More than 60 Indian startups have more than $250,000 stuck in accounts with Silicon Valley Bank and nearly two dozen have more than $1 million tied with the lender
Our Bureau
Bengaluru/Mumbai
The start-up universe in India has been facing a crisis, with funding crunch and loss of jobs. In a bid to cut costs, many companies have been forced to downsize their workforce as much as possible. In the first half of this year, approximately 70 startups laid off 17,000 employees. Further, recent data shows that over the past two years, 1,400 new-age companies have resorted to nearly 91,000 job cuts.
Now, it is being reported that Paytm, India’s digital payments firm, experienced a significant drop of up to 20% in its stock price on Thursday. This decline, the largest since its listing two years ago, comes as a result of the company’s decision to reduce the issuance of low-value personal loans following the Reserve Bank of India’s (RBI) tightened regulations on consumer lending. Shares of One 97 Communications, the entity behind Paytm, closed the day at Rs 660.70, down Rs 152.35 or 18.74%.
The non-bank lender announced on Wednesday that it will be cautious in providing loans below Rs 50,000 but will focus on expanding its portfolio of high-value personal and commercial loans. The move by Paytm reflects a more cautious stance in this lending segment, according to statements from Bhavesh Gupta, the company’s president and chief operating officer, during discussions with analysts. Gupta explained that considering recent macro developments and regulatory guidance, Paytm, in collaboration with its lending partners, has opted to reduce loan offerings below Rs 50,000.
According to a Reuters report, analysts at Goldman Sachs believe that increasing the number of high-value loans will not entirely compensate for the reduction in smaller loans. As a result, it downgraded One 97 Communications, the parent company of Paytm, from a ‘buy’ to a ‘neutral’ rating and lowered its price target from Rs 1,250 to Rs 840.
Goldman Sachs also stated that Paytm’s net income is expected to turn positive in the fiscal year 2025-26, which is a year later than previously anticipated, due to a slowdown in revenue growth.
Despite the decrease in loan volume through its post-paid product, Paytm predicts that the impact on revenue growth will be minimal, with an estimated decline of approximately 40%-50%.
Jefferies, a global investment banking firm, believes that the moderation in loan disbursal is happening earlier than expected. Consequently, they have reduced their revenue estimate for the financial years 2024-2026 by 3%-10% and lowered the target price from Rs 1,300 to Rs 1,050.
In the July-September period, post-paid loans, which allow customers to pay for purchases in installments without interest, accounted for more than half of Paytm’s total loans. Despite the recent decline, Paytm’s shares have still shown a 25% increase this year, outperforming the Nifty financial services index, which has grown by 10.7%.
Currently, Paytm has seven non-bank finance companies (NBFCs) as lending partners and plans to add one bank and two NBFC partners. Analysts at IIFL Securities have noted that the recent regulatory tightening by the RBI is resulting in a slowdown in growth and an increase in delinquencies in certain segments of unsecured consumer loans.
Since the crisis began in the Silicon Valley, more than 60 YC-backed Indian startups have more than $250,000 stuck in accounts with Silicon Valley Bank and nearly two dozen have more than $1 million tied with the lender, according to a survey by and among the startups seen by TechCrunch, illustrating how the worst bank failure since the 2008 financial crisis is also impacting firms 8,000 miles away.
Dozens of young Indian startups backed by the likes of YC, Accel, Sequoia India, Lightspeed, SoftBank and Bessemer Venture Partners banked with Silicon Valley Bank, sometimes as their only banking partner, and couldn’t take out the money on time on Thursday, multiple people familiar with the situation said.
VCs are cautious about divulging the names of the impacted startups out of fear that it might impede the young firms’ prospects of raising capital in the future. Regulators stepped in Friday to shut down Silicon Valley Bank, the 16th largest in the U.S. and lifeblood for startups, citing “inadequate liquidity and insolvency.” The Federal Deposit Insurance Corporation will work to recover “the maximum amount possible from the disposition of assets,” it says on its website.
