Mumbai RBI Governor Shaktikanta Das on Thursday said Indian startups should continuously evaluate building risks and vulnerabilities to make their businesses sustainable in the long run.
Das spoke at an event organized by the Central Board of Indirect Taxes and Customs. His remarks come at a time when startups are finding it difficult to raise fresh funds following several factors, including the Russia-Ukraine war. This has prompted many startups to lay off employees as they try to cut operating costs.
Mint reported last month that Startup sector facing crisis And at least 5,000 employees are expected to be laid off. Within the startup sector, edtech firms have seen major layoffs. Recently, large organizations like Unacademy, Vedantu and WhiteHat Jr. have either laid off employees or seen mass resignations of employees.
Calling it “unsolicited advice” for young entrepreneurs and startups, Das said he understands that many such businesses are already doing risk assessments and taking risks is a part of their business model. Still, these are things that should always be kept in one’s mind for the long-term sustainability of any business, he said.
Disruptive technologies like artificial intelligence and their growing adoption are accelerating and providing opportunities for young enterprises to carve their own niche, he said.
Das said, “A reflection of this is seen in the emergence of many startups in the Indian business landscape as young entrepreneurs experiment with ideas in digital payments, online retail, on-demand delivery, education, software and much more.”
The number of unicorns, or new businesses valued at more than $1 billion, is growing very rapidly, he said, adding that these startups are fueled by angel and venture funding, a new ecosystem of incubators and accelerators, as well as consumption. is supported by the new pattern. community.
Speaking on Corporate Governance, Das called it the single most important aspect that determines the long-term success of a business. He said that good governance requires effective and collective oversight by the company’s board and senior management. It also includes control layers of risk management and internal audit.
Das said the business model to be adopted and the business strategies of the companies should be a conscious choice after a strong strategic discussion in the board, after considering all relevant aspects. He added that businesses should avoid a culture of aggressive short-term reward regardless of the build-up of excessive risk in the balance sheet.
Some common characteristics of an inappropriate business model include an inappropriate funding structure; Creation of asset-liability mismatch that is highly risky and volatile; Unrealistic strategic assumptions and especially excessive optimism about capabilities, growth opportunities and market trends. Lastly, an excessive focus on business ideas with a disregard for risk, control and compliance systems is another common feature, he said.
Meanwhile, Das also said that the RBI will soon issue a “regulatory architecture” for digital loan applications. The problem of predatory loans came to the fore during Covid-19 when the pandemic hit, with borrowers turning to loans at interest rates from such apps. Unable to pay such high interest rates, many consumers fell into debt trap and stopped borrowing from many apps to clear their past dues and it was reported that some even committed suicide.