The Federal Bank has created a startup fund with an initial corpus of Rs 25 crore, which the bank mentions is scalable. The bank intends to invest in startups in sectors like digital financial services, biotech, hi-tech farming, healthcare, logistics, ecommerce etc.

According to the Federal Bank, it will focus on projects in Kerala and Gujarat initially, before funding startups in other states. However, it’s not yet clear if the bank will provide seed funding or fund startups looking to raise further funding. Given that the size of the fund is currently only Rs 25 crore (~ $3.8 million), it’s likely the bank will focus on providing seed funding rather than investing heavily in subsequent rounds.

Note that in March this year, Federal Bank had entered into a partnership with Startup Village and MobME wireless in Kerala to launch the FinTech Accelerator Programme. This program would involve the bank providing startups with access to APIs and other resources, to develop apps in financial technology.

Interestingly, at the end of the accelerator period the startups could demo their products to Federal Bank, MobME, VCs and angel investors. We imagine the bank could use the current fund to fund some of the startups in this accelerator, although one must note that the bank specifically mentions that it will invest in startups outside the financial sector as well.

Banks investing in startups:

– In June, online printing solutions provider Printland raised an undisclosed amount of funding from SIDBI Venture Capital, a fully owned subsidiary of Small Industries Development Bank of India (SIDBI). The platform had previously raised Rs 5 crore in debt and equity also from SIDBI and existing investors Evista Venture Capital and Sanjeev Kakar in September 2013.

– In May, CarDekho raised an undisclosed amount of investment from HDFC Bank, a little over three months after raising Series B funding worth $50 million. The bank has invested in other startups as well, like mPOS solution Mosambee, that raised around $1 million from SIDBI back in 2013.