April 3, 2023
SVB, a renowned bank in the US, proudly announced on Twitter on March 7, 2023, that Forbes had named it “one of the best banks in America.” However, just three days later, on March 10, 2023, SVB collapsed catastrophically, similar to the 2008 financial crisis.
Following this, SVB’s Twitter account became inactive, and Signature Bank in the US also failed. HSBC, a UK bank, has made plans to acquire SVB UK Limited, the company’s UK subsidiary, and US regulators have assured the safety of SVB’s customers and their funds.
This collapse of the second-largest bank in the US has had a significant impact on India’s IFSC. Even startups with no substantial presence in the US have opened accounts with SVB, as investors want them to have accounts with US banks to provide funding.
To achieve this, it was necessary to establish a corporation in the US, and the Indian organization would then become a subsidiary of the US firm with 100% ownership.
Due to the global liquidity constraint and rising interest rates, the Asian private equity/venture capital and startup industry requires a viable alternative. Seeking assistance from the leading global financial centers (IFCs) worldwide is one feasible option.
The Asia-Pacific region has many renowned IFCs, such as IFSC and GIFT City, in prominent economies like Singapore, the UAE, Hong Kong, and even India. For affected depositors of SVB, particularly Indian startups and venture fund/private equity players with India Investments, India’s IFSC at GIFT City is emerging as the best alternative due to the delay in opening accounts in Singapore, the changing taxation regime in the UAE, and the aversion of the China connection with Hong Kong.
GIFT City’s IFSC is a ready remedy. It has several commercial and public sector banks and a range of well-established international MNC banks. The IFSC in India was intended to be more than just a tax haven, and as a result, the IBUs are required by the regulator, the IFSC Authority, to staff essential positions with qualified individuals. Therefore, the IBUs have the required teams on the ground and have gained important experience in dealing with offshore markets and providing related financial services to the worldwide diaspora.
As a result, numerous IBUs established a taskforce to assist the industry in moving its cash from US banks to IBUs at IFSC, GIFT City, resulting in a previously unheard-of boom in their deposit growth.
The failure of SVB and Signature Bank in the US, as well as the global liquidity constraint, may draw fintech, start-up, private equity, and venture capital players (both global and Indian) to the IFSC jurisdiction. This may give GIFT City and IFSC the boost they need to attract international and Indian fintech and financial service companies to their shores, realizing India’s goal of establishing a full-fledged global financial hub there.
