Now Reading: Banks crowd startup lending, squeeze venture debt funds
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Banks crowd startup lending, squeeze venture debt funds
Traditional banks including HSBC India, Axis Bank, ICICI Bank, SBI and Bank of Baroda are expanding lending to growth-stage startups, competing with venture debt funds and NBFCs. HSBC has deployed over half of its $1 billion debt facility for startups announced in 2025. Axis Bank's outstanding startup loan book stands close to Rs 3,000 crore, built over five years. The shift follows more startups turning profitable with predictable cash flows, making them bankable under standard credit metrics.
Banks typically charge average interest rates around 10%, significantly below the 14-18% charged by venture debt players for early-stage loans. The price gap is putting pressure on alternative lenders such as BlackSoil Group, which has responded by offering more flexible terms without lowering credit standards. Industry executives say the convergence between bank and non-bank lending is accelerating as startups show healthier balance sheets needed for future equity raises or public listings.
Indian Opinion Analysis
Banks are now lending to startups that were once too risky, a shift that began after 2020 as startups matured and the government's Startup India scheme took effect. The entry of banks with rates as low as 10% squeezes venture debt funds that charge 14-18%, potentially forcing them to lend to riskier early-stage firms or accept lower returns. For growth-stage startups, cheaper bank credit can extend their runway and delay equity dilution. The Reserve Bank of India's prudential norms, which limit unsecured exposures, still keep banks from chasing the riskiest deals. Watch how many venture debt funds pivot to later-stage lending in the next six months.
Source: livemint.com
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