Power Talk │ February 2021│Ready to Startup

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Arijit Basu2021- PRESENTSENIOR CONSULTANTAZB PARTNERS2018-2020MANAGING DIRECTORSTATE BANK OF INDIA2014-2018MANAGING DIRECTOR & CEOSBI LIFE INSURANCEIndia is home to the third largest number of startupsin the world, numbering close to 10,000. Innovationis the common thread for all of them. The powerthat they are demonstrating in making a change tothe lives of all Indians, not just in urban India buteven in remote parts of the country is remarkable.Farmers are using drones and banking is being doneon phones in remote villages.Startups commence with hope and promise andmany of them go ahead to fulfil their dreams. Aswould be expected not all succeed. In a vibranteconomy, startups that harness the best ideas andbusiness models would be able to grow and perhapsbecome Unicorns in future. The challenges that theyface in this journey are immense; not only do theyhave to sell an idea which is new but also overcomea mindset that is resistant to change. Funding is noteasy to come by and they have to tread a thin linebetween investing for expansion and reining incosts. While the Government has attempted tomake the journey easier by launching a Startup IndiaBanks look for a pasttrack record and aproven business modelboth of which thestartups would not beable to meetprogramme, it is not always easy for the companiesto reap its benefits. In a way it is like a roller coasterride for many of themThe financial system has a key role to play innurturing the startup ecosystem. Raising equity fromdomestic and foreign investors is the startingchallenge. In case of debt, while initial venture debtitself may be difficult to access, the problem iscompounded because banks look for a past trackrecord and a proven business model, both of whichstartups would not be able to meet. How do thebest startups overcome this riddle?Startups need to be guided and mentored as theyprogress on their journey. The fact they havedeveloped a good business model is only a startingpoint. They need to simultaneously focus onensuring efficient delivery, track and manage theircash flows and liquidity, and look for newerPower Talk l Ready to StartUp
RBI’s recent move toinclude loans up toRs 50 crores asPriority Sector loanscompeting, wish to offer services to banks likecarrying out their digital e KYC, creating algorithmsfor risk analysis and meet many other needs in anincreasingly tech-enabled environment.opportunities domestically and even overseas. Thisguidance is provided by the equity or venture fundsthat have invested in them. Banks can also step inand play a vital role. The ideal situation for bothbanks and startups would be to develop a symbioticrelationship where they prove beneficial to eachotherA closer examination of Startups that operate in thefinancial technology or Fintech space may yieldsome pointers. Out of the total 10,000 odd startupsin India, around 25% operate in this space. Many ofthem have been changing the financial landscape ofthe country Among fintech startups the maximumnumber deal in the ‘payments’ space followed byonline lending, personal finance, insurancetechnology and others. Many of them have becomeUnicorns with valuations more than $ 1 billion. Theexperience that banks have had with many of thesecompanies is interesting. Some of the startups arecompeting with banks in areas that have traditionallybeen their bastion like payments, remittances andlending. In response banks have also invested intechnology in these areas to take on the challenge.The best banks today have online digital lendingproducts that can appraise, sanction and disburseloans in minutes. Digital applications of banks cantransfer money quickly. The path for all this has beenshown by startups and many of them continue to beleaders in services that they provide. There aresome fintech startups, however, who instead ofStartups needs banks that are agile, responsive andefficient. They not only need funds for capex andworking capital but also an efficient mechanism forcollection of their receivables and for efficientliquidity management. They also need guidance onhow to manage their balance sheet. Banks would bethe best placed to take up this role. To achieve this,however, banks would need to be responsive. Manystartups with their limited resources can get lost inthe maize of the complex organizational structure ofa large bank, either to market their service or whenlooking for financial support and guidance. Goodbanks have understood the need to become nimblerand have schemes and services that are specificallyaimed at startups. They aim to become partners ofthe startups right from the time they start theirjourney. Many banks have specifically earmarkedfunds for investing in startups that could bestrategically important for them. The risk in lendingto new entities deters banks from providing financeto them. RBI’s recent move to include loans up to Rs50 crores as Priority Sector loans aims at addressingthis problem by encouraging banks to supportstartups and design appropriate risk systems for thepurpose.The adoption of digital technology is set to grow at anexponential rate in the days to come. Concepts likeopen banking riding on the ‘India Stack’ are going toget traction. Banks have no option but to partner withthe best startups to retain their competitiveadvantage. Startups also need a reliable partner asthey come forth with new ideas and services. Thesynergy between the two can play a transformativerole for the Indian economy. Millions of Indians willbenefit.www.powertalkwitharchanna.com 25
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Power Talk │ February 2021│Ready to Startup

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