Startups have high valuations but hard to say if its a bubble: RBI governor Raghuram Rajan

Reserve Bank of India governor Raghuram Rajan said that Indian startup valuations can not be classified as a bubble, and that e-commerce marketplaces can be used for making it easier for small businesses to get bank loans.

“Everybody is trying to find tomorrow’s Amazon and its difficult to do. It will turn out that some of such startups are highly overpriced. But some of them will become Amazons. So we cannot say its a bubble. Some will make a ton of money for investors, others will die out,” he said in response to a question from DEALSTREETASIA, after delivering the keynote at the fourth C.D. Deshmukh Memorial Lecture at the National Council for Applied Economic Research (NCAER).

Startups often face a funding crunch when they are starting off. In India, almost $8 billion of venture funding came in last year, but it was focussed towards consumer and internet companies. Founders of companies in other sectors struggled to kickstart their businesses. Banks could have stepped in, if the framework was simpler.

“Take collateral for example. If I have a moving truck, that should be enough for collateral. But to do that, we need to simplify the process and the whole framework of bank credit. The problem is universal though, and not just limited to India. Smaller companies anywhere struggled to get credit,” Rajan said.

He said a robust bankruptcy code, that the current government has been working on, should also provide more incentive for banks to lend. “That would reduce the bank’s risk in case of a default, and allow for more credit.”

Rajan said that banks can also make use of the data stored by India’s rapidly growing e-commerce marketplaces to decide whether to provide loans to small businesses that use the platform to sell their goods. “Such marketplaces have a lot of information about sellers. That can be used to decide, for instance, if a small carpet seller in Srinagar should get a loan,” Rajan said.

Marketplaces are websites that connect buyers to sellers, offering services such as warehousing, logistics, and payments. India’s largest e-commerce players like Flipkart, Snapdeal and Amazon India are all marketplaces, and each of them has more than 50,000 sellers on their platforms.

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