Absence of collateral with startups results in bank funding denial: Rajan

Reserve Bank of India Governor Raghuram Rajan on Wednesday said startups lacking collateral is the main reason for not being able to get funded by banks.

"Across the world startups don't have collateral. The banker wants to see what he can take as a collateral which is non-existent for the startups," said Rajan at an interactive session organised by industry body Assocham.

Rajan said those who want to start a taxi service can go take a loan against the fleet of cars they have as security but for startups that is not the case.

He said a bank will lend to a kirana shop owner or an auto repair shop owner but shy away from startups for the reason they do not have assets or collateral.

The governor said a software programme written by a startup hanging around somewhere in the cloud might be hard for a bank to readily understand its value and thereby lead to backing off from funding.

However, Rajan highlighted that startup funding in India exploded 30 to 40 times through a variety of sources like venture capital and angel funding among others.

--IANS

sth/ahm/bg