HSBC to boost startup funding across sectors

Ajay Sharma, head of commercial banking at HSBC India, said the lender banks 45% of Indian unicorns, and is willing to meet some working capital requirements of startups, while pushing them to maintain high corporate governance standards. Instances of delayed financial reporting and alleged fraudulent practices by some large startups have put the spotlight on governance issues at some entities that have raised billions of dollars from investors.

“This fund is carved out of our balance sheet. We are evaluating having a larger lending appetite for this segment, but the final decision on that is pending," Sharma said in an interview.

In June 2022, HSBC India had said it will provide lending support of $250 million to startups, irrespective of the sector they belong to. Sharma said the decision to put a number to its startup lending appetite was to avoid a haphazard manner of lending without really knowing how much risk the bank was putting on the balance sheet.

In 2022, India was the fourth-largest contributor to HSBC Holdings Plc.’s profit, after Hong Kong at $6.2 billion, and Mainland China and the UK at $3.4 billion, each.

“We do not lack ambition but we are very careful. We are willing to take a calibrated approach to risk in terms of lending to startups, diversified as it may be," said Sharma.

At present, startups approach HSBC India for working capital and other transaction banking requirements.

However, the bank wants to use these as a funnel to onboard them to later cater to other requirements as these companies mature.

“For instance, we will start with lending to, say, 1,000 (startups) and see what happens. If we are lending to 1,000 startups, then we will start with limits on corporate cards and evaluate further lending as the relationship with the client progresses," said Sharma.

HSBC India, Sharma said, finds the startup segment quite interesting, as the ventures become larger, they start thinking of going public, presenting additional business opportunities for the bank.

“We are a full-service bank and are happy to start with small amounts of lending to these companies and as they become larger, their needs are larger and we can fund those," he said.

On pushing startup customers to higher corporate governance standards, Sharma said while the primary responsibility of that sits with the board, the bank does not want a situation where companies are not submitting financials on time or meeting payment without transparency.

“Sometimes, things happen which even people we deal with are not aware of, and then, it is about what mitigating actions they have taken. Otherwise, we have little tolerance for lack of governance and most other banks are similar in my view," he said.

According to Sharma, one could have a product which was expected to do well but did not, and the lack of transparency creates issues for the bank. “If you come and tell me you have trouble, we are aware. But if there is a lack of transparency and governance, we would not want to deal with an institution like that," he said.