Specialist in Indian Banking and Economic Research

Hemindra Hazari

Is a Securities & Exchange Board of India (SEBI) registered research analyst with over 25 years experience in the Indian capital markets with a specialization in banking and economy research and has managerial experience of establishing profitable equities business, leading and mentoring analysts.  He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James  and Karvy Stock  Broking and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.

Thematic (Sector/Industry)

India Financials / Thematic (Sector/Industry)

On April 23, 2020, Franklin Templeton India (FTI) took the unprecedented step of winding up its six debt mutual fund schemes. The Securities and Exchange Board of India (SEBI) then ordered a confidential audit report on this fiasco. Excerpts of the report have now appeared in the media (<a href="https://www.moneycontrol.com/news/business/supreme-court-hearing-in-franklin-templeton-case-when-is-the-next-court-hearingcourt-case-on-franklin-templeton-ft-case-ft-hearing-franklim-templeton-cade-hearing-6553741.html/amp" target="_blank" rel="noopener">here</a> and <a href="https://themorningcontext.com/business/franklin-templeton-top-brass-put-self-interest-first" target="_blank" rel="noopener">here</a>). They reveal an abysmally poor standard of corporate governance at FTI, and serious <a href="https://www.businesstoday.in/current/economy-politics/ed-to-investigate-franklin-templeton-senior-officials-for-money-laundering/story/432903.html" target="_blank" rel="noopener">allegations</a> of unlawful gains and money laundering by its senior management.Franklin Templeton (FT) is known as a reputed 74-year-old multinational company which manages US$ 1.4 trillion globally. However, risk management at the Indian arm of this giant was given low priority. Business managers based in India were in a position to influence the director-risk based at FT’s headquarters in San Mateo, California. When critical concerns were raised by the India risk management team, these managers got them removed from a presentation made to the board of directors at FTI. Normally, regulators and the board of directors ensure the separation of risk management from business, so as to maintain the independence of the former; the latter are forbidden to dictate or influence risk reports. Such prudence and separation were disregarded by FTI. The fact that its director-risk in-charge of regional/global risk could be influenced by business managers in India is an indication of the state of FT’s global risk management. This should worry capital market regulators and investors in the geographical jurisdictions where FT operates.A number of top personnel are being investigated for their conduct (exiting schemes of FTI prior to the winding down announcement): Vivek Kudva, president Asia Pacific FT, his wife, Roopa Kudva (managing director, Omidyar Network India, independent director at <a href="https://www.smartkarma.com/entities/nestle-india-ltd" target="_blank" data-smartkarma-citation="entities:13101:1" rel="noopener">Nestle India (NEST IN) </a> and regarded as an expert on governance), Sanjay Sapre, president, FTI and Jayaram Iyer, CEO, FTI, Venkataradha Krishnan, director, FTI and Arvind Sonde, trustee, FT Trustee Services. This reveals the standards of ethics and integrity among the senior management of FTI. In the case of Roopa Kudva, it remains to be seen how companies such as Omidyar and Nestle, India respond if it is confirmed that their  director undertook trades based on unpublished market sensitive information.The announcement of the winding down of the debt schemes exposed the incompetence of FTI in corporate debt management. However, the leak of select sections of the forensic audit report has highlighted major fault lines in this multinational company, namely, the disregard of risk management and the lack of integrity and ethical standards among its entire senior management. To restore confidence the regulator should ensure a complete restructuring of the trustees and the board of directors of FTI’s AMC, and bar them from holding any senior posts in companies managing public funds, as they failed in their responsibilities. One only hopes that the rest of the mutual fund industry in India does not share the characteristics of FTI.

On April 23, 2020, Franklin Templeton India (FTI) took the unprecedented step of winding up its six debt mutual fund schemes. The Securities and Exchange Board of India (SEBI) then ordered a confidential audit report on this fiasco. Excerpts of the report have now appeared in the media (here and here). They reveal an abysmally poor standard of corporate governance at FTI, and serious allegations of unlawful gains and money laundering by its senior management.Franklin Templeton (FT) is known as a reputed 74-year-old multinational company which manages US$ 1.4 trillion globally. However, risk management at the Indian arm of this giant was given low priority. Business managers based in India were in a position to influence the director-risk based at FT’s headquarters in San Mateo, California. When critical concerns were raised by the India risk management team, these managers got them removed from a presentation made to the board of directors at FTI. Normally, regulators and the board of directors ensure the separation of risk management from business, so as to maintain the independence of the former; the latter are forbidden to dictate or influence risk reports. Such prudence and separation were disregarded by FTI. The fact that its director-risk in-charge of regional/global risk could be influenced by business managers in India is an indication of the state of FT’s global risk management. This should worry capital market regulators and investors in the geographical jurisdictions where FT operates.A number of top personnel are being investigated for their conduct (exiting schemes of FTI prior to the winding down announcement): Vivek Kudva, president Asia Pacific FT, his wife, Roopa Kudva (managing director, Omidyar Network India, independent director at Nestle India (NEST IN)  and regarded as an expert on governance), Sanjay Sapre, president, FTI and Jayaram Iyer, CEO, FTI, Venkataradha Krishnan, director, FTI and Arvind Sonde, trustee, FT Trustee Services. This reveals the standards of ethics and integrity among the senior management of FTI. In the case of Roopa Kudva, it remains to be seen how companies such as Omidyar and Nestle, India respond if it is confirmed that their  director undertook trades based on unpublished market sensitive information.The announcement of the winding down of the debt schemes exposed the incompetence of FTI in corporate debt management. However, the leak of select sections of the forensic audit report has highlighted major fault lines in this multinational company, namely, the disregard of risk management and the lack of integrity and ethical standards among its entire senior management. To restore confidence the regulator should ensure a complete restructuring of the trustees and the board of directors of FTI’s AMC, and bar them from holding any senior posts in companies managing public funds, as they failed in their responsibilities. One only hopes that the rest of the mutual fund industry in India does not share the characteristics of FTI.

Franklin Templeton Revelations: Business Trumps Risk, Private Interests Trump Ethics