Banking News

Banks plan rating model for startups’ risk profiling


Banks are eyeing a separate rating framework or model for risk profiling startups and have initiated discussions with concerned stakeholders including the ratings agencies, the government and the banking regulator.

The move comes in the backdrop of the government wanting banks to play a more significant role in financing startups.

Banks are of the view that a common rating framework will help reduce turnaround time and ensure faster execution of approvals besides timely disbursements.

Experts believe that a separate framework will help assess the viability of startup funding based on an assessment of the product or service itself and its monetisation abilities, thereby making a clear case for the pros and cons of funding the startup.

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“This will help investors assess the risk profile of a startup very clearly, which is a clear prerequisite for funding, thereby increasing the probability of funding and hence benefiting the startup ecosystem,” said Vivek Iyer, partner and national leader in financial services and risk at consulting firm Grant Thornton Bharat.Iyer noted that the ratings will also help the banks make more informed choices on providing working capital lines to startups, which otherwise would be assessed purely as MSMEs without any weight being assigned to the novelty they bring to the overall ecosystem.As per government data, India has the third largest startup ecosystem in the world and is expected to witness consistent annual growth of 12-15%.

Formal suggestions from the banking sector regulator, the Reserve Bank of India, will also be sought on the metrics for such a separate framework, said people aware of the developments.


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