Silicon Valley Bank (SVB) Crisis

Central idea: The shutdown and takeover of Silicon Valley Bank (SVB) by US regulators has raised questions on how it impacts India’s startup industry. It was an important partner for the global startup economy.

Silicon Valley Bank (SVB) It is a financial institution that provides banking services to the technology industry and venture capital firms.Founded in 1983, it has since become the go-to bank for startups and entrepreneurs in Silicon Valley and beyond.It is unique in that it understands the specific needs and challenges of the tech industry, and provides a range of services that cater to startups, including loans, deposits, and investment management.It has become a critical player in the startup ecosystem, providing funding and financial services to many of the world’s most successful startups, including Tesla, Uber, and LinkedIn.

What is SVB crisis?

• SVB Financial Group runs one of the largest American commercial banks – Silicon Valley Bank.
• Last week, it had 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.

Reasons for SVB’s downfall

• Downturn of tech stocks: The bank was hit hard by the downturn in technology stocks over the past year as well as the Federal Reserve’s aggressive plan to increase interest rates to combat inflation.
• Lower bond yield due to lower interest rates: SVB bought billions of dollars’ worth of bonds over the past couple of years, using customers’ deposits as a typical bank would normally operate.
• Mostly startups account holders: SVB’s customers were largely startups and other tech-centric companies that started becoming needier for cash over the past year.
• Drying VC funding: Venture capital funding was drying up, companies were not able to get additional rounds of funding for unprofitable businesses.
• Fear over deposit insurance: Since its customers were largely businesses and the wealthy, they likely were more fearful of a bank failure since their deposits were over $250,000, which is the government-imposed limit on deposit insurance.

Immediate effects of SVB’s failure

• Startups scramble: Many startups and other companies that relied on the bank’s services were suddenly left without access to their funds, which caused financial strain and uncertainty for these businesses.
• Ripple effect: They now fear that they might have to pause projects or lay off or furlough employees until they could access their funds.

Major implications for SVB

There are two large problems remaining with Silicon Valley Bank-

• Huge uninsured deposits: The vast majority of these were uninsured due to it’s largely startup and wealthy customer base.
• No scope for asset reconstruction: There is no potential buyer of Silicon Valley Bank.

Could this lead to a repeat of what happened in 2008?

• No probability: At the moment, experts do not expect any issues to spread to the broader banking sector.
• Diversified customer bases: Other banks are far more diversified across multiple industries, customer bases and geographies.

Impact on Indian startups

• Uncertainty over deposits: The failure of SVB is likely to have a ripple effect on Indian startups, many of which have significant amounts of funds deposited with the bank.
• Hamper the funding: SVB has been a major player in the Indian startup ecosystem, providing banking services and funding to many of the country’s most successful startups, including Flipkart, Ola, and Zomato.
• Ripple effect: This could lead to a cash crunch for many companies, which may be forced to cut costs, delay projects, or lay off employees.
• Reduce global footprints: SVB has also been instrumental in helping Indian startups expand into the US market, by providing them with the necessary infrastructure and support to set up operations in Silicon Valley.

How can Indian startups mitigate the impact of SVB’s failure?

• Diversify banking relations: Indian startups that have funds deposited with SVB may want to consider diversifying their banking relationships to reduce their exposure to any one bank.
• Alternative financing: This may involve opening accounts with multiple banks, or exploring alternative banking services such as digital banks or fintech startups.

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Back2Basics: 2008 Financial Crisis

• The bankruptcy of Lehman Brothers was a key event in the 2008 financial crisis.
• Lehman Brothers was one of the largest investment banks in the world, with assets of around $600 billion.
• However, the firm had invested heavily in the US housing market, and when the housing market began to decline in 2007, Lehman’s investments began to lose value.
• In addition, the firm had taken on a large amount of debt to finance its investments and operations.
• As the value of Lehman’s assets declined and its debt levels increased, the firm became insolvent and was unable to meet its obligations to creditors.
• In September 2008, Lehman Brothers filed for bankruptcy, triggering a financial panic and market turmoil.

Its impact

• The Lehman crisis had far-reaching consequences, including the collapse of other financial institutions, a global recession, and widespread economic and social hardship.
• The crisis highlighted the risks of excessive leverage and the interconnectedness of financial institutions, and led to significant reforms in financial regulation and risk management practices.

 

Trans and gay people can’t donate blood

The Centre told the Supreme Court, through an affidavit filed by the Union Ministry of Health & Family Welfare, that the exclusion of transgenders, gay people, and female sex workers as blood donors by including them in the “at risk” category for HIV, Hepatitis B, or C infections is based on due consideration of scientific evidence. The Central government’s response came after Thangjam Singh, a member of the transgender community, moved the Supreme Court seeking to strike down the prohibition on gays and transgenders donating blood under clauses 12 and 51 of the “Guidelines for Blood Donor Selection & Blood Donor Referral, 2017” issued by the National Blood Transfusion Council (NBTC) and the National Aids Control Organisation on 11 October 2017.

What do the 2017 Guidelines say?

1. The governing body of NBTC in its 26th meeting on 1 June 2017 approved the Guidelines to bring in a Blood Transfusion Service which offers a “safe, sufficient and timely supply of blood and blood components to those in need.”
2. The guidelines were designed to promote best practices in BTS to ensure donations from the “lowest risk donors possible”.
3. In the present case, clauses 12 and 51 of the Guidelines are being challenged as “violative of Articles 14, 15 and 21 of the Constitution of India to the extent they exclude transgender persons, men having sex with men and female sex workers from being blood donors”.
4. Clause 12 of the Guidelines, titled “Risk Behavior” falls under the “Blood Donor Selection Criteria” and mandates the donor be free from any determinable disease transmissible by blood transfusion and “not be a person considered at risk for HIV, Hepatitis B or C infections” such as transgenders, gays, female sex workers, injecting drug users, persons with multiple sexual partners or any other high risk, determined by the medical officer deciding their fitness for blood donation.
5. Further, Clause 15 permanently defers those “at risk for HIV infection” including gays and transgenders, from donating blood. Permanent deferral refers to blood donors who will never be allowed to donate blood

What is the present plea about?

1. The present PIL titled “Thangjam Santa Singh v. Union of India” was filed in 2021 by a Manipur-based transgender rights activist challenging the constitutional validity of the 2017 Guidelines that bar transgender and gay persons from donating blood.
2. Thangjam moved the Apex Court contending that such exclusion based on one’s gender identity and sexual orientation is “completely arbitrary, unreasonable, and discriminatory and also unscientific.” The plea adds that since the blood is tested for infectious diseases like AIDS/ HIV, Hepatitis C, and B; permanently excluding persons based on their sexual preference violates their right to equality.
3. During COVID-19, many people needing blood were unable to get it from their trans relatives or loved ones, owing to the Guidelines that contravene the SC rulings in the Navtej Johar & NALSA cases, the plea adds.

What did the Apex Court say in NALSA & Navtej rulings?

1. The Supreme Court in “NALSA v Union of India” (2014) and “Navtej Singh Johar v Union of India, (2018)” held discrimination on the basis of sex under Article 15 to include gender-based discrimination and sexual orientation-based discrimination.
2. In NALSA, the Court held that discrimination on grounds of sex under Articles 15 and 16 would include discrimination on grounds of gender as well.
3. “Gender identity, in our view, is an integral part of sex and no citizen can be discriminated against on the ground of gender identity, including those who identify as third gender,” the Court said.
4. Meanwhile, in Navtej Singh, the Court observed that LGBT persons deserve to live unshackled from the shadow of being ‘unapprehended felons’ and declared Section 377, which criminalizes consensual sexual acts of adults in private, as “violative of Articles 14, 15, 19, and 21 of the Constitution”.
5. Thus, the exclusion of persons without any examination of the actual risk of HIV amounts to discrimination under Articles 14 and 15 and does not meet the test of intelligible differentia, the plea argues.

What is the government’s argument for exclusion based on?

1. In its affidavit, the government said that the exclusion of transgender and gays from blood donation is premised on scientific evidence and added
2. There is substantial evidence to show that transgender persons, men having sex with men and female sex workers are at risk” for HIV, Hepatitis B or C infections.
3. The Centre contended that such issues fall within the ambit of the executive and need to be seen from a public health perspective as opposed to an individual rights perspective.
4. The right of the recipient to receive a safe blood transfusion far outweighs the right of an individual to donate blood.

SoO agreement with Kuki groups

The Manipur government withdrew from the Suspension of Operations (SoO) agreement with two hill-based tribal insurgent groups alleging that they were “influencing agitation among forest encroachers”.

An eviction and a protest

1. Various departments under the Manipur government have been sending out notices since August 2022, claiming that 38 villages in the Churachandpur-Khoupum Protected Forest area (in Churachandpur district) are “illegal settlements” and its residents are “encroachers”.
2. While notices were sent to five villages, the government finally set out on an eviction drive in the K Songjang village on 20 February 2023. It culminated in clashes between the residents and the police authorities.
3. To protest against the police action, the Kuki Inpi, the apex tribal body of the Kukis in Manipur, called for a peaceful rally on 10 March 2023 in the Kuki-dominated districts of the state: Kangpokpi, Churachandpur and Tengnoupal. The government clamped down on the protests by imposing Section 144 but to little avail.

What are the Kuki groups saying?

1. The tribal groups have maintained that the protests had nothing to do with the armed groups. Instead, they claimed it was a “peaceful” protest against the dilution of Article 371 C, which confers some administrative autonomy to the tribal-dominated hill areas of Manipur.
2. Ch Ajang Khongsai, the president of Kuki Inpi, said the peace rally was purely caused by public discontent, over what he said was the state government’s extreme disregard for scheduled Hill Areas and Article 371C of the Indian Constitution.
3. The peace rally was a result of extreme disrespect and exploitation of tribal land rights in the name of various laws and acts.
4. They are (not only) clearing land, but are evicting our right to existence and our customs. We tribals are on the brink of extinction.
5. In a memorandum to the Manipur Governor, the Kuki Inpi said that tribes of Manipur have always been the “rightful landholders” since colonial times and that the aggrieved villagers have been settling in those areas pre-Independence, much before the enactment of the Indian Forests Act, 1972, Wildlife Protection Act, 1972, and other Acts the government has cited to carry out the evictions.

What next for the SoO?

1. This ceasefire agreement was signed with two umbrella groups, the Kuki National Organisation (KNO) and the United People’s Front (UPF), comprising 25 groups – 17 under KNO and 8 under the UPF.
2. A tripartite agreement signed by the Centre, state and the groups, this arrangement meant ending violence and hostilities from all sides and initiated a political dialogue.

NASA tracking asteroid

NASA announced that it is currently tracking an asteroid called 2023 DW that poses a small threat of crashing into our planet on 14 February 2046.

What is the asteroid 2023 DW?

1. According to NASA’s Asteroid Watch, 2023 DW is an asteroid that has an estimated diameter of about 49.29 metres and, at the time of writing, is at a distance of about 0.12 astronomical units (AU) from Earth.
2. An astronomical unit is the average distance between the centre of the Earth and the centre of the Sun.
3. Relative to the Sun, the asteroid is travelling at the speed of about 24.64 kilometres per second. 2023 DW takes about 271 days to complete one orbit around the Sun.
4. At its perihelion, or closest point to the Sun, it could come within 0.49 AU of the star at the centre of our planetary system. Of course, these figures could change based on more observations of the near-Earth object.

How can we prevent 2023 DW from crashing into Earth?

1. The only asteroid mitigation strategies that we could come up with were nothing more than theory.
2. But all that changed in October last year when NASA’s DART (Double Asteroid Redirection Test) mission crashed into the asteroid Dimorphos, successfully altering its path and demonstrating humanity’s first asteroid mitigation strategy.
3. So how would this “kinetic impactor” method of asteroid mitigation work if we needed to use it on the asteroid 2023 DW? Essentially, we would crash a small spacecraft into the asteroid, slightly altering its path.