SVB fallout: Indian start-ups exploring options to move US deposits fearing contagion effect

Indian start-ups are exploring options to reduce their exposure to various US banks as they fear a broader impact on the US financial sector, in the aftermath of the Silicon Valley Bank collapse.  While over 100 Indian start-ups have direct exposure to SVB, there is fear of a similar collapse spreading to other banking institutions.

Fintech companies told businessline that they are already getting interest from Indian start-ups wishing to move their funds back to local banks or start alternate US$ accounts locally. Karun Arya, Chief Growth Officer at GetVantage, told businessline, “We are working closely with our Indian banking partners to allow businesses impacted by SVB collapse, to quickly open a US$ bank account in GIFT City in Gujarat to re-route their future revenues securely without disruption.” Arya further added that a few startups had already reached out to GetVantage to set up an alternate US$ account

Also read: Indian bankers rule out second order impact due to SVB collapse

According to an executive with Razorpay, which has created a dedicated desk to help Indian start-ups urgently move their money back to India, multiple start-ups have approached the company to avail of this service. A spokesperson at Razorpay said, “For all existing RazorpayX users, we’re offering to move their money into their Indian current account as FDI through our partner banks. For anyone who is not a RazorpayX user, we are helping their money into a Nostro account through our partner banks.” 

As the SVB collapse directly affects the Indian start-ups’ ability to access any working capital deposited with the bank, several fintech companies have already set up a line of credit or a fund that can be availed by Indian start-ups to pay their employers. As per an informal, internal poll done by Indian entrepreneurs, seen by businessline, over 22 Indian start-ups have over $1 million in exposure to SVB. 40 start-ups have deposits worth $250,000 to $1 million with SVB and 33 start-ups have deposits of less than $250,000. 

(Source: An internal poll conducted by Y-Combinator-backed Indian start-up founders)

Fund concentration

There are Indian start-ups that have exposure in US banks such as UBS, Bank of New York Mellon, although the biggest exposure is with SVB. Sanjeev Bikhchandani, Founder and Executive Vice-Chairman of Info Edge, said that there are not many Indian start-ups with a large amount of exposure to other US banks. “This is risk emanating from the concentration of funds of many start-ups in deposits with one bank in the US. A lot will depend on how quickly the US regulator moves to allow depositors to access their funds and to what extent.”

Also read: SVB collapse: Kerala start-up raises red flag

Experts believe that even the Indian start-ups affected by the SVB collapse that expect the $250,000-insurance on their SVB deposits provided by the Federal Deposit Insurance Corporation in the next few days are likely going to prefer to deposit this amount locally. The expert said, “It is quite unlikely that the insurance amount provided by the FDIC or any amount recovered after the liquidation of SVB will be deposited in the States, Indian start-ups are likely to deposit it locally or in countries such as Singapore.”

Meanwhile, Janet Yellen, the United States Secretary of the Treasury, tried to assuage concerns of a contagion effect and said that the government wants to avoid financial contagion from the implosion of the SVB but has ruled out a bailout for the institution. “We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said during an interview with CBS.