding troops following up in its wake. 

A coup d'etat would be Donald Trump pulling on his military fatigues and taking to the airwaves, sitting at the Resolute Desk and solemnly declaring he had taken absolute control for the good of the nation.

If the president was imposing martial law, then all these screaming people would have a point.

But he isn't. And that's not what happened. It simply is not what's happening now, nor is it going to happen in the final ten days of Trump's term.

.....There was no American coup. It's hyperbole and four years of pent-up fury and score settling. The folk shouting the loudest simply despise The Donald the most, and they don't much like his supporters either. They do fear them, though, because there are loads of them and these people – for some reason – adore their president. Biden, Pelosi et al will simply never get their heads around “why?” 

It doesn't matter. Trump is over.

How big a setback is the new UK covid strain?

The new UK strain of  Covid -19 is not to be lightly dismissed- that's the message from the nationwide lockdown imposed in the UK. 

The UK strain is said to be 50-70% more transmissible than the earlier one. It's not more lethal or less amenable to treatment but the sheer rise in numbers also means a potential rise in hospital cases and fatalities.

The new strain and the rising incidence of cases- often, 50,000 a day in the UK- will derail the hoped for recovery in 2021. We don't yet know how much. Since fiscal and monetary policies were stretched quite a bit in response to the earlier outbreak, it's not clear what policy options will be available to deal with the new threat. 

The British response shows that a stringent lockdown is still considered the best way to limit the spread despite numerous assertions to the contrary. FT's Science Writer Anjana Ahuja writes:

If 2020 taught us anything it is that countries can never act too early and that postponing the inevitable leads to protracted agony. A recent Imperial College London analysis suggests that locking down one week earlier in the first spring wave would have cut UK deaths from around 37,000 to about 16,000.

Taiwan, Vietnam and New Zealand demonstrate that early, aggressive intervention delivers a healthy population able to participate in a healthy economy. Treading a middle way between public health and the economy, as the UK has tried to do since March, is a half-measure that protected neither. It is like trying to keep a motorway open after a pile-up and hoping drivers can swerve to avoid the debris, rather than shutting the road and clearing it so traffic can flow normally. Further collisions simply produce more debris and casualties.

That is a fitting answer to those who claim that India's lockdown in March last year was too harsh.

In another article, fund manager Mohamed El Erian spells out the implications for the global economy of the new strain:

Inevitably the new strain will amplify the dispersion in economic performance around the world. Europe is experiencing further disruptions to the movement of people and goods and accelerating the fall into a double-dip recession. So it is probable that we will see previously unthinkable differences in the growth rates of big economies. This may well include as much as a 20 percentage point annualised difference between the most stressed G7 economies and China according to my calculations. Even within the G7, growth dispersion will be at exceptionally high levels. 

Once again, an already excessive level of inequality in many countries will worsen. The burden of the mutated virus environment is suffered disproportionately by the disadvantaged segments of society. 

Once again, the wealthy are likely to benefit if central banks feel compelled yet again to inject liquidity into markets. Once again, large companies with access to capital markets will benefit at the expense of smaller ones who rely on banks and local lenders.