MDIS – Business Times Enterprise 50 Awards

MDIS – Business Times Enterprise 50 Awards 

Founded in 1956, the Management Development Institute of Singapore (MDIS) is Singapore’s oldest not-for-profit professional institute for lifelong learning. 

The institute continues to be a one-stop-destination for Indian students who aspire to study abroad. MDIS started out with the primary focus of addressing industrial relations of the Singapore workforce and in training supervisors on subjects ranging from job relations to industrial safety. Dr. R Theyvendran, Secretary-General, MDIS talks about the institute and its achievements. Excerpts:

1. Could you share about the history of MDIS and some of its latest developments? – 

In the 1980s, MDIS’ focused on forging global partnerships with Universities from countries like UK, USA, Australia, etc. The year 2008 was significant for MDIS as we opened our first overseas campus in Tashkent, Uzbekistan. This was the first ever venture of a Singapore education provider into Central Asia. MDIS’ global perspective has gone further and in July 2012, the Ministry of Higher Education, Malaysia, approved the establishment of an MDIS campus with the approved name, KolejMDIS Malaysia. Set to open its doors in 2018, MDIS’s second overseas campus, a RM300 million self-funded investment project is the first by a Singaporean group in Johor, Iskandar.

Latest developments

School of Nursing
Set against the backdrop of ageing population, Singapore’s healthcare landscape will inherit the standard challenges and will pose a few that would be specific to a predominantly geriatric population.  This signals the continued and increasing need for nursing and other healthcare professionals. Thus, MDIS has set up a dedicated Nursing School for the training and education of nurses pursuing their post registration degrees.  

The MDIS School of Nursing has partnered with Edinburgh Napier University, UK, to deliver a two-year Bachelor of Science Nursing (Top-up) programme which is accredited by the Singapore Nursing Board. MDIS is also committed to provide conducive learning environments which include hands on learning practicum in dedicated classrooms, lecture theatres and in-house customised Nursing equipment.

Opening of Malaysia Campus
Set to open in 2018, Kolej MDIS Malaysia will be equipped with state-of-the-art infrastructure such as campus-wide WiFi connectivity, fully-equipped computer laboratories, and dedicated lecture theatres. In accordance with the institution’s green initiative, the campus will also dedicate to approximately 40 percent of its 30.07 acres of land to incorporating eco- and disability-friendly features such as solar panels, rainwater collection tanks and glare shields to minimise water and electrical usage.

Kolej MDIS Malaysia will offer courses in Business, Tourism & Hospitality, Mass Communication, Information Technology, and Digital Media. All of these courses have already received the Malaysian Qualifications Agency’s (MQA) Accredited and relevant course licences.

Our Iskandar Campus will allow MDIS students transnational education, in which they can study at different geographic locations so that they can become global professionals. Our existing campuses in Singapore and Tashkent in Uzbekistan would also allow students from the Iskandar Campus to do twining programmes so as to enjoy an international educational experience and exposure.

We constantly review our courses and facilities to ensure industry relevance. As a forward-looking institute, the foundations of new programmes and facilities are strategically laid before the industry realizes its needs. This equips students and mid-career professionals with future-ready skills for evolving industry demands.

Supporting this vision to introduce more future-ready courses, MDIS recently expanded its network of global university partnerships to offer new academic programmes including:

·       National Certificate in Professional Cookery
Awarded by Scottish Qualifications Authority, UK

·       Bachelor of Science Nursing (Top-Up)
Awarded by Edinburgh Napier University, UK

·       Bachelor of Arts (Hons) Broadcast Media Production (Top-Up)
Awarded by Teesside University, UK

·       Bachelor of Science (Hons) Information Technology
Awarded by Teesside University, UK

·       Master of Arts Education Studies
Awarded by Bangor University, UK

2. What are some of its biggest achievements to boot?

Our globalization efforts, Singapore Branded Education overseas
Since the 1980s, MDIS has been putting much effort in globalizing our “Singapore Brand”. Apart from the main Singapore campus, MDIS has three international campuses – Tashkent, Uzbekistan; Johor, Malaysia; and Chennai, India, set up in 2008, 2013 and 2015 respectively.

In 2008, our first MDIS overseas campus was opened in Tashkent, Uzbekistan. From an initial batch of 240 students, we have at present, more than 3000 students from all regions of Uzbekistan studying at MDIS Tashkent; including international students from South Korea, Ukraine, Afghanistan, Kyrgyzstan, Tajikistan and Kazakhstan.

MDIS also has representative offices in China, India, Indonesia, Sri Lanka, and Thailand, as well as agents throughout Southeast Asia.

Education Trust Fund
Another key aspect of the MDIS Mission, being socially responsible, is realised through the institute’s Education Trust Fund. The MDIS Education Trust Fund was established in the year 1999 and does not receive any funding from the government. The awards are made possible solely with the kind contributions of well-wishers and surpluses from MDIS. Since the inception of the MDIS Education Trust Fund, we have been raising funds annually for the bursaries and scholarships.

The primary objective of the MDIS Education Trust Fund is to support needy and deserving students who have financial difficulties in pursuing their education in Singapore. We firmly believe in education as the key to sustaining the economic growth and social fabric of Singapore, by means of investment in human capital and providing opportunities to narrow the income gap.
Over the years, more than 7,500 scholarships and bursaries totalling nearly S$6 million have been awarded.

MDIS Hostel awarded Green Mark Gold Plus Award
The MDIS Residences@Stirling is the very first hostel in Singapore to be awarded the Green Mark Gold Plus Award. Costing S$80 million, the new 15-storey hostel consists of 782 air-conditioned rooms, 14 suites, a lecture theatre and cafeteria. The eco-friendly hostel can accommodate some 1,700 students and is fully-integrated so that students can live, learn and play in an interactive and conducive environment.

3. Competition is getting stiffer in the industry – how is MDIS coping with that?

Externally, to stand out from the compeititon, MDIS focuses on providing  students a unique MDIS study experience through technology and infrastructure, future-ready skills and knowledge and equipping them with the confidence and soft skills needed in their careers when they graduate.
Infrastructure Expansion
MDIS constantly plans for infrastructure improvements in order to provide the necessary environment for our students to learn and develop industry relevant skills. Gaining the practical skills through specialty equipment will boost in their employability when they graduate.

·       Baking and Culinary Studio
The newly launched MDIS Bakery and Culinary studio has been built to nurture and help students master skills required by the F&B industry. The facilities have acquired WSQ Approved Training Organisation accreditation. Not only does this benefit MDIS students, the public can even take up short culinary workshops with MDIS in the studios.

·       Dedicated Facilities for the School of Nursing
For our new School of Nursing, we have in the pipeline, 2 dedicated classrooms with specialty nursing equipment for students to practice theories and knowledge gained. Up to 5 dedicated classrooms is expected to cater for future growth.

·       Industry-relevant Technology for the School of Engineering
The School of Engineering will also be acquiring 2 additional types of 3D printers. Currently, the School has 3D-printers making use of extrusion technology. With the acquisition of a powder bed and a light polymerized 3D-printer, student’sknowledge about design and manufacturing will be expanded and also, having the opportunity to practise theoretical concepts on the actual machines they will come across in the industry.

E-Learning capabilities
Expanding over next 5 years, MDIS will be turning traditional classrooms into collaborative communities of learning; driving student engagement and successful learning outcomes. E-Learning technology will allow instructors to capture audio and video content, providing students with on-demand access to course content.

Accreditation from WSQ
MDIS will be aligning and mapping various academic programmes to the WSQ framework. MDIS students can thus be confident that the skills/knowledge acquired from their courses are of high quality and accepted by the industry here.

The 9 areas are Engineering, Fashion, F&B, Health & Safety, Healthcare Management/Support, Information Technology, Leadership and People Management, Life/Health Sciences and Media & Communications.

Internally, we have a strong culture of making use of feedbacks and data in our decision making processes. This allows for MDIS to manage resources better.

Culture of feedback
Be it in the development of new programmes or process changes in view of productivity, MDIS encourages a culture of feedback from employees and making use of other comparative data. Such information will allow MDIS to make informed choices, which is an edge in terms of cost-savings, productivity increase or market acceptance.

4. How is MDIS differentiating itself from the rest?

Corporate Social Responsibility
Generally people have a concern on PEIs on the quality of their academic programmes as in essence, people do view PEIs as commercially driven organisations.

This is where MDIS strives to differentiate ourselves from the rest of the PEIs in Singapore. Being the oldest not-for-profit educational institute, MDIS has always been aware of its role as a caring corporate citizen and strives to help out the needy. By actively contributing back to the society, MDIS aims to break the stigma that its functions are merely profit-driven.

Holistic Development – The MDIS Experience
Understanding the need to prepare students beyond academic excellence, we have constituted the ‘MDIS Experience’ – which entails a series of personal development workshops/programmes that aspire to build students’ self-confidence, creativity and communication skills.

To enhance students’ learning opportunities and experiences, the Institute organises a myriad of activities such as industry visits, community outreach initiatives, overseas student exchange programmes, cultural events, bazaars, sports activities and Student Council that students can engage in and be part of the MDIS family.

Over the last decade, MDIS has also established facilities and enhancements to the benefit of local and international students, working professionals and the public; and provided community support in its immediate neighbourhood and beyond. MDIS will continue to forge the trust and reputation as the choice institution of learning and an educator with a heart.

5. Why did MDIS decide to participate in E50 Awards? 

The Enterprise 50 Awards has been a mark of excellence in the business environment. MDIS’ participation is aimed at being recognized as one of the top companies locally and amongst the PEIs. Winning the award will recognize the efforts of our staff in their contribution to the success of the Institute. Externally, the award will build another layer of confidence with our University and Industry partners.
By participating, MDIS will also have an internal benchmark to measure the success of our processes and decisions.
Lastly, this year’s Enterprise 50 theme, "Innovate, Grow & Succeed: Staying competitive in today's economy", is extra significant to MDIS. As a heritage brand of 61 years, MDIS wants to prove that heritage does not equate to being out-of-touch. We possess the necessary processes and mindset as an organisation to stay relevant in the industry, grow and succeed.  With the institute circling all processes around this concept, we can be sure that our graduates will be industry-relevant and future-ready after their education at MDIS.

6. How does it intend to benefit from its win? 

With the win, MDIS has an additional affirmation that our processes, business model and “entrepreneurial” focus are on the right track. The Institute will continue with our best practices and seek to be more productive and continue our growth.
As a heritage brand of 61 years, the win is testament to our efforts in being productive and staying relevant. As the only Private Education Institute (PEI) to win this award, we hope to serve a benchmark and inspire the rest of the industry towards excellence as well.
With the win, we will also be using this accolade in our marketing collaterals or corporate presentations where appropriate as a mark of business excellence. This will certainly help in forging new collaborative partnerships with external partners.

7. What are some of MDIS’ biggest challenges? 

Declining Local and International Student Numbers in Singapore Campus
Over the last 3 years, the Private Education sector was affected by the dipping student enrolment, particularly the local students.  This was attributed by the increase in university places, especially at the Singapore Institute of Technology and Singapore University of Social Sciences, which caters to polytechnic graduates.  The number of local students is expected to fall further as the Government has pledged to increase the yearly intake for the six universities from 15,000 now to 16,000 by 2020.  

We are also experiencing declines in International student numbers. This is largely caused by two reasons. The rising cost of living is one factor attributing to the fall in foreign student numbers here. Coupled with a rising Singapore dollar, it has become increasingly unattractive for a foreign student to study in Singapore.
Another reason is that countries such as the United States, United Kingdom and Australia are wooing students directly from the region as well. With a relatively lower cost of living, and enjoying direct admission to the universities, this option gains popularity amongst students that can negate the language barrier or adapt to the difference in culture.

Competitive Market
Besides foreign competition, the private education industry in Singapore is highly competitive. There are 287* PEIs registered with CPE in Singapore, of which 125* have Edutrust certification. Every student interested in studying in Singapore has an abundance of choice.

8. What are some of MDIS’ plans for the near future? 

Achieve growth through internationalization
MDIS is also exploring the feasibility of establishing a presence and/or collaborative partnerships in countries such as Indonesia, Myanmar, Sri Lanka, Philippines, etc. We will be delivering our “Singapore Brand Education” in the region to not only achieve growth for MDIS, but also to contribute in solidifying Singapore’s reputation as a strong regional education hub.

Expansion plans for MDIS’ Overseas campuses
·       MDIS Tashkent
Enrollment numbers have exceeded full capacity at the moment. We have plans to expand the campus further and improve teaching quality over the next three years. We will be looking at accommodating up to 5000 students with the expansion.

·       Kolej MDIS Malaysia
Presently, more than 500 students are studying out of the City Campus at City Square Mall in Johor, Malaysia. With the completion of the first phase of construction of our Iskandar campus, the institute will be able to accommodate up to 2000 students.

Align more programmes to WSQ framework
MDIS will be expanding the range of Workforce Skills Qualification (WSQ) Approved Courses, which are jointly awarded by overseas institutions/universities and will help enhance the capabilities, productivity and growth of the workforce.

MDIS will be further developing the following courses under the WSQ framework which will help provide qualifications for the local workforce.
·       Leadership and People Management (Management Development & Consultancy)
·       Social Service and Community (School of Health & Life Sciences)
·       Clinical Research (School of Health & Life Sciences)
·       Precision Engineering (School of Engineering)
·       Logistics (MDIS Business School)
·       Creative Industry (School of Fashion & Design)

Moreprogrammes to be SkillsFutureCredit Eligible

In supporting the government in tackling challenges of a slowing economy, technological disruptions, and greying population that the country will face in the next 50 years, MDIS will be providing more industry-relevant courses with applied learning opportunities that are SkillsFuture Credit Eligible.

MDIS is targeting for 10-20% of new programmes (2017 – 2019) to be SkillsFuture Credit eligible. Upcoming SkillsFuture Credit eligible classes will be from areas like Financial Management, Sales, Business Management, and Communication and Supervisory Management

Continued efforts in forging industry partnership
In our efforts of shaping future-ready graduates, another core focus for MDIS will be in developing stronger industry partnerships. These collaborative partnerships with industry partners provide crucial opportunities for students to gain practical experience in their field and develop relevant skills. MDIS aims to have 100 new partnerships over the next 3 years.


Top 5 SIP Mutual funds

Top 5 SIP Mutual funds

Motilal Oswal MOSt Focused Multicap 35 Reg
1 year Return 19.82%

Kotak Select Focus Reg
1 year Return 17.21%

SBI Bluechip
1 year Return 14.85%

ICICI Pru Focused
 Bluechip Equity
1 year Return 17.49%

Aditya Birla SL Frontline Equity
1 year Return 14.29%

51% rise in SIP contribution to mutual funds..!

51% rise in SIP contribution to mutual funds..!

There is a 51% rise in systematic investment plan (SIP) contribution to mutual funds (MFs) so far this financial year. At a time the markets are facing headwinds and stocks have corrected over 10%, the inflows through the SIP mode has hit an all-time high of Rs. 6,640 in January, 2018.

This is over the 62% rise in the corresponding previous month. Total number of SIP accounts is nearly 2 crore (20 million.)

The April-January period has witnessed total SIP inflows of over Rs. 53.600 Crore.

It stood at Rs. 35,500 Cr a year ago. In the current fiscal year, SIP inflow surpassed those received during 2016-17. In FY17, SIP inflow stood at Rs 43,900 Cr. FY18 is likely to end with total SIP inflow of nearly Rs. 66,300 Cr, if the trend continues.

Sector players remain bullish on SIP inflows. According to them, by mid-FY19, the sector may hit the Rs. 10,000 mark of monthly SIP inflows.


LONG-TERM CAPITAL GAINS TAX - LTCG - A 10% Nudge to Invest in India..!

LONG-TERM CAPITAL GAINS TAX - LTCG - A 10% Nudge to Invest in India..!

by Ms. Indira Iyer, Ministry of Finance

The bearish run on the stock market soon after the Budget announcement of a 10% long-term capital gains (LTCG) tax has been along expected lines. This is partly due to early selfcorrection in the overvalued market.

Globally, too, the S&P 500, which till January 2018 was in one of its longest bull runs since 1929, fell by over 3.85% in the first week of February, erasing over $1trillion of its market value. However, a part of the fall in stock market prices in India can also be attributed to a change in expectations after losing the benefit of differential tax treatment of equity income.

The optimal balance of taxes depends significantly on the objectives of the government taking into account the socioeconomic situation at the time. 

So, the optimal mix of taxes changing according to societal changes and economic fundamentals is expected. A well-designed tax system will seek to both boost economic growth and generate more jobs while keeping the tax burden to the minimal.

While all taxes are distortionary, the converse is also true. Policies that influence the preferences of investors by not taxing one class of assets also ipso facto create distortions towards greater investment in the lower taxed asset. 

Contrary to popular perception, a zero capital gains tax on investment in the financial markets reduces incentives to invest in the real (goodsand services-producing) sectors. 
A useful tool to examine the distortions, or the wedge created by taxes, is to analyse the marginal effective tax rate (METR) of investments.

METR is a composite statistic that captures factors that influence business investment decisions. It is considered a better measure of tax competitiveness than the conventional corporate tax rate, as it considers both tax factors (accelerated depreciation, corporate tax rate, personal income-tax rate, dividend distribution tax, deductions for interest payments and return on long-term equity investment) as well as non-tax factors (inflation, interest rates and market rate of return) that impact investment decisions.

METR can be thought of as a tax wedge between the investment rate of return on capital assets (‘hurdle rate’) and the post-tax market rate of return (opportunity cost of funds). 
With zero capital gains tax, an investor having surplus funds could prefer to invest in the market, as his assets yield a greater post-tax rate of return with a shorter gestation period than investing in the capital assets in a firm.

The Budget has proposed a LTCG tax of 10%. Detailed analysis at the firm level indicates that a 10% gains tax significantly reduces the average METR for all firms by over 16%, while METR for the manufacturing and services sector economy decreases by over 18%. 

This implies that the tax wedge between the hurdle rate for investment in the real sector and the post-tax market rate of return is reduced. Hence, the capital gains tax, by reducing the distortions in asset preferences, would increase aggregate investment and employment, particularly in the medium term.

Seeing the implicit distortions created by taxing assets differentially, many countries have imposed a capital-gains tax. 

The average capital gain rate in OECD countries is 18.4%, with the top marginal capital gains tax rate in Denmark being the highest at 42%, Finland at 33%, Britain at 28% and the US at 20%.

The average capital gains tax in east Asian countries is generally lower, with China taxing capital gains at 25% for businesses and 20% for individuals, and Malaysia having a zero tax rate. Vietnam doesn’t separately tax capital gains as they are treated as part of taxable income, and taxed at the current corporate tax rate of 20%.

In general, countries that have a zero tax rate for capital gains are those that either use this instrument to lure foreign institutional investors, or are tax havens. While in 2005, it may have made economic sense to have zero rate to attract FIIs, this would not be the primary aim today.

In India, most of the ₹3.67 lakh crore LTCG earned are made by large corporates and trusts who prefer to now directly invest in markets, rather than in the real (manufacturing and services) sector, due to greater returns. Such an investment bias does not generate adequate second-round multiplier effects for the economy.

A10% capital gains tax, while not significantly decreasing the attractiveness of investment in the financial sector, will reduce distortions in investment decisions to generate more investment, growth and employment.

About the author..

The writer is chief director, Tax Policy Research Unit, Ministry of Finance, GoI


FY18: PF Interest Rate 8.55%

FY18: PF Interest Rate 8.55% 

 Retirement fund body Employees’ Provident Fund Organisation (EPFO) has reduced interest rate on deposits to 8.55% for 2017-18 following a general decline in interest rates.

The decision was taken by EPFO’s central board of trustees at its 220th board meeting on Wednesday, labour minister Santosh Kumar Gangwar said. EPFO had announced an interest rate of 8.65% for 2016-17 and 8.8% in 2015-16.
The move will affect around 6 crore subscribers and leave EPFO with a surplus of ₹586 crore against ₹695 crore in the previous financial year.

The interest rate decided by the central board of trustees will have to be vetted by the finance ministry, following which it would be notified.

EPFO had earlier this year sold Rs. 3,700-crore equity shares in the market, earning a profit of Rs. 1,100 crore as a result of which it was felt that the retirement fund body could retain the interest rate for the current financial year at 8.65%.
However, the labour minister said this money has been used to purchase securities at higher rates.

The finance ministry had last month lowered interest rate on General Provident Fund (GPF) and Public Provident Fund (PPF) to 7.6% to be effective from January 1, 2018, much below the returns on provident fund deposits. This has widened the gap and has made PF more lucrative as an option for employees.

EPFO has earned a cumulative return of 20.65% on its equity investment till December.

EPFO has invested 15% of its incremental income in ETFs amounting to Rs. 44,000 crore so far.

The retirement fund body’s central board of trustees, chaired by the labour minister, has also agreed to lower the threshold limit of employees from 20 to 10 for an establishment to be covered under EPFO.

The decision is significant as the labour ministry estimates that it would add another 3 crore to its subscriber base. However, this would require an amendment to the The Employees’ Provident Funds And Miscellaneous Provisions Act.

“Besides, we have reduced the administrative charges from 0.65% to 0.5% to ensure that the benefits of savings and efficiency of EPFO are passed on to the employees,” said Gangwar after nearly four-hourlong meeting.

According to the labour ministry, there are objections to the budget proposal of allowing new women employees to contribute only 8% of their wage against 12% now.
“We have noted their view on this and a decision will be taken,” labour secretary M Sathiyavathy said, adding that it would also require amendment to the EPF Act.

The central board of trustees of EPFO comprises representatives of trade unions, employers as well as central and state governments.


Equity Investors need patience, WHY?

Equity Investors need patience, WHY?

Share Fundamentals, Share Market - Alerts, Investing Mantra's - Stock

Narrow Banking: Public Sector Banks Should Not Be Lending to Corporates Vivek Kaul's Diary

Narrow Banking: Public Sector Banks Should Not Be Lending to Corporates - 
Vivek Kaul's Diary
Wed, 21 Feb 2018

One of the good things to have happened because of the jeweller Nirav Modi's fraud of $1.8 billion, is the focus that the mainstream media has been giving to public sector banks.
News channels which did not have any discussion on the bad loans of Indian public sector banks touching almost Rs 7,00,000 crore, are now staging fist fights with the prospect of Rs 11,400 crore ($1.8 billion in rupees) being further added to the overall bad loans of these banks.
Bad loans are essentially loans in which the repayment from a borrower has been due for 90 days or more.
So what's the problem facing public sector banks? It's clearly not the aam aadmi, i.e. individuals who take on loans from banks, or what in banking parlance is referred to as the retail loan business. That has been working just fine. The aam aadmi has been taking loans and paying his EMIs on time.
The problem is with the fat cats, the seths, the big businessmen, the corporates, who have made a habit of taking bank loans and not repaying them. Nirav Modi is just another addition to that long list.
Take a look at Table 1. It basically lists corporate bad loans as a proportion of corporate lending, for public sector banks other than the State Bank of India. It also lists out overall bad loans of these banks.
Table 1:
YearCorporate bad loans (in %)Total bad loans (in %)
Source: Author calculations on data from Rajya Sabha Unstarred Question No: 278 and
As can be seen from Table 1, by 2016-2017, nearly one out of every five rupees of corporate loans that India's government owned banks had given (except the State Bank of India) had been defaulted on. For the State Bank of India, the situation was a little better with a default rate of 13.7% (for mid corporate and large corporate loans).
While Table 1 tells us what the problem is, it does not show us the enormity of the problem. For that we need to look at data in a slightly different way. The question that we need an answer to is: what portion of the total bad loans do corporate bad loans make up for?

As of March 31, 2017, corporate bad loans made up for nearly 69% of overall bad loans of public sector banks. Take a look at Table 2. It basically lists out, the total corporate bad loans along with the total bad loans, of each public sector bank, for 2016-2017.
Table 2:
Name of the bankCorporate bad loans (in Rs crore)Total bad loans (in Rs crore)Corporate bad loans as a proportion of total bad loans
Allahabad Bank17,19820,68883.13%
Andhra Bank14,23717,67080.57%
Bank of Baroda21,15342,71949.52%
Bank of India32,78652,04563.00%
Bank of Maharashtra11,90417,18969.25%
Bharatiya Mahila Bank Ltd.5054.9990.93%
Canara Bank22,41834,20265.55%
Central Bank of India19,32327,25170.91%
Corporation Bank13,06317,04576.64%
Dena Bank8,39512,61966.53%
IDBI Bank Limited33,07044,75373.90%
Indian Bank7,6919,86577.96%
Indian Overseas Bank23,08135,09865.76%
Oriental Bank of Commerce18,46622,85980.78%
Punjab & Sind Bank4,0946,29865.01%
Punjab National Bank38,44155,37069.43%
Syndicate Bank9,81517,60955.74%
UCO Bank15,21622,54167.50%
Union Bank of India21,35733,71263.35%
United Bank of India7,68310,95270.15%
Vijaya Bank4,9146,38277.00%
State Bank of India*80,0791,12,34371.28%
*large corporates plus mid corporates
Source: Indian Banks' Association, Analyst Presentation SBI, March 2017 and Rajya Sabha
Unstarred Question No: 278, July 2017
Table 2 does not paint a very pretty picture. As can be seen, a bulk of the bad loans of public sector banks are loans which haven't been repaid by corporates. Corporate bad loans account for more than three fourth of the bad loans of many public sector banks.
Given the massive amount of bad loans of public sector banks, the banks need to regularly keep writing off loans. Between 2004-2005 and September 30, 2017, the public sector banks have written off loans worth Rs 3,81,549 crore, with a bulk of this amount having been written off in recent years. The loans are written off against the capital of the bank.
With a very low rate of recovery of bad loans, this means that the government, as the major owner of public sector banks, has had to keep infusing fresh capital into these banks to keep them going. From 2007-2008 onwards and by the end of 2017-2018 (the current financial year), the government would have infused a total capital of Rs 2,19,718 crore, to keep the public sector banks going.
Long story short-public sector banks keep sucking taxpayer money to basically finance Indian corporates who default on the loans. This needs to stop. As we have been advocating for a while, the government does not need to own 21 public sector banks, as it currently does. Nevertheless, given that privatisation is a difficult option in the Indian scenario, what is the other way out? (Dear Reader, here is another solution!)
The other way out is narrow banking. Public sector banks other than the top 5 public sector banks, should not be lending to corporates, given that the defaults on corporate loans make up for the bulk of bad loans.
This is not to blame the loan officers and managers in public sector banks, who commission these loans. This is more on account of the nexus that prevails between politicians and businessmen in this country and because of which the public sector banks over the years have been forced to give loans to businessmen and businesses, not in the habit of repaying. One way to break this nexus is to ensure that the government gets out of the banking business, lock, stock and barrel. There is another way as well.
Banks finance their loans by raising deposits, which typically tend to have a fixed tenure of one to five years. With these deposits, banks, at times, finance corporate projects which have a term of more than a decade. There is a clear mismatch here. Long term financing needs specialised project finance institutions. It needs a stronger corporate bond market. It needs pension funds which have access to money for long tenures and are willing to invest money for the long term.
Public sector banks should not be in the long term corporate lending business. Neither is the solution to replace them easy nor can it be implemented overnight. Having said that, most problems do not have readymade solutions. Solutions also need to be built into place. The Nirav Modi fraud has given the Narendra Modi government an opportunity to set things right at India's public sector banks. It can either privatise them or get them out of lending to corporates.
Warm Regards,

Vivek Kaul
Editor, Vivek Kaul's Diary


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