Govt sees negligible impact from Silicon Valley Bank failure: Officials

Startup sector may be face liquidity issues; exposure of Indian banks to SVB yet to be ascertained

The implosion of California-based lender Silicon Valley Bank (SVB) should not have any lasting macro-economic ripple effect on India. It may, perhaps, impact liquidity of start-ups, which are already in the midst of a funding winter, said government officials and independent economists.

“We are not worried about any macro-economic impact at home. Domestically, the run on Adani shares was a bigger issue and yet it did not have a negative spillover on the larger economy. There could be a possible impact on the start-up sector,” a top official told Business Standard.

On Friday, SVB, which lends to start-ups and provides services to venture capital firms, became the largest bank to fall since the Lehman Brothers bankruptcy, which led to the 2008 financial crisis.

California’s banking regulator closed the bank and appointed Federal Deposit Insurance Corp as the receiver. One of the reasons for the bank’s failure was its huge investments in US treasuries, which some reports stated were worth $20 billion.

As the Federal Reserve (Fed) began raising interest rates last year to cool inflation, SVB’s bond investments soured.

“There should not be much of a concern for us, though we still have to see if any Indian bank had exposure to SVB directly or indirectly. One hopes that this will compel the Fed to ponder on its interest rate plans,” said a second top official from a key economic ministry. This is a view analysts agree with.

“I largely share that view. SVB is a very small American bank. If at all there has to be a ripple effect, it will start by spreading to other large banks in the United States,” said Madan Sabnavis, chief economist at the Bank of Baroda.

“The conversation is around which start-ups in India are financed by SVB. They can get funding from somewhere else, but suppose they go bust, and if there are Indian banks which have exposure to these Indian start-ups, then probably, there is going to be a problem,” Sabnavis said.

It is expected that finance minister Nirmala Sitharaman will be apprised about the SVB issue by her department secretaries, and whether there could be any impact on Indian start-ups or banks.