In the wake of the Silicon Valley Bank collapse which has thrown startups into a tizzy, Union Minister Rajeev Chandrasekhar on March 14 heard out anguished entrepreneurs and investors about the difficulties they are facing in recovering their deposits and transferring cash back to the country.
“We need a financial airlift by the government in this situation,” said an investor, while describing to a gathering of more than 450 participants how international fund transfers from the US to India were not going through.
The minister assured the startup community of help to tide over the crisis and said that he will make a list of suggestions to the Finance Ministry in this regard.
"The Government of India is determined to ensure there is no hiccup or disruption in the growth of startups. We should be laser focussed that we tide over this storm and look to the future. I am going to put together a list of suggestions for the Finance Ministry on your behalf," he said.
These suggestions will include ways to extend a credit line to affected startups, making the rules for account opening in International Financial Services Centre (IFSC) banks located in GIFT City easier, and mirroring the credit products available in the US.
In a first-of-its-kind interaction between the government and the startup community amid the crisis, the minister patiently listened to problems and solutions suggested by startup founders and venture capital investors for almost an hour on the morning of March 14.
“You should consider that you have real time access to me. We will stay engaged 100 percent and there will be somebody in MeitY whose mission will be to solve the issue,” he said.
Although US regulators have said that startups can immediately recover $250,000 of their deposits through a federal insurance programme, several founders said that they have not been able to avail of the benefit.
Another key concern was the roadmap of the recovery of the rest of their funds in the bank. As it is expected to take some time for the bank to get liquidated and assets handed over to prospective owners, startups are wary of how long it might take before the entirety of their deposits are unfreezed.
During the meeting, the minister also asked entrepreneurs why they were not using the services of Indian banks as the country’s banking system is considered to be one of the most stable in the world.
The broader line of response to this was that foreign investors ask them to incorporate in the US and prefer to transfer funds to US-based bank accounts. “Our international customers, such as those in the US or Europe also prefer to send payments there,” highlighted the founder of a SaaS company.
After Chandrasekhar buttressed the point that IFSC banks in GIFT City can be used as a foreign bank, one founder said that he was worried about being hauled up by regulators in case he missed any compliance requirements.
“What if I miss just one form? I might get hurt… I have to hire a Big Four firm to help me with the compliance and that will cost me lakhs of rupees,” he asked.
A venture capitalist said that several startups have to make significant expenses in Silicon Valley, but the FEMA (The Foreign Exchange Management Act) rules are not friendly to fund their operations overseas, and if the money comes back, there are questions that if the Enforcement Directorate will allow easy flow of the overseas fund.
"I would certainly think that we must figure out a way of getting you to use the Indian banking system without changing your business model, how you operate in the US or your payroll in the US or your expenses in the US. We will create a separate framework and create more awareness of this in the earliest possible time," Chandrasekhar said.