SVB crisis tests India’s new finance hub potential

Many Indian startups rushed this week to open bank accounts in India’s Gujarat International Finance Tec-City (WSJ)
Many Indian startups rushed this week to open bank accounts in India’s Gujarat International Finance Tec-City (WSJ)


  • Experimental financial center is suddenly getting new infusion of life—and dollars

The swift collapse of Silicon Valley Bank has cast an aspiring Indian finance center into sudden relief. India, which has long been a bit player in global finance, has a chance to boost its role—but only if it moves swiftly to rectify some regulatory barriers.

This week, many Indian startups rushed to open new bank accounts in India’s Gujarat International Finance Tec-City, known as GIFT city, once they regained access to their SVB deposits. Accounts set up within the hub’s International Financial Services Center, or IFSC, are free of India’s stringent capital controls since the funds are held in U.S. dollars. And at a time when U.S. banks are under pressure, accounts in GIFT city remain within the safety net of capital adequacy norms prescribed by the Reserve Bank of India.

Harshil Mathur, chief executive of fintech company Razorpay, which has been helping Indian startups move money out of SVB, estimates that at least $200 million have moved to GIFT city bank accounts run by Indian banks over the past week.

Siddarth Pai, founding partner at 3one4 Capital and a member of the Indian Private Equity & Venture Capital Association, said Indian startups are rethinking being based in the U.S. in the wake of the SVB collapse.

GIFT city, a work in progress for more than a decade, was conceived as a way to experiment with a more open capital account—the lack of which has hindered India’s participation in global financial markets—without risking large-scale, uncontrolled capital flows in and out of the country. The government wants it to become a global financial center.

However, its takeoff has been slow despite several tax breaks and incentives. Financial institutions had $29.38 billion in assets in the GIFT city’s IFSC at the end of March 2022, according to government data, nearly double the sum the year before. But that still makes it a minnow compared with the likes of Singapore, with trillions of dollars under management.

And there are several obstacles to GIFT city becoming a real alternative.

For one, most companies who had money parked at SVB are U.S.-incorporated entities that either do substantial business in the U.S. or are domiciled there at the insistence of their venture-capital investors, who prefer a safe Delaware incorporation. That helps such investors move funds more easily and smooths the path to a U.S. listing.

Another problem is the reliance of banks in the IFSC on SWIFT, a messaging system used by financial institutions globally. Moving money in and out of accounts is expensive and time-consuming. SWIFT also requires six-point “know-your-customer" disclosures. In comparison, moving money within the U.S. is much faster and cheaper.

India also only formed a unified financial regulatory authority for the IFSC in April 2020. Before that banks, capital market products and funds within the IFSC were governed under a patchwork of Indian regulators.

Finally, while doing business with offshore counterparties is relatively straightforward in the IFSC, moving funds between it and the rest of India remains cumbersome since the Indian rupee is only partially convertible. And with another global recession looming, a fully convertible currency remains far-fetched.

Politics could also intervene given the general election looming next year: the IFSC was kicked off by present Prime Minister Narendra Modi.

For now, VC-backed startups may prefer GIFT city accounts to other alternatives for transferring money to their Indian subsidiaries. But unless New Delhi moves quickly to make transactions there easier—and finds a way to get startups’ VC investors on board—GIFT city’s unexpected bounty from the SVB debacle could prove fleeting.

Write to Megha Mandavia at

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