Explained: Will Silicon Valley Bank collapse impact India?

The collapse of Silicon Valley Bank on Friday has sent shudders around the world. The California-based Silicon Valley Bank (SVB), 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 Federal Deposit Insurance Corporation (FDIC) as its receiver. The collapse of the 40-year-old bank, which catered to the tech industry, is the largest financial institution since the failure of Washington Mutual in 2008. The failure of the bank, a mainstay for the startup economy, has left everyone asking – will the contagion spread to India? Let’s take a closer look: Start-ups Industry experts say the bank’s failure is likely to impact Indian start-ups as it has injected much uncertainty in the industry overnight. The Economic Times reported that start-up firms backed by Silicon Valley accelerator Y Combinator (YC) are facing trouble. Around 40 YC-backed Indian startups each have deposits ranging from $250,000 to $1 million and more than 20 have deposits of over $1 million each, The Economic Times quoted a YC WhatsApp poll as saying. Fintech firm Recur Club founder and CEO Eklavya Gupta told PTI that there are some large size non-Y Combinator linked SaaS companies in the west coast with operations in the US and India, who have had significant exposure to SVB. “Hopefully the matter will get resolved, but I think it is a big hit for Indian startups,” Ashu Garg, a prominent Silicon Valley-based venture capitalist and early-stage investor for over two decades, told PTI. Mint quoted Tracxn data as saying that SVB has invested in around 21 Indian start-ups including Paytm, Paytm Mall, Shaadi. CarWale, Naaptol, and One97 Communications – though the amount remains unclear.

But according to the data, SVB has no ‘significant investments’ in Indian start-ups post 2011.

Paytm founder Vijay Shekhar Sharma told Mint SVB has offloaded its investment in the company and received ‘significant returns’. InMobi Group co-founder Abhay Singhal told Zee Biz the failure would have a short-term impact on funding for start-ups. “All the new funding is likely going to be paused because venture capitalists will opt for saving current investments and I feel they will be forced to reduce valuation of their investments. I don’t see the issue of capital is going to be long term due to this crisis," Singhal said. “It is going to be an issue around startups not being able to meet payrolls in the short term. The problem that I see is short-term liquidity of around $7-8 billion that will unlock their assets and resolve the issue,” Singhal said. Meanwhile, Union minister Rajeev Chandrasekhar on Sunday said he will meet Indian startups this week to understand the impact of SVB Financial’s collapse on them and how the government can help during the crisis. “The @SVB_Financial closure is certainly disrupting startups across world. Startups are an imp part of #NewIndia Economy,” Union Minister of State for Entrepreneurship, Skill Development, Electronics and Technology Chandrasekhar said in a tweet. Banks Experts believe a major impact on Indian banks or the banking system is unlikely.

Top financial ministry officials told The Hindu contagion effects are unlikely to trigger ‘systemic risks’.

Indian retail brokerage firm Sharekhan told Economic Times, **“**The risk of contagion within the banking system looks limited, this is more of a company-specific issue and could impact some of the start-ups, VC and some limited banks and also in near term could create panic in investors and banking clients.” “The collapse of SVB will not have any effect on the Indian banks as the Indian banking system is more insulated and regulated under the supervision of RBI,” Kranthi Bathini, Equity strategist at WealthMills Securities told the newspaper. [caption id=“attachment_12121042” align=“alignnone” width=“640”] Representational image[/caption] Stock market The second largest bank failure in US history roiled financial markets across the world on Monday including India. The Sensex, which surged around 350 points in the opening hours of Monday, plummeted a massive 1,300 points from the day’s high. “In a globalised world, a positive or a negative financial event in any known corner of the globe has a ripple effect. There is nothing like ‘decoupled’ anymore, and India is no exception. Any larger contagion effect will impact our markets as well,” Dalal Street veteran Sunil Sanghai told Economic Times. But others remain less concerned.

“This is certainly not 2008 crisis,” Deven Choksey, MD, KR Choksey Holdings, told Hindu Business Line.

“There is no dearth of money in the system and massive fund raising by Adani group is a prime example. More, the large US banks and even Indian banks are all well capitalised. When an ecosystem collapses, like the crypto, start-ups and PEs, some casualties are bound to happen. The meltdown could be in its final leg and collateral damage has hit market sentiments. But this will not last long. We may be closer to a panic bottom in the markets.” What happens next? On Sunday, the US Treasury, Federal Reserve Board, and the Financial Deposit Insurance Corporation announced that depositors of the failed Silicon Valley Bank will have access to all of their money. In a joint statement released by Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome H Powell, and FDIC Chairman Martin J Gruenberg announced they would “fully protect” all depositors who had funds in Silicon Valley Bank, just days after regulators took control of the institution. “Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” read the statement. After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. In addition, Signature Bank, a New York bank, was also closed by regulators over the weekend. Signature depositors will also be made whole. “We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” added the statement. Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. “The US banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe,” added the statement. Meanwhile, US president Joe Biden lauded Yellen and National Economic Council Director for working “diligently with the banking regulators to address problems at Silicon Valley Bank and Signature Bank.” “I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe. The solution also ensures that taxpayer dollars are not put at risk,” said Biden on actions to strengthen confidence in the banking system. “The American people and American businesses can have confidence that their bank deposits will be there when they need them. I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again,” added Biden. With inputs from agencies Read all the  Latest News,  Trending News,  Cricket News,  Bollywood News, India News and  Entertainment News here. Follow us on  Facebook,  Twitter and  Instagram.