Indian Bank partners with IIT-Madras to fund startups
State-owned Indian Bank in collaboration with IIT-Madras Incubation Cell (IITMIC) on Tuesday launched an initiative for funding startups.
Under the initiative — IND Spring Board — IITMIC will refer startups with proven technology and established cash flows to the bank and also extend advisory to the bank on the business model.
The lender will extend loans of up to Rs 50 crore to these startups for their working capital requirements or purchase of machinery and equipment, among others.
The bank's Managing Director and CEO Padmaja Chunduru said it is a known fact that banks find it difficult to fund startups as they do not meet the requirements under traditional models of financing.
Business models involving high technology, lack of visibility of cash flows, high burn rate, and high failure rate make the due diligence process for assessing viability difficult for banks, she said.
As a result, this segment has been almost completely funded by seed capital, or private equity from India/abroad, Chunduru said.
Startups were depending more on equity and they had to share profit and ownership of the company to venture capital firms, private equity players or angel investors for mobilising funds, she said.
However, in case of debt, the startup just needs to pay interest and principal to the bank, she said.
"Debt was missing in the startup ecosystem and entrepreneurs were missing this working capital finance and equipment finance," she added.
Chunduru said that under the initiative, loans up to Rs 2 crore are backed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme of the government.
Financial Services Secretary Debashish Panda, who was also present at the launch, said the initiative will provide financing support to startups and will be a game changer in the banking industry.
He further said despite the COVID-19 related slowdown seen in the last six months, there was a phenomenal surge in activities, not only in rural areas but also in urban areas.
We hope and expect that we will soon be able to tide over the crisis or the damage that COVID-19 has done to the economy, Panda said.