The Reserve Bank of India (RBI) panel on small and medium enterprises (SMEs) has recommended that there should be no profitability requirement for startups to list in India as they tend to be loss-making to achieve high growth. At present, for companies to list on Indian bourses, they need to show a consistent track record of profits for the previous three years.
The panel, led by former markets regulator Sebi chairman U K Sinha, has also said it should facilitate dual-class or differential voting rights (DVR) share structure, which is very popular with tech startups across the world. Startups on the US stock exchanges, for instance, are permitted to issue DVR shares that allow founders to retain control even when they have less stake in the company after raising external funds from investors. This is emerging as a key theme in India on how to balance founder control, considering the growing influence of deep-pocketed external investors.
Among other changes, the Sinha-led panel’s report said the public sector bank (PSB) loan in 59 minutes portal — which currently caters primarily to existing entrepreneurs because of its reliance on GST, income tax data, etc — should lend to entrepreneurs who are part of Standup India, which was launched by the NDA government in 2016 to lend to entrepreneurs from Scheduled Tribes, Scheduled Caste and women. This is different from the Startup India programme.
The panel’s report, which was released on Friday by the central bank, has suggested a faster turnaround time of approval of loans along with enhancing the loan limit to Rs 5 crore. The portal offers loan up to Rs 1 crore in 59 minutes from state-owned banks. It had cleared loans to the tune of over Rs 40,000 crore as of June 7.
“Algorithms leading to initial in-principle sanction but final rejections by the banks need to be reviewed in a time-bound manner. Banks need to ensure that all applications accorded in-principle approval are disposed of within a period of 7-10 days,” said the report.
To further grow the startup ecosystem here, the panel has sought a simpler tax regime for new-age companies as it has identified this as a key reason for startups to move out of India. “By far, the single biggest concern for investors wanting to invest in Indian companies has been the tax liability. For instance, progressive tax regimes such as Singapore have 0% capital gains taxes, which incentivises flow of capital. Also, these investors are likely to plough back the profits from startup entities into new startups, thereby creating a virtuous cycle of investment. Higher tax rate for investors in India is hindering investment in startups,” the report added.
These recommendations are significant since they have been a topic of debate among startups here. Multiple associations for internet companies, including IndiaTech, have been batting for easier listing norms and introduction of DVR share for startups.
