As the startup culture catches momentum in India, another Public Sector Undertaking (PSU) is set to join the investment bandwagon. The state-owned Bank of Baroda (BoB) has decided to encash that market by providing loans to startups.
The bank has designated branches in 10 cities and towns and plans to add more to reach its aim of funding 1000 startups in the next two years, a senior bank executive said. Through the dedicated bank accounts, the bank offers facilities like current accounts, payment gateways, credit cards and a loan of up to INR 2 Cr.
The companies will have to have an angel investment earlier, or be recognized by DPIIT (Department of Promotion for Industry and Internal Trade) to qualify for the loan. Akhil Handa, head-fintech and new business initiatives at BoB, said that the bank has engaged experts from IIT Bombay to help the companies develop a business plan and also examine the plans for the bank.
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The bank decided to start this initiative, after the success of its pilot attempt of lending INR 20 Cr to 19 startups including Oyo, Uber, Lava and Flipkart last year. Handa added that the funded companies grew rapidly, with some of them having an annual turnover of INR 50 Cr. The bank has also partnered with IBM, co-working space 91Springboard, and legal and accounting firms to provide legal advice, working space and cloud credits to the startup.
Currently, the bank offers its services across Gurgaon, Delhi, Noida, Chennai, Mumbai, Ahmedabad, Hyderabad, Pune, Jaipur and Bengaluru. The services will also be available at Lucknow, Indore, Kolkata, Kochi and Chandigarh in the next two weeks.
Earlier in July 2019, the State Bank of India (SBI) had decided to modify their strategy for investing in startups. The traditional method of investing would not work in the startup business, chairman Rajnish Kumar told Inc42. The PSUs have started exploring the market now, but the private sector had been involved with it since the initial phase.
Success Of Financing Small Businesses
The Pradhan Mantri MUDRA Yojana (PMMY), launched in 2015, gave a push to PSU to invest in the upcoming startups. India’s bad loans were at INR 9.49 Tn as of March. The government data states that only 2.62% of the MUDRA loans turned out to be bad.
Out of the 182.6 Mn MUDRA loan, 3.63 Mn turned out to be bad loans as of March 2019, reports Live Mint. The government’s policies and the budgetary recommendation have given a push to startup ventures. Despite the Non-Performing Assets debacle, the banks are risking another set of bad loans due to the growth of startups in India.
India had witnessed 10 unicorn startups last year. The number has reached seven by July this year indicating that startups are becoming an important investment for investors. With the government promoting startups, investing in them seems like a safer option.