Top private sector banks with deep reserves are now playing venture capitalists to startups at a time when startup valuations are sliding and angel investors have become more cautious than before.

ICICI Bank , HDFC Bank and Axis Bank have formed separate lending teams to fund small startups, mainly for their second and third rounds of funding.

“At ICICI Bank, we have created a group which looks at offering comprehensive set of services to all startups. They cover absolutely new startups to matured high-growth companies,” a spokesperson of the bank said.

“These services are offered through a combination of inhouse team members and partners,” the person said.

While Axis has a startup team called new business economy, HDFC Bank has a team working on its product Smart Buy to fund first-time entrepreneurs. “We have done lending to startups in Bengaluru, Gurgaon and Mumbai once they have graduated their business and their business models are correct. We have a portfolio which is increasing,” said Smita Bhagat, Co-Head for e-commerce at HDFC Bank. “We are also tying up with the bigger ecommerce players to lend to the merchants on their platform,” she added.

“The non-banking financial companies (NBFCs) have already started to fund second and third rounds of many startups and banks clearly don’t want to miss the party,” said Chetan Nagendra, Partner at AZB & Partners.

“However…banks take more time to close the transactions and also follow lot many compliances compared to VC and PE players, which will make it difficult for startups to seek funding from the banks,” he added.

The country’s largest lender State Bank of India was among the first to sniff the opportunity when it launched SBI e-smart SME in January to provide small and medium enterprise working capital loan facility to e-commerce and technology startups. Prior to that the bank had tied up with e-commerce marketplace Snapdeal to offer instant loans to sellers on its platform. SBI recently opened a branch dedicated to serving startups in Bengaluru.

Axis Bank is offering payment gateway, forex and investment advisory besides working capital facilities to startups through its dedicated team.

“We want to provide complete value chain of services for the segment and have taken single relationship manager approach for the segment,” its spokesperson said in an e-mail response.

While banks are engaged in direct lending to startups they are also willing to go the extra mile to bring in the moolah for these young entrepreneurs. “We are connecting our high net worth customers who have appetite for investments to these startups so that they have access to funding,” HDFC’s Bhagat said.

Banks are warming up to startups close on the heels of the government’s ‘Start-up India Stand Up India’ campaign where it rolled out a series of measures ranging from tax waiver for three years to a Rs 12,000 crore mega fund to help boost the startup ecosystem.

Source: The Economic Times