What is silicon valley Bank?
Silicon Valley Bank (SVB), a regional bank in the US with its headquarters in Santa Clara, California, was ranked as the 16th largest bank in the country before the financial crisis. SVB, a bank that was founded in 1983, was seen as extremely trendsetting because it was one of the first to focus on start-ups and venture capitalists. 56% of its loans to VCs and PEs were secured by their limited partners as of December 2022. SVB Financial Group, which operates outside of the US in ten nations including India, owns SVB. Now let us learn about the Silicon Valley Bank crisis and its Impact on India.
Why is it news?
The news of the bankruptcy of America’s Silicon Valley Bank (SVB) has created a stir all over the world. SVB was the 16th largest bank in the US. It is considered the biggest financial crisis since the collapse of Washington Mutual and Lehman Brothers during the 2008 recession. In such a situation, now the people of India are also getting worried about it. Especially the upheaval in the industrial world is very fast.
US regulators announced the closure of SVB on Friday. Banking regulators in California have appointed the Federal Deposit Insurance Corporation (FDIC) as the bank’s asset receiver after closing the bank. This news is being seen as a sign of global recession in the world market.
In fact, Santa Clara-based SVB’s troubles began when its parent company, SVB Financial Group, announced the sale of $21 billion in securities from its portfolio. The company said that to strengthen its financial position, shares worth $ 2.25 billion are being sold. Analysts say that the widespread slowdown in the startup industry led to high deposit withdrawals at the bank, resulting in the move.
SVB had deposits of $ 189 billion in 2021. The bank had bought billions of dollars worth of bonds with this money over the past two years but did not get adequate returns on this investment due to low interest rates. Meanwhile, the Federal Reserve Bank increased interest rates for tech companies. This further increased the bank’s crisis. Silicon Valley Bank (SVB) failed to raise more than $2 billion in capital a week ago. It then became the largest US bank to collapse after the 2008 financial crisis.
Silicon Valley Bank crisis and Impact on India
The impact of the current crisis at Silicon Valley Bank (SVB) on the Indian startup world cannot be denied. According to Traxon Data, which aggregates data on startups, SVB has invested in around 21 startups in India. However, the information about the amount invested in them is not clear. SVB’s most significant investment in India is in SaaS-unicorn.
The company was able to raise around $150 million in funding from SVB in October last year. Apart from this, Bluestone, Paytm, One97 Communications, Paytm Mall, Naaptol, Carwale, Shaadi, InMobi and Loyalty Rewardz have also got money. Venture capital firm Essel Partners also has tie-ups with SVB. According to SVB, the founders of Essel have also used the bank to drive rapid growth of the company.
Also read- Silicon Valley Bank crisis Latest report
What problems these startups will face?
Every third startup in Silicon Valley is founded by Indian-Americans. Experts believe that the problem of making basic payments and salaries to its employees may start in the coming days.
Retrenchment of employees working in startups may also start.
There are a large number of Indian startups that do not even have an employee or office in the US. Such startups had opened their accounts in Silicon Valley banks as these banks offer such facilities without too many regulatory queries and with a customer-friendly approach.
Startups may face difficulties in getting loans. Silicon Valley Bank used to easily give loans to good and new startups.
Startups’ expansion programs may also suffer.
Also read- Silicon Valley Bank crisis Latest report
Which was the first bank in the Indian Subcontinent?
