Reserve Bank of India Governor Raghuram Rajan said banking sector finds it difficult to lend to start-ups as they don’t have any collaterals. He said across the world, start-ups that don’t have collateral find it very hard to get loans. This is because the banker wants to see the asset that he can capture after giving a loan to a new-age firm.
“And if the point is after a year, there is some software or something floating around the cloud (computing) that he really can’t get his hands on,” said Mr.Rajan at an event organised by Associated Chambers of Commerce of India in Bengaluru. “The banker tends to say that better go to the venture capitalist who understands this more than I do.”
Mr Rajan who will be leaving the top position when his term expires in September said that if an entrepreneur wants to start a taxi service, she can borrow against the cars that she is buying. “But those who want to make software or an app find it harder.”
He said the solution to this problem is to make sure that the country has a variety of sources of capital for start-ups. He said what is encouraging is that the amount of angel and venture financing that is available and put to work in the country has exploded in the last four years. It has grown about forty times compared to what was available in 2011. He said combining this with few successes where people have taken these “firms to the market and made a killing” will impact and energise more people to invest in new ventures.
“But unfortunately, my sense is that it won’t be the banks. Banks will lend to ‘kirana’ shops and auto-repair shops,” said Mr Rajan. “But they are not going to lend to fancy high tech ventures, you still need to rely on angel and venture capital firms.”
