Indian banks are reportedly extending more credit to Indian technology startups that have until recently found it difficult to obtain bank support.

Axis Bank has said that it is keen to provide letter of credit (L/C) and bank guarantee support for startups backed by established private equity houses.

Credit support

As well as Axis, other banks supporting companies established to seize opportunities in the new economy include HDFC Bank, IDFC, Kotak Mahindra and Yes Bank, all of which have started extending short-term credit to meet startups' working capital needs.

Axis is providing financial services to Ola Cabs and OYO Rooms, which connect customers via apps to providers of taxi services and accommodation respectively.

The bank also supports Rivigo, which uses its own proprietary software to improve road haulage logistics performance by, for example, finding the best traffic routes and monitoring the performance of its trucks.

Equity backers

Axis Bank says it prefers to support companies with adequate equity funding, which helps them to sustain sufficient liquidity and helps with debt servicing.

The bank funds them mainly through L/Cs, bank guarantees and bill discounting. The amount of credit extended can be up to around US$2.5 million with maturities from one month to two years. Loans are priced at 200-400 basis points over benchmark rates adding up to about 12-13%.

Warburg Pincus backs Rivigo with private equity while Singapore's sovereign wealth fund GIC and Japan-based internet company SoftBank hold a stake in taxi aggregator Ola.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.