With the US-based Silicon Valley Bank (SVB) collapse triggering shock waves, the Indian industry has called for strengthening of domestic start-up financial ecosystem which has so far not been in focus.
“On hindsight, it becomes clear that having one bank with such a large exposure to one particular sector of industry was undesirable..In the medium term, what needs to be seen for Indian startups, is how an enabling environment for working capital can be created for lending to them in India itself,” said Sanjiv Bajaj, President, CII, and MD, Bajaj Finserv told businessline on the sidelines of the CII Partnership Summit on Monday.
Growth focus
The RBI also needs to pause on rate hikes and bring back the focus on growth, he said, adding it was time for India to decouple from rest of the world on interest rates. “The pandemic required coordinated global action. Hopefully that situation is behind us now. Our own economy is now showing signs of strong growth coming up. The timing is right for india to decouple on interest rates,” he said.
The suggestion on decoupling assumes greater significance at a time when the US Fed’s continuous rate hike has been identified as one of the primary reasons behind SVB’s collapse. SVB had invested substantially in US government bonds and with bond prices dropping as February increased interest rates, the value of its investments also fell.
On Friday, the start-up-focussed SVB was shut down by US financial regulators and its assets seized after a large number of depositors withdrew money and the bank’s future came under a dark cloud. The collapse of SVB is the second-largest bank failure in the history of the US after the failure of the Washington Mutual Bank in 2008.
Assessing situation
On the effect of SVB crisis on Indian start-ups and the IT sector, Bajaj said that the situation was still being assessed but US Treasury Secretary Janet Yellen’s assurance that depositors in the bank will have access to their money starting Monday had come as a big comfort. “The risk of any immediate contagion effect seems to have been reduced after the statement the Treasury Secretary made. At least, any deposits that are there are safe,” he said.
However, given the importance of start-ups in India, systematic thought is needed on the financial support required for this unique industry, Bajaj pointed out.
“For start-ups, most of the challenges one assumes is around their product strategy, innovation, ability to hire people and ability to scale up. One assumes financing will be available. An event like this provides a trigger and highlights that financing too needs to be thought through in detail,” he said.