Why such a big bank in America is closing? | Are Indian investors in trouble due to the sinking of Silicon Valley Bank?

 

Why such a big bank in America is closing? 

 

Big news has emerged from America regarding the banking crisis. US regulators have ordered the closure of Silicon Valley Bank, one of the largest banks in America. This news has created shaken the whole world. What is the full news of the banking crisis? We're going to tell you. In the US, one of the largest banks in the country, Silicon Valley Bank, was ordered closed.

 

US regulators have appointed the Federal Deposit Insurance Corporation ie FDIC as the receiver of the bank. The FDIC has been entrusted with the responsibility of safeguarding the amount of the customers deposited in the banks. Earlier, it was barred from trading after the bank's shares fell 66% in pre-market ratings. Silicon Valley Bank is the 16th largest bank in America.

 

This is the second time in about two and a half years that an FDIC-insured bank has closed in the US. Almena State Bank was also locked in October 2020. According to the report, the Silicon Valley Bank head office and all branches will reopen on March 13 and all insured depositors will have access to their deposits by Monday morning.

 

Talking about the financial condition of this bank, as of December 31, 2022, the total assets of Silicon Valley Bank were around $ 209 billion and total deposits were around $ 175.4 billion. According to Reuters, in the past two days, US banks have lost more than $ 100 billion in market value and European banks have lost about $ 50 billion in value.

 

Talking about the reason for the closure of Silicon Valley Bank, is the main bank of America providing financial support to new-age tech companies and venture capital investment companies. But in the last 18 months, the US Federal Reserve has raised interest rates. Because of this, such companies have suffered heavy losses. 

Due to high risk, the interest of investors in tech companies has decreased. Due to the high-interest rate, the market for IPOs of many startups was closed. This led to a fund crunch in which many customers of the Silicon Valley bank started withdrawing money to meet their liquidity needs. 

Before the closure of Silicon Valley Bank, its essential work will be settled. Banking activities will resume from March 13, including online banking and other services. Official checks from the bank will continue to clear. Loan borrowers will have to continue with their payments as usual with Silicon valley bank. 

Such a banking crisis has come in America after 2008. Earlier, the biggest crisis in the banking sector came in the year 2008. The banking firm Lehman Brothers declared itself bankrupt in the year 2008. After this declaration, there was an economic recession in the whole world including America, and the back of the economy was broken. 

Now once again this is the reason why a wave of anxiety has run across the world. It is being said that its effect can be felt worldwide including in other banks of America. But according to some experts, America can deal with it and everything will be normal in the coming days.

 

Are Indian investors in trouble due to the sinking of Silicon Valley Bank?

 

Another major banking crisis has engulfed America. One of the country's largest banks has been locked out of a Silicon Valley bank. US regulators have ordered the closure of the Silicon Valley bank. Let us tell you, the sinking of Silicon Valley Bank is the biggest bank failure in America after the year 2008.

 

After this news came, the shares of SVB Financial Group, the parent company of American Silicon Valley Bank, fell by up to 70%. Also, the benchmark stock of the banking sector saw an 8.1% decline. This fall is the biggest in a day in the last three years. At the same time, its effect has started to be seen in other countries including America and India is also not untouched by this.

 

Let us know how the sinking of Silicon Valley bank is raising the concerns of Indian investors. The Silicon Valley bank has assets of about $ 210 billion, but in the past few years, the financial condition of the bank has become such that the regulators had to order its closure. Now the opposite effect of this decision is visible everywhere.

 

After the closure of this bank of America, upheaval is being seen everywhere. The same negative sentiment is likely to remain in the markets around the world for the next few days. From tech start-ups to unicorns and SaaS i.e. software as a service company, it has also been affected. If we look at our country, its impact was visible on the Indian stock market as well. 

Indian stock markets closed with a red mark on Friday. Not only this, it is going to affect many sectors of India in the coming times. SVB Bank, which invests exclusively in the tech and start-up segments, also has significant investments in India. In such a situation, the bank's plight will affect these start-ups. 

According to data from Start-up Research Advisory, Silicon Valley Bank has invested in around 21 startup's in India since 2003. Although clear information about the amount invested in it has not been revealed, according to the information, in October last year, start-up companies in India raised about $ 150 million from Silicon Valley Bank. 

Indian companies in which the Silicon Valley latter has investments include Icertis, a unicorn company. Contract management software is given to this business, it is a SaaS i.e. software as a service company. In the year 2021, such unicorns i.e. such companies whose valuation is above $ 1 billion had achieved their status. Later in October 2022, it raised investment from Silicon Valley Bank. 

Indian companies receiving funding from Silicon Valley include companies like blue stone, Carwale, InMobi, Paytm, One97 communications, Naaptol, and Paytm Mall. Although the Silicon Valley bank has not invested much in India since 2011. The closure of the bank has increased the tension between the founders and investors of these Indian start-ups. 

They are worried about asset transfer because the limit for withdrawal from the bank can be fixed. With the collapse of Silicon Valley, the foundation of the start-up ecosystem has been completely shaken. Many start-ups are planning to take a loan to pay their salary to their employees as their money is stuck in SVB. 

Along with this, the closure of Silicon Valley Bank is expected to have an impact on the market sentiment as well. Market experts say that this incident may weaken the sentiment in the global market, the effect of which can be seen in the form of heavy selling in the domestic market.

 

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