In light of the 'Start-up India' programme, various public and private sector banks have come up with a number of initiatives to cater to the funding as well as non-fund based banking needs of the start-up entrepreneurs. We try and summarize some of them with a view on what more a start-up still seeks...Anand Trivedi
Exactly a year back, on 16th January, 2016, 'Startup India' initiative was launched by the Government of India to cater to the needs and boost the budding start-up economy in the country. In view of the country's demographic dividend and with a goal to generate employment, it was a commendable step and in the right direction. Start-ups in India previously have received investments from various private institutional and non-institutional funders but banks had always been reluctant in warming up to the idea of start-ups. The inherent risky nature and low success percentile of the start-ups so-far combined with the conservative outlook of Indian banking system were the key determinants of such a policy outlook. But the efforts of government for start-ups have made banks eventually respond to the growing importance of start-ups in the economy through a whole range of banking services specially customized to meet the needs of Indian start-ups.
In light of the government's increasing focus and launch of 'Startup India' initiative, various public and private sector banks have come up with a number of initiatives to cater to the funding as well as non-funding based banking needs of the start-up entrepreneurs. RBI has created a dedicated mailbox to provide assistance and guidance to start-up sector. It has also started a FOREX helpline to provide regulatory service for cross border transactions and necessary guidance required from the RBI related to FEMA (Foreign Exchange Management Act). In another announcement, Angel tax has been removed to promote investments in the country. With RBI being in the lead, some of the initiatives by other banks are highlighted below:
AXIS BANK - The Axis bank's initiative is called 'Thought Factory'. The bank will work with companies at various stages of maturities, including those at the ideation level such that there can be a two-way benefit to the lender. It can either get existing problems solved by start-ups or integrate their solutions into its business. Henceforth, they will not be subjected to exclusivity clause while undergoing the mentorship programme. The bank will be looking at disruptive solutions in technologies such as block-chain, artificial intelligence, mobility and cloud as part of its 'Thought Factory' initiative to subsequently integrate and roll them out in their main stream operations. Axis Bank already has a dedicated team called 'New Economy Group' serving the banking needs of such new-age companies.
FEDERAL BANK- Federal Bank's initiative called ‘Launchpad' has an exclusive outlet for start-ups in Bangalore and Kochi. It is a one stop facility providing a range of advisory services in addition to customized banking offerings to budding entrepreneurs who wish to set up start-up ventures in diverse sectors like Digital Financial Services, Biotechnology, Hi-Tech Farming, Healthcare, Logistics, E-Commerce/E-Markets etc. These outlets offer counselling and guidance on key aspects involved in setting up of start-ups like registration, regulatory compliance, investments and accounting, Intellectual Property Protection, trading and taxation. It also provides customized banking offerings for Start-up ventures to run their business seamlessly which include exclusive start up Account, digitally powered Payroll accounts, payment/collection solutions and FOREX services, apart from facilitating space and required infrastructure to needy start ups to incubate their ideas. The Bank would also consider investing in eligible start-ups with innovative ideas, potential for high growth and ability to bring socio-economic impact. Federal Bank is one of the very few banks to have created a Corpus exclusively for investment in Start-ups.
HDFC BANK - The initiative "SmartUp" for Start ups has been launched by HDFC in association with Zone Start ups India (ZSI), a Mumbai-based start-up accelerator. It is tailored to meet the requirements such as banking, payment solutions, FOREX and advisory services. The benefits of SmartUp current account include—waiver of AMB (average monthly balance) for the first six months and extendable to 12 months, salary account for employees by waiving the minimum number of employees criteria, 'PayZapp' for business - a payment and collection solution and a dedicated relationship manager. Account holders can also get recommendations of a chartered accountant for tax, regulatory and compliance issues. They also would have the opportunity to showcase products on SmartBuy to 32 million HDFC Bank customers.
ICICI BANK - The iStartup Garage, launched recently in select ICICI Bank branches across the country, is a one stop facility providing space to work in addition to a range of advisory services to budding entrepreneurs who wish to set up start-up ventures in diverse sectors like Digital, Financial Services, Biotechnology, Hi-Tech Farming, Healthcare, Logistics, E-Commerce/E-Markets, etc. The Key benefits provided include:
1. Special deals on legal & regulatory consulting - The bank connects the entrepreneurs with consulting firms for advice and support on various registrations and on meeting regulatory requirements.
2. Business networking with Biz-Circle – An online platform of products & services for buyers and sellers.
3. Opportunity to meet leading Venture Capitalists and Private Equity players at the bank's events and summits.
4. Customized solutions offering quick, secure and convenient banking experience like Zero balance Current Account for first 6 months, Higher variants of Current Account to accelerate your business, Digital Banking platforms, Customized payment & collection solutions to suit your business model, Technology led integrations to make banking convenient, Salary solutions for employees and FOREX services and advisory to manage FDI
5. Business Compliments – This feature helps save on day-to-day procurement of materials through exciting deals and offers.
6. Personalized service with dedicated Relationship Manager: For personalized financial services and personal banking solutions for promoters.
KOTAK MAHINDRA BANK- ' Kotak Business Boosters'. The bank has a seven-member core team which is working with an equal number of startups in the artificial intelligence, analytics, biometric or iris scanning and machine learning space. The start-ups initiatives being undertaken by them include launching of dedicated funds, starting incubation centres, organizing hackathons and ideation contests.
RATNAKAR BANK (RBL) - RBL Limited has launched the first of the planned branches catering exclusively to start-ups in Bengaluru. These exclusive branches will cater specifically to start-ups and help them handle all their financial matters like foreign exchange, remittance and cash management. The branches will also facilitate registration, legal and tax formalities through verified partners it has brought together as part of its Startup Club program.
State Bank of India - IT-ISEP for Start-ups - The IT Innovation Start-up Engagement Programme (IT-ISEP) has been established with an initial outlay of Rs. 50 crore. Under this programme, the bank shall consider investments and debt/structured engagements of up to Rs.3 crore to an Indian registered entity for promoting their business innovations using IT in India for banking and related technology. The type of financial assistance can be in any one or combination of the following:
1. Equity / Quasi Equity / Mezzanine Equity.
2. Loan of Long term / Structured Financing.
3. Joint IPR / Restricted IPR.
4. Perpetual unlimited free license for use of technology across State Bank Group.
5. Resources and skilled manpower costs for POCs and innovation.
6. Purchase of the product/service from the start-up.
As aimed by the government, these initiatives have a great potential in providing employment opportunities to a large section of population. These banking initiatives are primarily pertaining to advisory services, information assistance and support as well as in selected cases, funding support to the start-ups. This would greatly help in overcoming the information barrier and pave way for opening up newer opportunities for the budding entrepreneurs. However, there is still a lot that needs the attention of the banking system as far as supporting start-ups is concerned. For an example, typically a loan needs a collateral, but it is difficult for young entrepreneurs who are generally fresh out of college to have collateral to support their funding applications. In selected banks, even if they do offer collateral free loans, they are extended only to companies funded by venture capitalists (VCs) or Angel Investors leaving very little scope for students with innovative ideas as well as innovators in the remote rural areas who typically do not come into the limelight in urban areas where these VCs or Angels are mostly based out of. Similarly, for those who need assistance to flourish in diverse fields, there is still some room for improvement in the current policies. Thus, efforts are still needed to shape the policies to address the above gaps while leveraging the current offerings better through integrated service offerings in a seamless manner. Having said so, a good start as they say is 50% work done and indeed, with the above indicated services being launched by banks, it will definitely invigorate the already dynamic start-up ecosystem further.