TO ADDRESS the liquidity issues of Indian start-ups impacted by the fallout of the events at Silicon Valley Bank (SVB), the IT Ministry, in a submission to the Finance Ministry, is likely to emphasise the need to devise a plan on how the Reserve Bank of India (RBI) can get domestic banks to offer loans to these start-ups, The Indian Express has learnt.
The Ministry of Electronics and Information Technology (MeitY) is also expected to recommend exploring the option of start-ups being allowed to transfer money from their SVB accounts to Indian banks without facing any taxation issues. Apart from that, it is expected to urge the Finance Ministry to allow overseas branches of Indian banks to accept deposits from these start-ups on priority.
The ministry will also create an email hotline and a form for those who still face liquidity issues.
These recommendations are learnt to be based on inputs received by MeitY during a meeting with start-ups on Tuesday. The meeting, attended by over 400 start-ups, was chaired by Minister of State for IT Rajeev Chandrasekhar.
The collapse of SVB impacted thousands of start-ups across the world, including hundreds in India, especially from the SaaS (software as a service) sector. Nearly 60 start-ups backed by the US-based technology accelerator YCombinator (YC) were among the worst hit.
“By Tuesday evening or Wednesday morning, MeitY will send a representation to the Finance Ministry highlighting the inputs it received during the meeting. Among the recommendations would be: if Indian banks lend against the deposits that these businesses have in their SVB accounts to address their liquidity issues, and if people want to transfer money from their SVB account to an Indian bank, there should be no taxation or issues under the Foreign Exchange Management Act (FEMA),” a senior government official said.
Most Indian start-ups used their SVB deposits for payroll and other operational functions. And to compound the problem, the start-up ecosystem is already going through a funding winter. The new measures could provide much-needed relief.
While the US Federal Reserve had said that SVB customers would have full access to their deposits on Monday, a number of start-ups have been unable to recover their entire money. Some of them have more than $3 million in their SVB accounts, but have only been able to get $250,000, the start-ups are learnt to have told Chandrasekhar.
Asked about the outcome of the meeting, Chandrasekhar told The Indian Express: “In an age when prudence and low risk are becoming profound attributes for successful banking, rather than increased risk taking, the Indian banking system is ideal for that. Given prudence and a stable banking environment – maybe not as flashy as the SVB – if we really position our banking system as being able to serve a clientele of start-ups, it will be a win-win for both.”
“We will share a list of suggestions with the Finance Minister and explore how best your concerns can be addressed,” Chandrasekhar is learnt to have told the start-ups at the meeting.
The crisis at SVB began after it sold substantially all of its available-for-sale securities at a $1.8-billion loss, mostly in the form of US Treasury securities.
SVB had received a massive volume of deposits during the 2020-2021 tech boom and invested the proceeds in long-term Treasury bonds while interest rates were low. However, with interest rates rising in the US, the market value of these became substantially lower than what SVB paid, triggering withdrawal requests from depositors.
While the bank’s 52-week high was just shy of $600 per share, it was trading for less than $40 in Friday’s pre-market session.
SVB was the default banking partner for most start-ups because of its legacy in technology and experience of banking high-growth and high-burn companies. It dealt with businesses that traditional banks typically stay away from given the perceived risk of failure, and lent to start-ups when other sources of funding were hard to come by.
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Soumyarendra BarikSoumyarendra Barik is a Principal Correspondent with The Indian Expres… read more
