Explained: What is Silicon Valley Bank Crisis and Its impact on Dalal Street

The sudden shutdown of the Silvergate Capital Corp and the unmindful fundraising of Silicon Valley Bank (SVB) has stirred serious concerns in the startup ecosystem in the US. The investor, little known outside of Silicon Valley drew up a wave of panic in the tech industry. SVB Financial Group bonds fell alongside its shares after the company moved to shore up capital after losses on its securities portfolio and a slowdown in funding.

What is SVB crisis? 

 SVB Financial Group runs one of the largest American commercial banks – Silicon Valley Bank .On Wednesday it announced a $1.75 billion share sale programme to further strengthen its balance sheet. This programme triggered a massive sell-off in the group’s shares.

Thereafter, market went severely bearish and bear rampage wiped out over $80 billion of its market value. Alongside, the bond prices of the group collapsed and created a panic in the market.

What is SVB business?  

Silicon Valley Bank is one of the oldest and largest banks in the Valley that primarily focuses on lending to technology companies, providing multiple services to venture capital, and private equity firms that invest in technology and biotechnology. It is also involved in private banking services for high-net-worth individuals. Apart from being in the credit business, the bank operates venture capital and private equity divisions.

How SVB is addressing the issue?SVB Chief Executive Officer Greg Becker held a conference call with the clients of SVB and venture capital investors of the bank. Becker has requested the investors to “stay calm” in the hope of not having to face further withdrawals.

In a letter to multiple shareholders on Wednesday, he stated , “We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash-burn levels from our clients as they invest in their businesses.”

Is it a concern for the Indian stock market- Impact on Dalal Street? 

The sell-off in the SVB stock and the US market impacted the Indian stock market too and there has been a spillover effect on Dalal Street and saw banking stocks go on a downhill slide today because investors fretted about loan repayment defaults in a rising interest rate environment. However, the positive news for the investors is that the market experts don’t see the SVB crisis having any impact on India or the domestic banking system.