Are Banks Emerging as the Next Big Funding Source for Indian Startups?

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For decades together, the startup ecosystem in India has banked on venture capitalists, private equity funds, and angel investors to fuel their business. Banks, on the other hand, were seen only as lenders. However, in recent years, that perception has started to change. Since January 2024, banks in India and abroad have not only been providing loans but also writing equity cheques, directly backing technology startups across sectors. 

The most recent example of this shift is CoRover.ai, a Bengaluru-based conversational and generative AI platform. On August 19, the company raised a Series A round with HDFC Bank as an investor. With this move, HDFC Bank made its first-ever investment in generative AI.

“It’s not a loan, it’s equity.” For Ankush Sabharwal, Founder of BharatGPT.ai & CoRover.ai, the investment represents more than just money in the bank.

In an exclusive conversation with MIT SMR India, Sabharwal said, “This is just the start of the relationship with HDFC since it’s a strategic investment from them. Of course, the money they invested is valuable, but when banks invest from their own balance sheet, I value it more because it’s not someone else’s money.” 

He added that when a traditional bank invests in you, it means that your company is valuable and on the right track. This stands apart from the usual model, where investors spread bets across hundreds of startups, expecting only a handful to survive. “This comes as a validation for CoRover that companies like HDFC have trusted us. But again, more than the money, the business and revenue are important. That should follow.”

He pointed out that many people mistake a bank’s equity investment for a loan.

“Basically, when a bank’s name appears as an investor, people mistake it for a loan. They don’t really understand what a bank’s investment is. It’s different and extremely important for today’s startup journey. For us, it’s not new because Canara Bank had invested in us earlier. However, the structure was different as it invested through its VC arm, Canara Bank VC, which has LPs, etc. But in HDFC’s case, the banks are investing directly as equity investments. There are two different departments: one is the loan side, and of course, we had taken a loan from HDFC a couple of years ago and repaid it. But those are totally different teams. This time it’s an equity investment, not a loan.”

This distinction marks a new phase for Indian startups, where banks are no longer confined to providing credit; they are now taking equity positions in companies they believe can scale.

Growing List of Bank-Backed Startups

CoRover is not the only startup that has caught the attention of banks. Since the beginning of 2024, several Indian startups across AI, sustainability, fintech, and cybersecurity have secured investments directly from banks.

Cautio, launched in 2023 in Bengaluru, raised $1.8 million in a Seed round on August 6, this year. The round saw participation from AU Small Finance Bank, along with 8i Ventures and prominent angel investors. Cautio’s total funding stands at $3.85 million. The company provides AI-powered dash cams and operating system solutions for fleet operators and vehicle owners. 

Adding to this, data procured from Tracxn mentions that Cautio had raised an earlier Seed round of $779,480 on July 1, 2024, supported by AU Small Finance Bank and other investors.

QNu Labs, founded in 2016 in Bengaluru, raised $7 million on April 24, at a post-money valuation of $134.2 million. The round included HDFC Bank as an investor, along with Singularity AMC, Speciale Invest, Tenacity Ventures, the National Quantum Mission, and others. This brought QNu’s total funding to $22.2 million. QNu develops advanced quantum cryptography solutions, including QKD, QRNG, and PQC.

DaveAI, founded in 2016 in Bengaluru, raised a Series A round on April 8, with Yes Bank among its backers. Other participants included Inflection Point Ventures, SucSEED Indovation, and Soonicorn Ventures. DaveAI develops AI-based sales experience platforms using conversational bots and 3D avatars.

Sequretek, a Mumbai-based cybersecurity company established in 2013, raised $594,685 on October 30, 2024, in a Series A round at a valuation of $27.8 million. HDFC Bank participated as both investor and lead, taking the company’s total funding to $13.27 million.

Cashinvoice, founded in 2018 in Mumbai, closed a $3.4 million Series A round on February 7, 2024, with HDFC Bank, Pravega Ventures, and Accion as lead investors. Its total funding now stands at $6.64 million. The company provides an online platform for cash flow automation and business loans.

EF Polymer, founded in 2018 in Udaipur, raised $6.6 million in April 2025 with participation from Ryukyus Bank. The company focuses on organic super-absorbent hydrogel for agriculture, and its total funding now stands at $11.05 million.

Varaha, a Gurugram-based sustainability tech startup founded in 2022, raised $8.7 million on January 11, 2024, with participation from The Norinchukin Bank. The round valued the company at $43.3 million, bringing its total funding to $12.7 million. Varaha operates in carbon removal and sustainable agriculture solutions.

A New Kind of Validation

What connects these cases is not just money, but the credibility that comes when a bank takes an equity stake. Banks are traditionally conservative institutions, and when they deploy their balance sheet into startups, it signals confidence that the business is viable and the model is sound.

As Sabharwal said, “When a traditional bank invests, it means the company is on the right track.” For startups, this validation can matter as much as the funding itself.

In just 18 months, Indian startups in diverse domains, from AI and quantum cryptography to fintech and sustainability, have attracted bank funding. This trend is reshaping the startup financing landscape. Unlike loans, equity investments don’t burden startups with repayments and interest, while giving banks a stake in the success story.

The numbers so far suggest that more banks, both Indian and international, are warming up to this model. For startups, the entry of banks as investors may well become an important new avenue of growth capital in the years ahead.