State Bank of India is trying to work out a way to debt finance startups as current rules allow banks to fund only profitable companies.
Startups raise equity funds to run their business. Promoters are forced to dilute stake as debt funding is not available to them because their companies are loss-making in the initial years, a senior SBI official said.
“We are struggling to debt fund startups. Bank norms and rules allow debt funding to only profitable ones. As initially startups are loss-making, they are to be funded based on the viability of the idea only. We are trying a way out,” Ashwini Kumar Tewari, managing director – international banking (technology and subsidiaries) at State Bank of India, said at the annual general meeting of The Bengal Chamber on Wednesday.
He said the bank was doing equity funding through SBI Ventures and recognised that the country needs to support the startup culture.
The number of government-recognized startups under the ‘Startup India’ initiative, launched by Prime Minister Narendra Modi in January 2016, has grown nearly 85 times. Their number has increased from 504 in 2016 to 42,733 in 2020, according to commerce ministry data.
Speaking about the economy, Tewari said despite a healthy recovery the country’s growth will be lower than in 2019 due to the pandemic. “Large businesses are doing well. The problem is in the SMEs and the small sector. Large corporations are repaying more. Credit growth is driven by retail,” he said.
Referring to gold loans, he said that they are not popular in India but there are a lot of them which indicates the pain the normal people have suffered. “If gold loans are increasing, it is good for business but it is also a sign of the helplessness of normal people,” Tewari said.
The Bengal Chamber launched its Ease of Doing Business app during the day for industry stakeholders. Subscriber members, as well as non-members, can now make queries and take the benefit of experts of the chamber in diverse areas.
Source: Economic Times