Indian Startups are finding suitors in Indian Banks

Written by || April 21 2016

And these are not Fintech startups alone. The banking sector is trying to woo this very important and growing ecosystem in the country. Some banks have resorted to novel ways of doing so. RBL (Ratnakar Bank Limited) has announced opening of a branch in Bengaluru dedicated exclusively to cater to the growing startup ecosystem in that city.  This comes close on the heels of SBI recently announcing the establishment of its branch called InCube in Bengaluru recently. RBL bank plans to launch several such branches across the country in the future.

20160421 RBL bank

Through a dedicated branch the bank is attempting to be an end to end service provider to the startup ecosystem in the city. Besides regular banking services around Forex, remittances and cash management, the bank is planning to help startups with registration, legal and tax formalities and other such services where it looks to bridge infant businesses with established ones.

The startup community in the country has welcomed these developments. However, for these branches to be meaningful to startups and not remain another channel dedicated to SME banking disguised as exclusively for startups, several pieces need to come together. These include:

1. Expertise on regulatory and policy regime: These branches need to be the one stop shop for all advice that the startup ecosystem may require vis-à-vis the slew of incentives that are being made available by central and state ministries across the board to give impetus to entrepreneurship in the relevant area. Since most incentives are in the way of tax exemptions, funding and preferential treatment in various policies, the dedicated banks will need to ensure that they have the expertise for their clients to help optimize and strengthen their financial management posture benefitting from the policy and regulatory measures.

2. Cash flow management: Banks in India know how to deal with treasuries of size. They have expertise in dealing with CFOs and finance aligned professionals who manage these treasuries. Banks also have considerable expertise in dealing with HNIs for their wealth management offerings. However, the startups, in most cases are neither fund flush or have talent capable of handling financial complexities. Startups most struggle with cash-flow management and this is the single largest contributor to startup failures. Banks need to think of innovative ways of advising and structuring their client’s requirements in this space.

3. Venture financing: Banks should be able to either involve themselves in venture financing or make available debt instruments to the startup ecosystem. They should be able to create a viable option for entrepreneurs to look for funds other than through dilution of equity. At present even the collateral free debt is available only to those startups that are funded by VCs or angels. However, entrepreneurs often do not wish to dilute equity in early stages. Banks focusing on the startup segment need to understand that unless they have an offering that bridges this schism between

SBI and now RBL need to understand, that the startups will only think of them as their financial partners if they are able to bring distinctive value to them in terms of the above. Otherwise, this may well be another lame attempt at differentiation through optics rather than content.