Rajeev Chandrasekhar, Union minister of state for electronics and information technology, on Thursday said a conservative estimate of more than $1 billion of money "attributable to Indian start-ups" was stuck in the cash-strapped Silicon Valley Bank as deposits at the time of its collapse.
He was speaking at a live session on Twitter Spaces late last night. His statement comes amid the collapse of US-based Silicon Valley Bank, Signature bank, and Silvergate Corporation, which has rattled the entire tech and banking ecosystem globally. Until the time of its collapse, the California-based Silicon Valley Bank was associated with providing funding to the global start-ups and venture capital ecosystem. Before the failure, SVB held $212 billion of assets against $200 billion of liabilities and the equity cushion was $12 billion. Almost 40% of SVB assets (worth $82 billion) were in mortgage-backed securities while loans and advances correspond to $74 billion.
Chandrasekhar said the collapse of SVB had a direct impact on hundreds of startups, with the funds invested in them also being impacted significantly. He said, as a precautionary measure, funds worth over $200 million have been transferred to GIFT (Gujarat International Finance Tec-City) City banks. “Special provisions available at Gift City can be a quick and impactful support for the Indian startups,” Chandrasekhar said.
Earlier on Thursday, he said the Indian banking system is resilient and strong and that startups in the country should therefore opt for Indian banks as their preferred banking partners. “Today what is attractive about the banking system is not their appetite to take risks, instead it is their prudency which makes them strong. What startups are looking for is not risk or risky instruments, instead, they are looking for safe havens where capital can be deposited,” he said.
He had held discussions with the representatives of more than 460 domestic startups this week to discuss and highlight issues that are plaguing the domestic startup ecosystem following the fallout of SVB. According to reports, the blockage of international wire transfers, threshold to funds withdrawal and lack of communication with US agencies are some of the issues that were highlighted during the meeting. Chandrasekhar said a letter has also been sent to Finance Minister Nirmala Sitharaman, highlighting the issues put forth by the domestic startup community.
The fallout of Silicon Valley Bank is being touted to be the biggest financial crisis since the collapse of Lehman Brothers in 2008. Governments and big corporations, globally, are scrambling to avert the risk of global contagion. Earlier this week, HSBC bought the UK-based subsidiary of Silicon Valley Bank for $1.21.
During the two years of Covid-19, the California-based startup lender amassed a fortune after investing most of the deposits into government bonds owing to extremely low-interest rates. However, troubles began for SVB as the Fed began to hike interest year in order to curtail inflation last year. With the hike in interest rates, the value of government bonds decreased.
Last week, SVB’s attempt to raise money worth $1.8 billion through the sale of its securities took a hit. Following this, depositors withdrew $42 billion from the bank, creating panic amongst its investors and with stocks falling 60%. Last week, the Federal Deposit Insurance Corporation (FDIC) seized the assets of SVB, marking the largest bank failure in the US since Washington Mutual during the height of the 2008 financial crisis.