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Franklin Templeton: View: Franklin, we do give a damn



By K P Krishnan & Rohit Chandra

India’s financial markets have been aflutter recently after Franklin Templeton’s (FT) decision to close six of its debt funds under redemption pressures. These six funds had large exposures to high-yield, lower-rated AA and A bonds. Many of these investments reportedly seem to violate normal prudent investment principles like sector concentration and singleborrower limits.

FT’s decision led to a mild panic as mutual funds (MFs) across India rushed to reassure investors as redemption pressures grow. In reaction, the Reserve Bank of India announced on April 27 a liquidity facility for banks to prop up MFs, an action that could easily have been taken much earlier.

Naturally, market participants, individual investors and corporations seeking a modicum of stability in corporate debt markets have all looked to the Securities and Exchange Board of India (Sebi) for leadership on this matter. While Sebi’s role of coordinating with RBI and the finance ministry to renew confidence in these markets is crucial, one should look at the first line of defence that failed: the fund’s trustees.

Sebi’s role has been primarily in the form of disclosure-based regulation, which requires listed securities to reveal all associated risks. But these disclosures are often dense, full of jargon and voluminous, which means understanding these documents in their totality is beyond the scope of the average investor.

It is neither realistic nor desirable for Sebi to micro-monitor transactions. It would be better that these disclosures explicitly state the risks taken on by investors. Entities like MFs undertake the specialised task of understanding securities and their associated risks, and assembling a portfolio to match the risk appetite of unit-holders.

The first line of investor protection in MFs is supposedly the trustees, whose responsibility is explicitly to protect the interests of unit-holders. Their appointment requires Sebi approval. Ideally, trustees should be fully involved in all investor protection-related activities — a say in the selection of fund leadership; in establishing internal control mechanisms; in maintaining compliance through quarterly reviews of transactions; reviewing all reports submitted to Sebi; etc. If unit-holders of an MF are forcing redemption, then it is not only the asset managers who are at fault but, by implication, so are the trustees.

Beast of Burden

The unfortunate reality of the MF market in India is that it is not just a vehicle for households to gain access to securities markets. It has also become a vehicle for inter-corporate deposits. Large corporations swimming in liquidity often prefer to park their cash in shorter-duration MFs, which provide better short-term returns than less risky options like government securities or AAA corporate bonds.

As a result, there is a deep interdependency between large Indian corporations today, as they constantly lend each other money through MFs. At some point after the 2007-08 financial crisis, more adventurous asset managers started buying debt from smaller companies, who were (and remain) completely starved for capital in India, and are often willing to promise much higher return on short-term debt. This is what most of the FT MFs portfolio consisted of — AA- and A-rated debt of smaller, riskier companies.

It is in these situations that one yearns for a deep, liquid corporate bond market, which would offer flexible borrowing options to corporations for short-, medium- and long-term liquidity. Short-run MFs provide a poor substitute for such a market, whose near complete absence of this market has repeatedly hurt India. Despite considerable efforts of Sebi, this market has been a non-starter in India primarily on account of perceived and real turf battles.

Multiple layers of regulation need to be built in or strengthened to minimise such incidents from recurring. In addition, these recent crises need to be used as a trigger for basic regulatory and banking reforms. These long-pending reforms have been fully articulated in the reports of various committees of the finance ministry, RBI and Sebi.

More Windows

The non-performing asset (NPA) problem, for instance, has taught us that over-reliance on bank-financing to run large parts of the economy is problematic, especially if banks collectively make bad credit decisions. Having multiple channels of credit open to firms, including a corporate bond market, would help firms diversify their credit risks.

The current legislative and policy frameworks, and regulatory practices in India are leading to all kinds of circuitous forms of lending through inter-corporate debt, MFs and multiple layers of intermediation. This is a good time to revisit these legislative and institutional frameworks, and reform them.

Krishnan is former secretary, GoI, and Chandra is fellow, Centre for Policy Research, New Delhi

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Evicted California renters at greater risk of getting COVID-19



After 70 years in Monterey County, 87-year-old Mary Martinez moved in the middle of a pandemic, evicted from her modest one-bedroom, second-floor apartment at 1118 Parkside St. in north Salinas.

According to her former landlord, Martinez was evicted because she allowed a “violent man” to live with her, violating the conditions of her lease. Martinez said the man is her epileptic nephew.

Advocates say that while evictions like Martinez’s are rarer during the pandemic, landlords are feeling the financial squeeze. Some have sold rental properties to make up for lack of income. That can leave renters out in the cold when their new landlord raises the rent by hundreds of dollars or requires all renters move out before they take over the building.

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New program to help Black-owned online businesses | Technology



ATLANTA _ Many Black entrepreneurs struggle to get bank loans and professional help to launch new businesses. A new program aims to remove those stumbling blocks.

An Atlanta nonprofit and another business have committed $150 million to the 1 Million Black Businesses effort, which will make loans and provide financial and business advice to Black-owned startups and established small businesses. Atlanta-based nonprofit Operation Hope, which helps consumers improve credit scores, is kicking in $20 million, and Shopify, the online e-commerce is adding another $130 million for the loans and website-hosting services.

Other services firms providing expertise or help include Aprio, an Atlanta-based accounting firm, and First Horizon Bank.

It’s a package of products that many Black entrepreneurs couldn’t get through a bank or credit union, said John Hope Bryant, CEO of Operation Hope.

“A bank won’t lend you money unless you can prove that you don’t need it,” Bryant said. “That’s especially true with minority-owned small businesses.”

Small businesses with Black owners were half as likely to obtain business loans as whites, according to a Federal Reserve survey published earlier this year.

The initiative is the latest effort to help Black consumers and businesses enter the financial mainstream. Earlier this month, a group that includes rapper Killer Mike opened a digital bank aimed at Black and Latino consumers.

Banks and credit unions have tried for years to help Black consumers open checking and savings accounts. The efforts helped, as the number of U.S. households without bank accounts fell to 5.4% in 2019 from 6.5% in 2017, the Federal Deposit Insurance Corp. said Monday.

Consumers who own checking and savings accounts typically have access loans with better rates and a wider variety of financial services.

The federal government’s $660 billion loan initiative for businesses hit by COVID-19, the Paycheck Protection Program, also helped few Black-owned businesses, Bryant said. PPP loans were based on a company’s number of employees and its rent obligations. many Black-owned small businesses typically didn’t have enough workers to qualify and are based out of the owner’s residence.

Bryant said a bad credit history may not prevent applicants from receiving a loan.

He hopes more companies will contribute services such as insurance advice or software typically available only to well-established businesses.

Bryant noted that 1MBB is not a charitable organization, as participating companies like Shopify will likely get a pipeline of new business customers through the program.

“This is not pure philanthropy,” he said. “Shopify believes that Black-owned businesses are good businesses if they’re properly supported.”

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This Week’s Top Car Deals & Analysis – October 30, 2020



The final days of October offer a chance to take advantage of outstanding model year-end deals. Most offers end November 2, which means there isn’t much time left to enjoy this month’s best lease deals and deepest new car discounts. We even found incentives that can help those with bad credit buy a new or used car.

2021 car deals. Interestingly, 2021 new car incentives are showing some surprises. For example, Audi is already offering up to $12,000 in savings when leasing the 2021 e-tron all-electric crossover. We even learned that the new Genesis GV80 SUV will debut with a $589/month lease deal plus special financing rates.

Believe it or not, the 2021 Hyundai Veloster N could prove to be a great value despite a nearly $4,700 price increase compared to the previous year. That’s because our analysis finds that better incentives can make it just $10/month more expensive to lease than the 2020 model. Talk about getting more for your money.

Why are small cars bad to lease? Even though smaller cars typically come with lower price tags, that isn’t always the case when leasing. A mix of lower discounts, worse residual values, and smaller discounts can actually make a Nissan Altima cheaper than a Versa despite having an almost $10,000 difference in MSRP.

Shorter-mileage leases. More brands are offering shorter mileage allowances on car leases. Although this is typically used to offer consumers more flexibility, we’ve found cases in which you can end up getting less for your money. If you don’t read all the fine print, this could make comparison-shopping difficult.

Bad credit car deals. If you have subprime credit, you may find it harder to get financed. However, some manufacturers are offering special incentives to help make cars & trucks more affordable. For example, Chevy is offering $2,000 in down payment assistance plus 9.9% APR for 72 months on the 2020 Trax.

$0 down leases. If you’re adamant about now putting down any money on a lease, you’ll love Sign & Drive leases. In addition to requiring no money down, $0 down lease deals can cover your first month’s payment. Even hot sellers like the Honda CR-V Hybrid offer $0 down and as little as $330/month on a lease.

The high cost of safety? Even though most major automakers are offering more safety features than ever before, our analysis finds that the highest IIHS safety ratings still require costly options in 2020. That’s starting to change, but the cost of buying a car with the most bragging rights is still very high.

Disaster relief. Those affected by some of this year’s natural disasters should be aware that automakers are offering assistance. California wildfire assistance programs like Ford Employee Pricing can save thousands when replacing a car. Similarly, a 2020 hurricane relief program from GM offers $1,000 in savings.

Spooky loan situations. There are some scary scenarios you can avoid when getting a car loan. However, boosting your credit score is possible with some determination because negative items on your credit report fall off after 7 years. Our network of dealers is specially equipped to help those with bad credit.

Upcoming vehicles. Genesis finally revealed the new GV70, a small luxury crossover based on the highly-rated G70 sedan. Whether it’s a redesigned car, truck, or SUV, odds are you’ll find it on our Previews page. That said, as we reported last week, discounts ahead of a redesign can result in substantial savings.

This Month’s Cheapest Lease Deals »

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