IPA Newspack
  • Home
  • now
  • politics
  • business
  • markets

IPA /

IPA Special

IPA Special

Silicon Valley Bank Collapse Sends Chills Down Indian Tech Sector

By Anjan Roy

A prominent private bank in the United States — the country’s sixteenth largest— has failed and this can have significant impact on the Indian technology industry.

Silicon Valley Bank —better known by its acronym SVB— has gone into liquidation. This was one of the 20 largest banks in the USA and its sudden demise is sending shivers down the spine of many in the financial sector. Albeit, few outside of Silicon Valley really knew of the bank’s existence.

But far away from SVB headquarters and main operating bases in America, the failure of the SVB is creating uncertainty for many Indian start ups. It is learnt that many of the startups had banking relations with the SVB and a good part of their funds were lodged with the SVB.

Now that the bank has gone into liquidation, these start ups are wondering whether they will get their money back. PayTM, Bluestone are among the many Indian start ups which have their money in SVB accounts.

The good news however is that the America’s Federal Deposit Insurance Corporation has taken over the failing bank’s assets and it promises to pay the depositors and others.

Once beaten twice shy. So everyone in the financial sector is wondering if the fall of SVB is a pointer to a wider instability in the financial system and like in 2008 global melt down, this incidence presages a general risk of the entire financial system.

The financial sector operators are reliving the days after the global financial melt-down in 2008-09 when a whole host of the largest American banks are faced with the prospects of closure and liquidation. It may be remembered one of the storied US investment bank, 200-year-old Lehman Brothers, had been liquidated as a fall out of the 2008 crisis.

Experts point out that the failure of the SVB is very, very specific. The bank was over-exposed towards the technology sector and recent troubles in the technology companies and such start ups was the primary cause of its liquidation.

With the major world central banks raising their policy interest rates to fight inflation, the IPO market as well as funds market in general were feeling the squeeze. As result many of the startups were failing to raise funds from IPOs and facing problems of liquidity. There are instances when these firms were seeking to withdraw their deposits from the SVB and too many were demanding too much cash all the same time.

That was the classic case of a bank run. If all the depositors and others who have money in a bank try to withdraw their deposits at the same time, no bank, however solvent, can meet it. Because, typically, banks do not hold cash they place all their funds in various loans which cannot be realised all at a time.

In fact, faced with too much demand for funds, SVB tried to liquidate some of their investments. What they tried to do was to sell off their treasuries —that is, holding of US government bonds— in the bonds market. However, the price of long dated bonds have suffered because the US central bank had raised their interest rates.

Now, bond prices go down when interest rates go up. Because, in anticipation of future higher interest rates, existing bond try to sell off their current bonds and thus their prices drop.

The news was out that SVB had sold a good part of their bond holding at a loss. That sent the initial tremors through the SVB depositors and customers. They sought to withdraw their monies as fast as they could do. That triggered a fear of a bank failure.

In fact, the SVB drama unfolded too fast in course of just a couple of days. The initial rumours were that SVB was in trouble as the week opened. Then there were instances of bond sales around Thursday. By Friday mid-day things had turned so acute that the FDIC had to step in and close the banks transactions. It was so fast paced that even veteran financial sector players wondered what could have upset the bank’s credibility so quickly.

It is a classic case of a number of adverse factors happening all at once. The process of a macro-economic rewind was on for a while now in the face of rising prices, its wider impact on the IPO markets and the financial markets had serious implications.

At the same time, the technology sector was at the cusp of a secular restructuring a recast. Even some of the largest technology companies were going through a process of corporate and strategic restructuring. Their incomes, top line profits and employment all have been hit. They have started facing a liquidity crisis of sorts after years of indulgence and excesses.

In such a wider situation, the bank was concentrated in its operations to the technology sector. No wonder that the banker to the technology sector should allow face a crunch when most of its customers were going through a crisis and readjustment. (IPA Service)

IPA Special

It May Be Time For RBI To Decouple From Policies Set By U.S. Federal Reserve

April 1, 2023
IPA Special

Congress Is Steadily Finding More Allies Despite Some Differences

April 1, 2023
IPA Special

Rahul’s Conviction Has Boosted Congress Prospects In Karnataka Assembly Polls

April 1, 2023
IPA Special

Workers Unable To Live A Life Of Dignity Without Social Security

April 1, 2023
IPA Special

Trump Has That Uncanny Power To Turn A Crisis Into A Big Opportunity

April 1, 2023
IPA Special

Unleashing Of An Iranian Tiger: Politics Over Tourist Attractions

April 1, 2023
IPA Special

Trump Won’t Be Defeated In 2024 Polls Through Indictments Alone

April 1, 2023
Politics

Kejriwal fined for persisting with Modi’s degree charge

April 1, 2023
Politics

TMC vs BJP over Ram Navami violence in Howrah

April 1, 2023
Politics

Puducherry Assembly passes motion seeking statehood

April 1, 2023
Happening Now

Sidhu to be out today after 10 months in jail

April 1, 2023
Politics

Court says Sisodia ‘architect of whole criminal conspiracy’

April 1, 2023
IPA Special

World Is Keenly Watching What Narendra Modi Is Doing In ‘Mother Of Democracy’

March 31, 2023
IPA Special

Global South Is Looking To India To Find Ways To Deal With Debt Crisis

March 31, 2023
IPA Special

Relief For Kerala Chief Minister In CMRDF Case

March 31, 2023
IPA Special

Latest Collapse Of US And European Banks Is A Part Of Continuing Crisis Of Capitalism

March 31, 2023
IPA Special

Congress To Hold Nationwide Protests Against Rahul’s Disqualification

March 31, 2023
IPA Special

High Food And Energy Costs Are Taking A Toll, May Worsen

March 31, 2023
IPA Special

Karnataka Polls Will Help Both Congress And BJP To Assess Their Strength Before 2024

March 31, 2023
IPA Special

Bernie Sanders’s Interrogation Of Former Starbucks CEO Is A Good Beginning

March 31, 2023

An appeal

The legacy of IPA, founded by Nikhil Chakravartty, the doyen of journalism in India, to keep the flag of independent media flying high, is facing the threat of extinction due to the effect of the Covid pandemic. Only an emergency funding can avert such an eventuality. We appeal to all those who believe in the freedom of expression to contribute to this noble cause.
Click here to learn more

Share

Reply

  • 0
More on IPA

It May Be Time For RBI To Decouple From Policies Set By U.S. Federal Reserve

April 1, 2023 3:31 pm | IPA Staff

By K Raveendran With the US Federal Reserve set to continue raising interest rates to combat record inflation rates, the highest in 40 years, there...

IPA Special

Congress Is Steadily Finding More Allies Despite Some Differences

April 1, 2023 3:30 pm | IPA Staff

By Harihar Swarup As we head into another massive electoral season, starting with Karnataka assembly polls on May 10 and ending with the Lok Sabha...

IPA Special

Rahul’s Conviction Has Boosted Congress Prospects In Karnataka Assembly Polls

April 1, 2023 3:29 pm | IPA Staff

By Arun Srivastava Chanakya of BJP, Amit Shah has come out with the implicit advice to Rahul Gandhi to go to a higher court and...

IPA Special

Workers Unable To Live A Life Of Dignity Without Social Security

April 1, 2023 3:28 pm | IPA Staff

By Dr. Gyan Pathak The recently held Annual Development Partners meeting of the ILO’s Global Flagship Programme on Building Social Protection Floors for all has...

IPA Special

It May Be Time For RBI To Decouple From Policies Set By U.S. Federal Reserve

in IPA Special
Apr 1, 2023   ·  

Congress Is Steadily Finding More Allies Despite Some Differences

in IPA Special
Apr 1, 2023   ·  

Rahul’s Conviction Has Boosted Congress Prospects In Karnataka Assembly Polls

in IPA Special
Apr 1, 2023   ·  
Follow us on
Up Next: Political Opposition Faces Witch-Hunt From Parties In Power
©2020 -2021 India Press Agency, All Rights Reserved.
Newspack by India Press Agency | Statement of Ownership | Contact Us
logo
  • Home
  • now
  • politics
  • business
  • markets