Silicon Valley Bank (SVB), a major depository to tech companies and startups, went bankrupt on Friday, leaving depositors scrambling for their money. While US authorities guarantee that there will be few consequences, stakeholders are debating ways to reduce potential losses in the future. Will the failure affect Indian finance sector, more specifically the employment sector?
SVB was a major lender to businesses operating in the US-India market. Thus, the failure raises concerns about whether the breakdown will have far-reaching consequences for these firms, forcing them to adopt drastic cost-cutting measures such as job cuts or hiring freezes. Hindustan Times spoke to industry experts to determine whether the issue will hit Indian soil and, if so, what preventative measures should be taken.
ALSO READ: SVB fallout spreads: European stock markets dive as banks under pressure again
Impact of Silicon Valley Bank collapse on Indian financial sector
“Indian financial system could get impacted if the exporters who are dependent on US market start seeing slowdown in their businesses and that would impact job growth and ability to repay debt to their banks. A lot of venture capital investment coming into India would also slow down,” says Ramit Arora, co-founder and president of digital lending platform Biz2X.
He continues, although depositors have started getting money back but the bigger problem is that lending to start ups would get severely restricted and either they will have to downsize or they will have to shut down.
ALSO READ: Silicon Valley Bank collapse: 96 hours after biggest US bank failure in 15 years
Ritu Mathran, chief financial officer and co-Founder of InCruiter, a firm associated with recruitment services, shares the same apprehensions, “Silicon Valley Bank’s potential impact on the fall in demand for IT services could result in IT companies pulling back their recruitment efforts. This could significantly affect fresher recruiting as employers may prioritize keeping existing employees over hiring new talent.”
However, Biden government is supporting Silicon Valley Bank depositors, raising hopes that the money will be recovered. Vijay Yalamanchili, chief executive a human resource solution firm Keka, says, “There might be minor inconveniences in the immediate future in terms of giving pay checks soon. However, there won’t be an overall big impact on businesses, due to which, the IT firms’ recruitment drives I believe are not going to suffer.”
Experts advise workers to highlight their skills in order to avoid being laid off as a result of the Silicon Valley Bank crisis.
Why was Silicon Valley Bank a darling to startups?
The bulk of SVB’s investors are start ups. Another important reason in the bank’s demise is a lack of diversity among customers. SVB reportedly had exposure to at least 21 startups in India, though how much money was invested in them is unknown. (ALSO READ: Silicon Valley Bank collapse: New CEO urges top venture capital clients to move deposits back)
The SVB financing model also catered to tech start-ups that were unable to collect funds due to a funding winter, could be to blame.
“SVB was a leader in venture debt and was financing loss making start ups as well,” says Ramit.
It was one of the first banks in the United States to accept account opening without a social security number (SSN) or a local address. As a result of these startup-centric schemes, it became the first-to-go location.