- Date : 20/03/2023
- Read: 3 mins
Silicon Valley Bank withdrawal limit increase and its influence on Indian startups
As its name suggests, Silicon Valley Bank (SVB) was a favourite among the Silicon Valley firms, most of which are in the tech segment. Being concentrated within this segment, SVB boasted $175 billion in deposits and $209 billion in assets, across only 17 branches in California and Massachusetts. Popular among tech startups, it is estimated that Indian startups have an exposure of $2.5 to 3 billion in SVB.
What Happened with SVB?
When SVB was shut down by a California regulator on 10 March 2023, it sent shockwaves across its clientele, including those in India. SVB was facing a cash shortage in the days leading to the shutdown. There was an attempt to sell shares to plug the liquidity gap, followed by the bank’s attempt to put itself up for sale. The shares of the bank plummeted by 66% in pre-market trading, which had the effect of a halt in the trading of its shares.
The federal government promptly intervened and declared that customers will have full access to their deposits on the subsequent Monday, which was 13 March 2023. President Biden confirmed that the safety of the deposits will be ensured through the money raised from banks by the deposit insurance fund.
Also Read: New age stocks witness recovery in stock prices. Is it time for them to grow?
The Future for Indian Startups
With the assurance of the safety of their deposits, Indian startups and venture capital firms are now somewhat relieved. However, it remains to be seen if all the funds can be withdrawn by the startup founders in one go, and if the banking system in the country will support such a withdrawal spree.
Deposits of up to $250,000 in American banks are under deposit insurance protection. Most of these exposed Indian startups are assumed to have deposits that are outside the insurance threshold limit. These startups will take a sigh of relief with the lifting of the withdrawal limit. It must be noted that startups are already under pressure due to the financial pressure felt by venture capital funds globally.
Out of over 100 Indian unicorns, more than 60 are based outside India. This includes almost all the startups in the Software as a Service (SaaS) segment. Siddarth Pai, founder/partner of 3one4 Capital, said that US tech startup accelerator Y Combinator backs over 250 Indian startups. All but 5-10% of these firms are based outside India.
Rajeev Chandrasekhar, the Minister of State for Electronics and Technology, was quick to point out that this can be a lesson for Indian startups to trust the Indian banking system more. He welcomed the move of the US government to provide timely assurances to the SVB customers. Indian IT minister Ashwini Vaishnaw, too, welcomed the US government’s support of SVB deposits.
Fresh Developments
Since the SVB collapse, fresh concerns about global banking health were raised when the Swiss banking giant Credit Suisse got taken over its rival, the UBS group. As the market reacted, UBS shares saw their biggest single-day fall since 2008. European share markets opened at a lower level, as prices of European bank bonds fell too.
Also Read: Tata Technologies file draft papers for its proposed IPO with SEBI. All you need to know.
Conclusion
For many startups, SVB has been more than a tech-friendly bank. Many founders credited SVB’s role in helping them build their firms through network support and its role in the venture capital ecosystem. As the bank is undergoing a sea change in ownership and management, many startups are hoping that SVB’s much-appreciated role in the tech sector continues.
As its name suggests, Silicon Valley Bank (SVB) was a favourite among the Silicon Valley firms, most of which are in the tech segment. Being concentrated within this segment, SVB boasted $175 billion in deposits and $209 billion in assets, across only 17 branches in California and Massachusetts. Popular among tech startups, it is estimated that Indian startups have an exposure of $2.5 to 3 billion in SVB.
What Happened with SVB?
When SVB was shut down by a California regulator on 10 March 2023, it sent shockwaves across its clientele, including those in India. SVB was facing a cash shortage in the days leading to the shutdown. There was an attempt to sell shares to plug the liquidity gap, followed by the bank’s attempt to put itself up for sale. The shares of the bank plummeted by 66% in pre-market trading, which had the effect of a halt in the trading of its shares.
The federal government promptly intervened and declared that customers will have full access to their deposits on the subsequent Monday, which was 13 March 2023. President Biden confirmed that the safety of the deposits will be ensured through the money raised from banks by the deposit insurance fund.
Also Read: New age stocks witness recovery in stock prices. Is it time for them to grow?
The Future for Indian Startups
With the assurance of the safety of their deposits, Indian startups and venture capital firms are now somewhat relieved. However, it remains to be seen if all the funds can be withdrawn by the startup founders in one go, and if the banking system in the country will support such a withdrawal spree.
Deposits of up to $250,000 in American banks are under deposit insurance protection. Most of these exposed Indian startups are assumed to have deposits that are outside the insurance threshold limit. These startups will take a sigh of relief with the lifting of the withdrawal limit. It must be noted that startups are already under pressure due to the financial pressure felt by venture capital funds globally.
Out of over 100 Indian unicorns, more than 60 are based outside India. This includes almost all the startups in the Software as a Service (SaaS) segment. Siddarth Pai, founder/partner of 3one4 Capital, said that US tech startup accelerator Y Combinator backs over 250 Indian startups. All but 5-10% of these firms are based outside India.
Rajeev Chandrasekhar, the Minister of State for Electronics and Technology, was quick to point out that this can be a lesson for Indian startups to trust the Indian banking system more. He welcomed the move of the US government to provide timely assurances to the SVB customers. Indian IT minister Ashwini Vaishnaw, too, welcomed the US government’s support of SVB deposits.
Fresh Developments
Since the SVB collapse, fresh concerns about global banking health were raised when the Swiss banking giant Credit Suisse got taken over its rival, the UBS group. As the market reacted, UBS shares saw their biggest single-day fall since 2008. European share markets opened at a lower level, as prices of European bank bonds fell too.
Also Read: Tata Technologies file draft papers for its proposed IPO with SEBI. All you need to know.
Conclusion
For many startups, SVB has been more than a tech-friendly bank. Many founders credited SVB’s role in helping them build their firms through network support and its role in the venture capital ecosystem. As the bank is undergoing a sea change in ownership and management, many startups are hoping that SVB’s much-appreciated role in the tech sector continues.
