Startups and other businesses have been resiliently navigating the current business environment brought about by the COVID-19 pandemic by pivoting to new business models, finding new ways of reaching out to customers, rebuilding supply chains, and ensuring remote working among other ways to bring about growth.
In such a scenario, aspects of finance such as cost-management and efficiently using capital have taken centre stage for startups to maintain ‘business continuity’, and will be one of the growth drivers for months to come. To help startups thrive in the new dynamic, HSBC India and YourStory created Build & Grow — a new series under the Money Matters with Shradha Sharma umbrella that will help businesses leverage financial ingenuity of experts to grow their businesses.
“HSBC as a bank has adopted the startup mindset proactively: From providing them with simple and agile banking tools, to accelerating growth with complex API-based banking solutions and helping them go international, we’re on the look out to get agile, and evolve with their growing needs,” says Rajat Verma, Managing Director and Head, Commercial Banking, HSBC India.
It has been noted that business banking is a growth segment in India, and has been so since the last decade, largely due to the growing number of companies eager for growth, thus fueling a higher requirement for business banking and its expertise. It is an exciting space where the bank is able to have a purpose that is more than what meets the eye.
To that end, banks like HSBC have several roles as a growth partner, including providing support for international expansion, providing liquidity and credit support, bringing transaction banking efficiencies, supply chain financing among others.
“We are the largest trade finance bank in the world. We move a very significant percentage of global trade and in India as well. Helping clients be more efficient with their working capital cycle, and to be able to move their money is quite important. As India grows and its companies grow, I see the growth of commercial banking as an important support anchor for them,” adds Rajat.
The road to revival
In the current macroeconomic condition, it has been noted that the recovery for India has progressed in a subtle manner, with some sectors like non-discretionary consumption doing better than others.
Several large organizations, which have good promoters and business models, and were doing well before the crisis, have been able to raise equity or debt to preserve capital.
Moving to the rural economy, it is further noted that microfinance institutions recorded a dip in their collections in April and May, only to see a rise in June, though not to previous levels. This shows that while a good percentage of people now feel more confident about having more resources, it also shows that there exists a significant percentage that don’t, and that is a problem. This reflects a genuine problem in income generation, and that is a stickier trend. Those in between are resiliently working across sectors towards recovery in some form or the other.
Enabling new forms of reliable financing key to growth for startups
It’s also interesting to note that while providing liquidity and cash-flow financing is crucial for startups to grow, financing solutions and approaches that mitigate risk on a structural level, and reduce our reliance on subjective judgement calls will encourage banks to lend to startups that do not fit in the normal parameters. For example, vendor payment via cards, Trade receivables, discounting, and insurance-backed financing, some of which have worked well in developed countries in the West as financing options and are being considered at various stages of concept-testing in India.
A roadmap for MSMEs to recover
Micro, Small and Medium Enterprises (MSMEs), one of India’s largest contributors to employment and its economy, were particularly hit in the current scenario. To aid their recovery by providing the much-needed liquidity, there are a few essential areas that can be considered.
First, to lend to MSMEs, the Non-Banking Finance Companies (NBFC) need help, given that almost a quarter or a little more than a quarter of all incremental lending in the last few years was NBFC-led. They fill the crucial gap in last mile financing, and give out small loans efficiently. However, there are some fundamental dilemmas that the NBFC sector faces, some existential questions that have been thrown up through the recent crisis that were existent even before COVID-19. The good thing to note is that high quality NBFCs are still doing well, are still able to raise foreign capital—so that is an outlet for MSMEs to look at carefully.
In the current scenario, it is also observed that banks and companies will be remembered by their actions. Banks will be remembered for their lending activity and companies will be remembered for their ability to repay debt, and secure and optimise their capital spending, which could affect their borrowing prospects even after the resolution of the pandemic.
Finally, there is a strong case for cash-flow management, and MSMEs need to be carefully evaluating various government schemes if they are in need of capital and looking to raise more money.
How HSBC has been developing its focus on the startup segment
Given that HSBC is a full-service bank looking at multiple operations with many different products, the bank has created a specialized vertical to understand and address the ecosystem’s needs.
The second aspect was leveraging HSBC's vast global network across 50+ countries to help startups looking to expand overseas.
The third was to invest in technology to help startups meet their transactional banking needs, where it is forward looking, and customizable to meet ever evolving demand.
To know more about HSBC India’s dedicated solutions for startups, click here to show interest.