Page 22 - Banking Finance September 2023

ARTICLE

unicorns. But are all of these businesses profitable the of the employees. It is imperative for us to understand that
answer would be vehement 'no' at least for the time being all aspects of the economy are related and when one aspect
but it is also a fact that they do command huge valuations. is buoyant it automatically pulls up the rest thereby
This valuation game is something that has resisted some of increasing the economic activity.
the great investors / financiers of our time in investing in
startups. We have even witnessed as to how fragile these Having discussed the importance of startups in the financial
valuations could be as was the case with some of the crypto and economic prosperity of a country it is also important to
and metaverse startups. The valuations of these companies note that when a startup goes bust it also makes a negative
rose significantly during their boom and when the tide impact on the banking system and the economy as a whole.
turned against their favour, the companies became much
less valuable than what the investors had believed while
Opportunities:
making an investment. This led to investors losing huge
Startups provide an alternative source of revenue and
amount of wealth in a very short span of time.
there is an increasing potential in startups as they cater
to the 'new economy'.
Another reason for this wide variation is that these
Majority of the startups are technology firms with a
technologies are relatively unproven and the valuation is all
focus on the bottom of the pyramid and an opportunity
dependent on its success with a certain revenue level. In
to target a mass segment of the population.
the event the projections do not work out as envisaged the
valuations drop significantly as there are very less or almost Financial Institutions who start early would be at an
nil tangible assets to support their valuation. advantage as they would become startup compatible
early and would have a better chance to participate in
The aim of any business is to be profitable and add value to rapid growth and expansion.
shareholders wealth and startups are no exception to that
fact. However startups have an added responsibility they There is also no denying the fact that startups have been
promote growth by disruption, by challenging the status quo. and continue to be a backbone to business development. It
All the big companies today were once a startup and once is because of the will and vision of the founders that a lot of
can just fathom as to what would have been our economy services and benefits that were unheard of and not thought
had these companies not been there. about in the past are a reality today.

Startups stir up economic activity and promote growth. They As we progress into the feature, entrepreneurship and
have a direct impact on the country's GDP and have a startups will gain more importance which would open new
tremendous indirect impact on job creation and economic opportunities for the banking sector as well. With the banks
activity through vendors and suppliers. The wheels of the also entering the game it means more disruption, better
economy gets rolling as the banking system gets involved opportunities, a healthy competition and a plethora of
to fund the startups and ancillary units / vendors, also the financing options for the entrepreneurs to convert their
credit uptick happens as money starts coming into the hands ideas into successful business ventures.

MPC Minutes: Excess liquidity on RBI radar
The Monetary Policy Committee appears prepared to look past the seemingly transitory phase of high inflation stoked
by vegetable prices, but steps to reduce liquidity overhang in the banking system are likely to help contain price
pressures, minutes of its August 8-10 meeting showed.

"Given the likely short-term nature of the vegetable price shocks, monetary policy can look through the first-round
impact of fleeting shocks on headline inflation," Reserve Bank of India (RBI) Governor Shaktikanta Das said in the
minutes. "At the same time, we need to be ready to pre-empt any second-round impact of food price shocks on the
broader inflationary pressures and risks to anchoring of inflation expectations."

22 | 2023 | SEPTEMBER | BANKING FINANCE