Silicon Valley Bank (SVB) Failure – Will there be a domino effect ?
The 16th largest bank in US till just before it’s falling , SVB had left behind a legacy of how banking at its basics is still about credit to deposit ratio and quality of assets . One could be dealing with most highly valued technology clients to most under valued infrastructure clients , the fundamentals need to be respected in Banking business. It always pose a systematic risk of sector collapse while one of the largest player goes defunct . Interdependencies in global banking systems makes this effect to spill over cross border. Mostly with trade partnering economies and immediate dependent economies . When it happens for a US bank , this immediate circle of impact is virtually the entire global economy . We have seen the ripple effects of Lehman brothers causing a global recession and essentially eroding net worth many large global financial institutions . SVB may not be any comparison in magnitude to Lehman, yet the world is even more connected and interdependent today compared to 2008 !
Start up’s in India are already facing the heat . Carwale , Paytm are amongst a few dominant start up investee companies of SVB and fell under selling pressure over the last few days. SVB had invested in about 21 indian start up’s many of them nearing exit windows , are at the target valuation cycle . Bluestone , InMobi and Loyalty Rewardz , Hitachi Payments, Naaptol , are other prominent investments made by SVB in india . Please refer below table
Investee Co | Investment ( USD Mn) |
Paytm | 4637 |
One97 Communications | 2787 |
Paytm Mall | 808 |
lnMobi | 265 |
Bharat Financial Inclusion | 144 |
Naaptol | 133 |
BlueStone | 111 |
TutorVista | 102 |
iYogi | 85 |
Genesis Colors | 74 |
Loylty Rewardz | 28 |
Hitachi Payment Services | 18 |
Anantara Solutions | 13 |
Games2win Media | 13 |
Sarva | 12 |
Asklaila | 12 |
GeodesicTechniques | 11 |
iCafe Manager | 10 |
CarWale | 9 |
Shaadi | 8 |
Divitas Networks | 4 |
SOURCE – Tracxn
Much celebrated Silicon Valley accelerator fund Y Combinator ( YC) is facing an other dimension of this crisis. Majority of the YC backed companies have deposits in SVB beyond the FDIC insurance limit of 250K $. This might include some Indian start ups as well . It need to be seen if parking invested funds in SVB was a pre-condition for these investment transactions . That scenario could open up a completely different dimension for investigations to come on causes of SVB shutdown .
In the mean time international unit’s of SVB are cosing down operations one after another . The UK unit has already stopped trading and about to be declared insolvent. Fate of other global operations across India, Canada, China , Germany, Israel and Denmark is not clear yet . While local central banks will have a say in deposit insurance and banking sector stability in each of these geographies , investee companies and borrowers are worried as well with unknown implications .
Apart from the impact from unterlinked portfolios and expsures , the sheer market cap loss of USD 80 BN will any way leave a significant loss of investors money in security market . The lasting impact of this in various invesent portfolios and treasury operations would have domino effect in short term. Thankfully in relation to overall size of the global markets this could not turn in to catastrophic , yet the there will be heavy bleeding for sometime .
