In a significant strategic move, fintech major Groww, backed by Tiger Global and other prominent investors, is reportedly gearing up for a ‘reverse flipping’ to India. The trend of Indian fintech players returning to their home country has gained momentum, with industry leaders like Razorpay making similar transitions. Groww’s potential shift from the US to India is attributed to regulatory considerations, taxation policies, and the evolving fintech landscape.
Navigating Regulatory Realities: Groww’s Reverse Flipping Journey
Groww’s reverse flipping involves the relocation of its headquarters from the US to India through a cross-country merger. This move comes amid a broader trend in the fintech industry, with companies opting to return to their home countries, driven by regulatory dynamics and tightening norms. Groww joins the ranks of PhonePe and Razorpay, underlining the strategic importance of aligning operations with Indian regulatory frameworks.
Taxation Chessboard: Assessing Groww’s Potential Liabilities
The taxation landscape is a critical aspect of Groww’s reverse flipping decision. While the exact tax liabilities remain uncertain, legal experts suggest that a merger involving Groww Inc. and Indian entity Billionbrains Garage Ventures may incur a 21% federal tax in the US, coupled with additional state taxes. However, India’s double taxation avoidance agreement (DTAA) with the US could potentially exempt Groww from further taxation in India.
Path to Approval: Navigating Regulatory Hurdles
In April of this year, Groww secured board approval for the merger, initiating the process by approaching the National Company Law Tribunal (NCLT). The fintech unicorn is currently awaiting clearance from local tax authorities and the Reserve Bank of India (RBI), adhering to the regulatory framework defined by the Foreign Exchange Management Act (FEMA). The approval timeline, influenced by NCLT processes, could potentially follow a trajectory similar to PhonePe’s share-swap deal.
Fintech Dominance: Groww’s Rise to the Top
Founded in 2017 by former Flipkart employees, Groww has emerged as a leading wealth management platform in India. Boasting 6.63 million active investors as of September 2023, it has surpassed industry counterparts. The unicorn achieved profitability in FY23, reporting a consolidated net profit of INR 448.7 Crores, a significant turnaround from the net loss of INR 239 Crores in FY22. Backed by key investors like Tiger Global, Peak XV Partners, and Ribbit Capital, Groww’s evolution showcases its resilience and strategic acumen.
As Groww positions itself for a ‘reverse flipping’ to India, the fintech giant anticipates a seamless alignment with the regulatory and operational landscape of its home country. This move reflects the company’s adaptability and strategic foresight in navigating the evolving dynamics of the fintech industry. Groww’s journey underscores the significance of regulatory compliance and strategic realignment as integral components of sustained success in the ever-evolving fintech ecosystem.
