The logjam of risk aversion

Banks need sovereign support to lend to non-AAA borrowers in the wake of the Franklin crisis

The shutting down of six debt funds by Franklin Templeton is unfortunate at multiple levels. The collective assets under management or AUM of these six funds was over Rs 25,000 crore. The investors were largely retail and high net worth individuals and their money is now stuck — at least for 12 months if not longer.

Given the quality of assets and their current illiquidity, it is unlikely that people will recover the fund’s stated net asset value (NAV). After having successfully created a huge market for non-AAA corporate debt, Franklin Templeton has now marked the death knell for credit risk