RBI steps in to ease funding for startups; brings them under priority sector lending

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Updated: Aug 06, 2020 4:41 PM

Other areas already included under PSL are agriculture, MSME, export credit, education, housing, social infrastructure, renewable energy, and others. The PSL guidelines were last reviewed by RBI in April 2015.

Loans from institutions including banks were availed by 36 per cent of 1,246 startups surveyed by RBI last year.

In what could possibly make startups more mainstream in the Indian economy through capital support, the Reserve Bank of India (RBI) on Thursday brought them under the priority sector lending (PSL). During the 24th Monetary Policy Committee meeting, the central bank announced revising the PSL guidelines including “broadening the scope of PSL to include startups” “with a view to align the guidelines with emerging national priorities and bring a sharper focus on inclusive development,” RBI said in its statement on developmental and regulatory policies to boost liquidity support for financial market. Other areas already included under PSL are agriculture, MSME, export credit, education, housing, social infrastructure, renewable energy, and others. The PSL guidelines were last reviewed by RBI in April 2015.

According to a survey on the Indian startup ecosystem by the RBI published in December last year, loans from institutions including banks was availed by 36 per cent of 1,246 startups surveyed while family & friends were the largest source of funding for around 43 per cent startups. Investments from angel investors, incubators, and PE/VC were the other preferred routes for 11.3 per cent, 9.7 per cent, and 7 per cent surveyed startups.

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Startup funding in the first half of 2020 was largely impacted due to the Covid and lockdown apart from the overall economic downturn. There was a decline of 11 per cent in deal value and 31 per cent with respect to deal volume from the year-ago period, according to Venture Intelligence. Startups were able to raise $4.1 billion in 270 deals during H1 2020 in comparison to $4.6 billion raised in 393 deals during H1 2019.

The RBI also increased the limits for renewable energy, including solar power and compressed biogas plants on Thursday. The central bank also ramped up the targets for lending to ‘small and marginal farmers’ and ‘weaker sections’,” the release said. Currently, the target for small and marginal farmers stand at 8 per cent while for weaker sectors it is 10 per cent of the adjusted net bank credit for small finance banks, according to Master Direction on Priority Sector Lending for Small Finance Banks – Targets and Classification by RBI updated as on March 12, 2020.

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