Connect with us

Headlines of the Day

With US Govt action, risks to Indian startups have passed

Minister of State for IT Rajeev Chandrasekhar on Monday said that with U.S. government’s latest action on Silicon Valley Bank, the looming risks to Indian startups have passed, as the learning for Indian startups from this crisis is to trust Indian banking system more.

The Biden administration has announced that depositors of the failed Silicon Valley Bank will have access to their money from Monday.

Chandrasekhar tweeted, “With this US govt action, looming risks to Indian Startups have passed. Learning for Indian Startups from this crisis – trust Indian banking system more.”

He added: “Thank u to PM @narendramodiji, FM @nsitharaman n @RBI for their continuous leadership n monitoring durng this.”

The failure of Silicon Valley Bank last week left many startups, tech companies, entrepreneurs and VC funds nervous and jittery, and the U.S. government’s latest statement has given hope to depositors who had accounts with the crisis-ridden bank.

California-based Silicon Valley Bank, the 16th largest bank in the United States, was closed on Friday by the California Department of Financial Protection and Innovation which later appointed the FDIC as its receiver.

SVB was deeply entrenched in the tech startup ecosystem and the default bank for many high-flying startups; its abrupt fall marked one of the largest bank failures since the 2008 global financial crisis.

The bank failed after clients—many of them venture capital firms and VC-backed companies that the bank had cultivated over time—began pulling out their deposits, creating a run on the bank (among the biggest U.S. bank runs in more than a decade).

Bank runs occur when customers or investors gripped by panic start withdrawing their money, causing the bank to be incapable of paying its obligations as they come due.

After receiving recommendations from the boards of the Federal Deposit Insurance Corporation and the Federal Reserve, and consulting with the president, Treasury Secretary Janet Yellen on Sunday approved actions enabling the FDIC to complete its resolution of the Santa Clara, California-based Silicon Valley Bank in a manner that fully protects all depositors.

In a related development, the U.K. government announced on Monday that it has facilitated London-based banking major HSBC to buy the embattled U.K. arm of Silicon Valley Bank for 1 pound, securing the deposits of more than 3,000 customers worth around 6.7 billion pounds.

Diversified gaming and sports media platform Nazara Tech – whose two step-down subsidiaries have Rs 64 crore deposits in Silicon Valley Bank – on Monday said the U.S. administration’s statements on protecting depositors for entire amount is a ‘positive outcome’ and gives confidence about the recovery of money.

The two subsidiaries have working capital to meet its requirements, including payroll, Nitish Mittersain, Founder and CEO of Nazara Technologies said as he categorically ruled out the possibility of layoffs within the company due to the Silicon Valley Bank crisis.

Most of the Indian software-as-a-services startups with a presence in the U.S. and firms linked to incubator Y Combinator are among those entities who are feeling the heat of the Silicon Valley Bank collapse though several industry players and experts feel that the impact is likely to be short-term.

Y Combinator-backed startups get their payments in the account they hold in SVB but many Indian firms linked to incubators like Meesho and Razorpay were able to move their money out of the bank in time.

On Saturday, Vijay Shekhar Sharma, Paytm’s top honcho had clarified that the Silicon Valley Bank, was one of its first investors but that the bank long ago, by selling to other private investors had “exited fully with handsome returns on their total investment of only $1.7 million.”

Sharma in his tweet made it clear that SVB is not a shareholder currently.

Fintech firm Recur Club founder and CEO Eklavya Gupta had said there are some large size non-Y Combinator-linked SaaS companies on the west coast with operations in the U.S. and India, who have had significant exposure to SVB.

“We are helping startups in opening their account in Gift City. We have good partnership in place to even help large companies meet their immediate requirement. Good thing is that large companies have better management and resources available to manage the crisis,” Gupta said. Recur club has set up a pool of $15 million to help Indian entities meet their immediate expense requirement and fun payroll without diluting their equity.

Many venture capital firms had reportedly advised portfolio companies to pull out cash as a precaution. Reports suggest that startup founders in the U.S. were concerned about whether they’ll be able to make payroll, and some entrepreneurs whose funds are frozen at the bank were said to be turning to loans to tide over the situation. PTI

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2024 Communications Today

error: Content is protected !!