Banks provide lifeline to SVB-hit startups

When the moratorium on transactions for Silicon Valley Bank is lifted, banks set up special teams to help startups move funds to their branches in the GIFT City.

Following the bank run on Thursday and Friday, US regulatory authorities led by the California Department of Financial Protection and Innovation closed SVB and appointed the Federal Deposit Insurance Corp (FDIC) as a receiver.

Due to SVB’s startup-friendly policies, most US startups and several Indian startups, along with US subsidiaries, are exclusively associated with the bank. Deposits of significant capital raising funds are also kept with the bank.

They temporarily lost access to their accounts and those deposits after the bank closed on Friday night. Some startups took preemptive action just hours before US authorities transferred funds aided by Indian banks. Not everyone was successful.

“SVB allowed startups to set up bank accounts in the US without the use of social security numbers. This was a major advantage for non-US residents,” said a startup founder who has some exposure to bank deposits in SVB.

The FDIC provides insurance of $250,000 on each bank deposit, but the SVB filing said 97% of its deposits exceed that.

The regulator promised access to insured deposits on Monday morning. However, many startups were looking to open a second bank account to diversify their funds.

A person familiar with the move said HSBC assembled a team of two dozen executives across markets to work on processing documents.

“On Friday morning, we started getting calls from several VC and PE funds that we are already using for their portfolio companies and have been working round the clock since then,” said the executive.

The team includes officers with expertise in KYC norms, awareness of minimum requirements for account opening and expertise on GIFT City norms. Banks are able to open accounts within 24 to 48 hours, provided the documents are in place.

Ganesh Sankaran, group executive and head of wholesale banking coverage group at Axis Bank, said the lender saw an opportunity to help startups affected by the SVB collapse.

“We are actively engaging with these startups to help them deposit their funds at the Gift City branch of Axis Bank. It also opens doors for further business relationships with these entities in the future. B2B e-commerce marketplaces, large online car marketplaces, a few companies in the agri/food tech space have shown interest in moving their funds.”

Spokespeople for Gift City, Kotak, HSBC and ICICI Bank did not respond to requests for comments on Sunday.

Three investors in the startup confirmed that some other Indian banks like Kotak Mahindra Bank and ICICI Bank are also helping open alternate bank accounts in GIFT City.

An investor at the revenue financing firm said, “We are making sure that the startup founders will have another US dollar bank outside GIFT City so that they can quickly change their bank details with their buyers in the US and receive new money.” start receiving.” , asking to remain anonymous.

Most of the affected startups provide software-as-a-service (SaaS) to US-based customers or have overseas vendors, requiring them to have a US bank account. Startups backed by Y-Combinator are also required to incorporate in the US and open a US bank account – usually in SVB – in order to receive investor funds.

Another investor said that the biggest challenge in opening a bank account in GIFT City is the Permanent Account Number (PAN).

“Usually, it takes two to three weeks for a PAN number for a foreign entity, but some Indian banks have given some relaxation, and discussions are underway specifically on this issue. “The banks have also agreed to conduct Know Your Customer (KYC) on the Zoom call,” said this investor.

Most large US banks require a physical presence and it takes about a week to open a new bank account.

GIFT City is regulated by the International Financial Services Centers Authority and allows companies to transfer funds in foreign currencies, including the dollar.