Amalgamation of Garagepreneurs Internet and North East Small Finance Bank

COMPETITION COMMISSION OF INDIA Combination Registration No. C-2024/01/1104

12th March 2024

Notice under Section 6(2) of the Competition Act, 2002 given by Garagepreneurs Internet Private Limited, Quadrillion Finance Private Limited, Intergalactory Foundry Private Limited, RGVN (North-East) Microfinance Limited, North-East Small Finance Bank Limited, Mr. Rajan Bajaj, Gunosy Inc., Gunosy Capital G.K., 3F Ventures, Blume Ventures India Fund II, Blume Ventures Fund II, Blume Ventures (Opportunities) Fund IIB and Insight Luxembourg XII S.a r.l.

CORAM:

Ms. Ravneet Kaur Chairperson

Mr. Anil Agrawal Member

Ms. Sweta Kakkad Member

Mr. Deepak Anurag Member

Order under Section 31(1) of the Competition Act, 2002

1. On 18th January 2024, the Competition Commission of India (Commission) received a notice under Section 6(2) of the Competition Act, 2002 (Act), given by Garagepreneurs Internet Private Limited (GIPL), Quadrillion Finance Private Limited (QFPL), Intergalactory Foundry Private Limited (IFPL), RGVN (North-East) Microfinance Limited (RGVN), North-East Small Finance Bank Limited (NESFB), Mr. Rajan Bajaj (RB), Gunosy Entities viz., Gunosy Inc. (Gunosy) and Gunosy Capital G.K. (Gunosy Capital), Blume Funds viz., 3F Ventures, Blume Ventures India Fund II, Blume Ventures Fund II and Blume Ventures (Opportunities) Fund IIB and Insight Luxembourg XII S.a r.l. (Insight) [hereinafter GIPL, QFPL, IFPL, RGVN, NESFB, RB, Gunosy Entities, Blume Funds and Insight are collectively referred to as the ‘Parties’].

2. The notice relates to the merger of the business operations of GIPL and NESFB under the composite scheme of amalgamation under Sections 230 - 234 of the Companies Act, 2013 (Companies Act) (Proposed Scheme) approved by the board of directors of: (i) GIPL on 20th October 2023, (ii) QFPL on 4th October 2023, (iii) IFPL on 23rd October 2023, (iv) RGVN on 23rd June 2023, and NESFB on 26th June 2023 (Proposed Amalgamation). As submitted, the Proposed Amalgamation will be carried out through a series of inter-connected steps under the Proposed Scheme, as set out below:

• (i) QFPL and IFPL will merge into GIPL (Step 1);
• (ii) GIPL (merged with QFPL and IFPL, hereinafter referred to as GIPL Combined) and RGVN will each merge into NESFB, as the surviving entity (Merged Entity) (Step 2). [For the purposes of Steps 1 and 2, GIPL, QFPL, IFPL, RGVN, and NESFB are collectively referred to as Merging Parties]; and
• (iii) As consideration for Steps 1 and 2, the Merged Entity will issue shares to the existing shareholders of GIPL and RGVN in the agreed exchange ratio (Step 3). The existing shareholders of GIPL and RGVN that will receive shares in the Merged Entity as part of Step 3 are collectively referred to as the Step 3 Investors. Of the Step 3 Investors, RB, Gunosy Entities, Insight and Blume Funds are likely to receive as consideration more than 5% shares along with, inter alia, right to nominate/appoint a director, subject to the applicable laws and regulatory approvals.

3. As submitted, RB, the promoter of GIPL, either directly or indirectly, has also offered to acquire certain outstanding shares of RGVN’s shareholders prior to/contemporaneously with the Proposed Amalgamation (Proposed RB-RGVN Transaction).

4. Further, GIPL had made two capital infusions in NESFB in the months of October 2022 and April 2023 and consequently acquired around 10% shareholding in NESFB (collectively, Pre-Proposed Scheme Capital Infusions). Apart from the Pre-Proposed Scheme Capital Infusions, further fund infusions have been made and certain fund infusions are also proposed to be made by GIPL in NESFB during the period of approval of Proposed Scheme and consummation of the Proposed Amalgamation. As submitted, GIPL infused additional capital in NESFB on 31st October 2023 and pursuant to the same, GIPL’s shareholding in NESFB increased to 20.73% on a fully diluted basis (Third Capital Infusion). It is also envisaged that GIPL may infuse additional funds in NESFB while the Merging Parties continue to work towards securing the relevant regulatory approvals and thereafter the consummation of the Proposed Amalgamation. For this purpose, GIPL has also executed a letter agreement with NESFB dated 13 December 2023 (Letter Agreement), pursuant to which GIPL has offered to infuse additional capital in NESFB, over the course of the next four months (Proposed Additional Capital Infusions). Of the Proposed Additional Capital Infusions, GIPL further infused additional capital in NESFB on 24th January 2024 pursuant to which GIPL’s shareholding in NESFB increased from 20.73% to 29.17% (Fourth Capital Infusion).

5. In terms of Regulations 14(3) of the Competition Commission of India (Procedure in regard to the transaction of business related to combinations) Regulations, 2011 (Combination Regulations), the Commission, vide letter dated 15th December 2023 (RFI), sought certain information and clarifications regarding, inter alia, broader scheme of the issue of shares by API, comparative rights of the Acquirers in API before and after the Proposed Combination, etc. The Acquirers submitted their response on 5th January 2024 after seeking an extension of time (Response to RFI). Apart from the Response to RFI, the Acquirers provided certain additional information/clarifications on 19th January 2024 (Additional Submissions).

6. GIPL, promoted by RB, provides lending services and facilitates loans to borrowers on its digital lending application (DLA) and offers “slice” PPI cards, UPI services as a Third-Party Application Provider (TPAP), and is a master policyholder of its insurance partner’s products through its platform. QFPL, a wholly owned subsidiary (WOS) of GIPL, is a Systemically Important Non-Deposit Taking Non-Banking Financial Company (NBFC) and is categorised as an Investment and Credit Company NBFC by the RBI (NBFC-SI-ICC). It is primarily engaged in the business of providing financial services including credit facilities to individuals through the “slice” platform. IFPL, a WOS of GIPL, is engaged in the business of developing software products that facilitate business and enable transactions in industries including financial services, data, and communication services. As submitted, IFPL’s services are almost entirely consumed captively by GIPL and QFPL for the purposes of their lending services through the “slice” platform.

7. NESFB, a subsidiary of RGVN, is a private sector small finance bank (SFB) headquartered in Guwahati, Assam. It has branches in the states of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim, and West Bengal. RGVN, the holding company of NESFB, does not have any business operations of its own.

8. Gunosy Entities, Blume Funds, and Insight are existing shareholders of GIPL. As submitted, none of the Gunosy Entities or Insight have any physical presence in India and none of the Blume Funds offer any product(s)/services in India. However, they hold investments in some entities having operations in India.

9. The Commission observed that the various transactions being envisaged centre around the Proposed Amalgamation and accordingly the Proposed Amalgamation is only relevant for competition assessment. In this regard, the Commission, as a first step, considered the presence of GIPL (including its WOSs), NESFB (and RGVN), RB, affiliates of Gunosy Entities, Blume Funds and Insight in India for identification of any horizontal overlaps or vertical and/or complementary linkages. The Commission observed that the activities of the aforesaid entities overlap in the broad areas of loans and lending services, digital payment services, distribution of insurance products, distribution of mutual funds, and provision of deposit-taking services. Certain existing/potential vertical linkages were also noted in terms of the activities of banks offering UPI architecture and TPAP services and between provision of core banking solutions and provision of banking services.

10. The aforesaid activities can be further segmented and sub-segmented. To illustrate, the loans and lending services may be segmented as personal loans, home loans, loans against deposits, MSME loans, etc.; digital payment services may be segmented as NEFT services, RTGS services, UPI services, etc.; distribution of insurance products as distribution of general insurance products and life insurance products etc. However, for the reasons given in the ensuing paragraphs, the Proposed Amalgamation is not likely to result in any appreciable adverse effect on competition (AAEC) irrespective of the manner in which the relevant market is delineated and accordingly, the Commission decides to leave precise delineation of the relevant market(s) open.

11. At the outset, the Commission observed that the overlaps between the activities of the NESFB and GIPL are minimal in qualitative terms. To illustrate, while NESFB and GIPL both may be said to be offering ‘digital payments services’, NESFB offers debit cards as opposed to GIPL’s digital “slice” pre-paid instrument (PPI) card and UPI services as a TPAP service. The difference in activities indicates that though the activities may exhibit overlaps in a broader market, the parties may not be the closest competitors of each other at the activity level. Similarly, while both GIPL and NESFB may be said to be offering loans and lending services at the broader level and unsecured personal loans at the narrower level, GIPL is focused on the financial technology sector and does not offer typical/traditional banking services in India and primarily GIPL is a lending service provider and houses a DLA to facilitate loans between the lenders and borrowers while NESFB operates as a SFB and provides traditional banking services. The difference is indicative of differences in the respective customer base of GIPL and NESFB which also implies a lack of closeness of competition between them.

12. Further, notwithstanding the aforesaid aspects, considering the presence of affiliates of the Parties, the Commission took note of the presence of each of the Parties in each of the aforesaid areas of activity and their segments/sub-segments and observed that the Parties and/or their affiliates have a negligible presence as reflected in their actual volumes, turnover and/or market share estimates.

13. Considering the aforesaid, the Commission observed that the Proposed Amalgamation is not likely to change the competitive dynamics of any plausible relevant market in terms of both the horizontal overlaps and vertical linkages noted above.

14. Considering the material on record including the details provided in the Notice and the assessment of the Proposed Combination based on the factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Proposed Amalgamation is not likely to have any AAEC in India. Therefore, the Commission approves the Proposed Amalgamation under Section 31(1) of the Act. However, this order is without prejudice to any proceeding that may be initiated against GIPL under Section 43A of the Act in respect of Third and Fourth Capital Infusions.

15. This order shall stand revoked if, at any time, the information provided by the Parties is found to be incorrect.

16. The information provided by the Parties shall be treated as confidential in terms of and subject to provisions of Section 57 of the Act.

17. The Secretary is directed to communicate to the Parties accordingly.