Angel, VC investment in India has grown 40 times in five years: Rajan

Says globally banks tend not to lend to start-ups as they have little to show in terms of collateral when they seek money

Angel and venture capital investments in Indian startups has grown by over 40 times in the last five years emerging as a good alternative to banks, whose mandate is to lend with collateral than to risky ventures.

"Something like 30-40 times what was available in 2011 is available today. So that combined with a few successes where people take some of these firms to the market and will make a killing will make more people invest in all this," Reserve Bank of India governor Raghuram Rajan said here on Wednesday.

"But unfortunately my sense is that it won't be the banks that will invest as much. Banks will lend to the kirana shops, but they're not going to lend to fancy hi-tech ventures."

The RBI governor said that globally banks tend not to lend to start-ups as they have little to show in terms of collateral when they seek money, which is the same in India. However it is important to ensure that multiple alternate investment sources are available for startups to build strong businesses.

Rajan said, bankers traditionally shy away from high risk ventures, instead recommending to entrepreneurs to tap funds from venture capital firms. "So I think this is a very real issue about how collaterals for startups, and I'm sure those who want to start a taxi service can borrow against the cars they buy," said Rajan.