Over the weekend, you must have heard of a bank crash in the US. By Monday, there was news of another bank crashing and burning. While the collapse of two banks - Silicon Valley Bank and Signature Bank - has turned the market in the US upside down, here's how the story is unravelling in India.
If your brain is already spinning with the thought of understanding banks and economics, don't worry we have tried to simplify it so that even a Golden Retriever can understand.
For India, the collapse of the Silicon Valley Bank has been bigger news than that of the Signature Bank shutting down.
Before we start, NO the SVB that's collapsed is not the Indian "SVC Co-operative Bank Ltd", formerly known as "The Shamrao Vithal Co-operative Bank Ltd". These are two different and unrelated entities.
A bit about SVB: If you don't know yet, the SVB, aptly named, was a famous bank for startups to park their investor funds.
The India connection: Reports say there are a few Indian startups that used SVB to deposit their funds or received loans from the bank.
A startup accelerator is a mentor-based program that provides guidance, support, and limited funding in exchange for equity. There are hundreds of accelerators worldwide that have been instrumental in helping launch important startups (according to SVB website).
Insured and uninsured deposits: The amount of deposit is important because the US feds have said that every depositor is assured $250,000 in insurance.
But there seems to be some good news:
With this US govt action, looming risks to Indian Startups hv passed ????— Rajeev Chandrasekhar ???? (@Rajeev_GoI) March 13, 2023
Learning for Indian Startups from this crisis - trust Indian banking system more.
Thank u to PM @narendramodi ji, FM @nsitharaman n @RBI for their continuos leadrship n monitoring durng this ???? #NewIndia https://t.co/yF1dnGy1BS
In a nutshell, SVB collapse is unlikely to deeply affect Indian markets or startups. But there are some startup founders who had a hard time accessing their deposits with the bank.
The Verge reports that startups may have a hard time rolling out paychecks to its employees, paying for external services like cloud, software, etc. This is just the tip of the iceberg.
I don’t know how this ends. I know that the financial future of Strongsuit; my team and my family are at risk w/ the collapse of SVB. I know that my story and the stories of thousands like me that have been impacted by SVB’s collapse do not match the current narrative(17/23)— Lindsey Michaelides (@lcmichaelides) March 11, 2023
I’m open to the idea— Elon Musk (@elonmusk) March 11, 2023
Let's brush up a little on what led us to this moment. Why did SVB collapse in the first place?
It sounds like a dumb move but not unheard of. South Park has an episode on how banks burn your money:
South Park calls it again.— Greg 🇺🇸🇬🇷🏳️🌈🤴🏻👑🍿🍿🍿🍿 (@gregissnacking) March 12, 2023
This is basically SVB, Wells Fargo, JP Morgan, Bank of America, and Citi right now. Covid proved our government has no issues letting our businesses fail. No bailouts. You don’t deserve a bailout for financial mismanagement.pic.twitter.com/ijTOZdlO1h
15/ Heartbreaking, and it could have been avoided, both by different strategic decisions by SVB (and better messaging), but also if the VC community hadn't turned so aggressively against SVB. They would have been ok if the run didn't happen. Prisoners dilemma at work— samir kaji (@Samirkaji) March 10, 2023
BTW, on the other side of the ocean, HSBC bought SVB's UK unit for 1 pound or nearly Rs 100.