Bank runs, which occur when many depositors take their money from a bank at once and are often motivated by concerns about the bank’s bankruptcy, are to blame for SVB’s demise.
In the instance of SVB, the bank was severely impacted by both the recent decline in technology stocks and the Federal Reserve’s aggressive intention to raise interest rates to fight inflation.
For the last couple of years, Silicon Valley Bank purchased bonds worth billions of dollars using customer deposits, just as a traditional bank would.
Although these investments were generally secure, their value decreased because they carried lower interest rates than a comparable bond would have if it had been issued in the current climate of higher interest rates.
Silicon Valley Bank Failure – Impact on India
Given that many Indian startups have sizeable deposits with the bank, SVB is likely to have an impact on them.The US-based bank was a significant source of capital for tech companies, therefore it will also hurt Indian firms’ capacity to get money.
The shutdown has shocked the startup community in India, which was already having financial issues.
Several Indian businesses with exposure to SVB’s investments, including Bluestone, PayTM, One97 Communications, and Bharat Financial Inclusion, may now be concerned that their raised cash may now be frozen.For many businesses, this might result in a liquidity shortage, forcing them to make cost reductions, put off projects, or fire personnel.
