Apart from Gift City, startups have also moved their funds to banks in the US, in India and with overseas locations of Indian lenders on the basis of their customer and supplier presence, several executives in the startup and banking ecosystem said.
As per the last official estimate given by minister of state for electronics & information technology Rajeev Chandrasekhar on March 17, around $200 million of the nearly $1 billion stuck in SVB that was attributable to Indian companies, was transferred to Gift City accounts. There are 21 banks who operate an IFSC banking unit, of which, 13 are Indian banks such as State Bank of India, Bank of Baroda, ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank, etc.
Primarily, tech startups with little client or supplier presence in the US have been moving their money out of the US to Indian bank accounts via transfer pricing, ET has learnt. However, those who need USD bank accounts to make or collect payments are the ones that have opted for accounts in either the US banks or Gift City accounts.
“We have had over 40 companies open and send funds to Gift City accounts. We know of around $30 to $40 million that startups have transferred,” Harshil Mathur, chief executive officer of fintech company Razorpay, told ET. After the Silicon Valley Bank accounts were temporarily frozen, Razorpay began offering zero transfer charges on its business banking platform for startups looking to swiftly move funds out of the US.
ET had reported earlier that RBL Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank and HSBC were working with startups and investors to open accounts in Gujarat’s Gift City.
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A Bengaluru-based founder, whose startup has been backed by famed accelerator Y Combinator, said that the company is in the process of moving their funds to an Indian bank account in Bengaluru using transfer pricing — in which the Indian entity of the company will generate an invoice to the US entity for the sum that needs to be shifted. “Our entire customer base is in India, and we have no reason to keep funds parked in the US as of now. The only reason we had money in SVB was because it was one of the conditions of the fundraise,” the founder said on the condition of anonymity.
SVB was acquired by the First Citizens Bank in the US late last month.
However, not all were convinced of opening their accounts at IFSC banking units. “We moved our funds from SVB to other banks in the US itself. I have my own reservations around Gift City in terms of what new regulations may or may not come up from RBI’s end on it in the future. Although it is supposed to be a bank outside Indian jurisdiction, it is still the Indian banks that are operating there,” Shachin Bharadwaj, cofounder and CEO of startup Zeno Collectibles, which has a base in Los Angeles.
An executive with an Indian bank told ET that apart from parking money in Gift City accounts, startups have been opting to move money to other overseas locations like London, Hong Kong, Canada, etc.
Responding to a question in the Lok Sabha on March 29, minister of state for commerce & industry Som Prakash had said: “Supported by various measures undertaken by the government to promote funding to startups, many Indian banks have also started catering to startups as a separate client category owing to their unique needs”.
“The government has also notified the International Financial Services Centres Authority (IFSCA) to develop and regulate financial services, financial institutions and financial products in the International Financial Services Center (IFSC). The mandate of IFSCA is to create a world class international financial center to enable onshoring of the activities that are currently carried out in offshore financial centres by Indian corporate entities,” he added.
Separately, the ministry of electronics & information technology (MeitY) is learnt to have approached the finance ministry with a set of suggestions for the Indian banking sector to become better equipped to handle Indian startup clients within India and abroad.
In an interaction with Chandrasekhar last month, several startups and venture investors had informed the government about the lack of awareness in the ecosystem about the benefits of opening accounts with Gift City.
Further, on Monday, the parliamentary standing committee on finance, chaired by BJP leader and former minister Jayant Sinha, has called top officials from the finance ministry and the Reserve Bank of India to discuss the impact of SVB’s collapse on the Indian startup ecosystem. According to the notice of the meeting on Monday, the house panel has also called representatives of the Indian Private Equity and Venture Capital Association (IVCA) to discuss the “impact of crisis in certain global banks on India’s startup ecosystem”.