Great Offers for NBFC Takeover

NBFC Takeover

Starting anything from scratch takes time and effort. Similarly, starting a new NBFC takes approximately 3-5 months of registration process only. On the other hand, acquiring an NBFC takes around 2-3 months. And you save time required to design and formulate the framework of the organization.

The term Takeover of an NBFC means purchasing an existing NBFC by another company or NBFC. The takeover takes place only when both, the Target as well as the Acquirer, are already registered under the Companies Act.

However, the takeover of an NBFC may be on mutually agreed terms, where the seller has put his company on sale. This would be a case of a friendly takeover.

Or it may be deliberately planned by the Acquirer to take control of the other entity. Working without its knowledge. Generally, it takes place when the management of the Target Company is unwilling to accept the offer of the takeover.

In both situations, the balance sheet of the NBFC on sale stands null after all its assets and liabilities are taken over by the acquirer.

Is Prior Approval from RBI Required?

Following situations of NBFCs arrangements have been mentioned as requiring RBI’s approval before proceeding. When required documents have not been submitted, the application shall be considered null and void.

• Whenever an NBFC is taken-over. Whether any management changes have been made or not.
• Changes have occurred in the shareholding. When at least 26% of the paid-up equity capital of NBFC has been acquired or transferred. This may have happened over a period of time. 
• Except a competent court has approved the buyback of the shares or reduction in the capital.
• The management structure has been modified. By changing more than 30% of the Directors.

30% is excluding Independent Directors. Approval from RBI is not required if the change is due to a rotation of Directors.

To Apply for Prior Approval, You Need

1. Sources of funds used for acquiring shares of the Target NBFC by the Acquirer,
2. Information about the proposed Directors/shareholders, such as their ID proof, Address proof, Education, Qualifications and Experience proof, 
3. Declaration by all the proposed Directors/shareholders declaring their non-association with any organization that has been denied a Certificate of Registration by the RBI,
4. Declaration of not having a criminal background and Non-conviction under Section 138 of the Negotiable Instruments Act by all the proposed Directors/shareholders,
5. Declaration by all the proposed Directors/shareholders affirming their non-association with any entity accepting deposits,
6. Banker’s Report for the proposed Directors/ shareholders.

Once the above documents are ready, the application is to be submitted to the Regional Office of the DNBS (Department of Non-Banking Supervision), of the district where the Registered Office of the NBFC is located. RBI may pose some queries or ask for clarifications or proofs on points mentioned in the application for approval. All such queries must be answered, well in time, so that your application with RBI doesn’t get delayed.

Generally, approval from RBI takes about 2-3 months, depending on the case.

Prior Public Notice About Changes

• Public notice is to be issued at least 30 days before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control (whether with or without the sale of shares). Such public notice shall be given by the NBFCs and all other parties involved, after obtaining the permission of the RBI.
• The proposal of selling or transferring ownership or control, the particulars of transferee and the reasons for such sale or transfer, must be indicated clearly in the public notice. 
• The public must be notified by getting this notice published in at least one leading national newspaper and another leading newspaper in the local language of the place of registered office.

Procedure for NBFC Takeover

• MOU (Memorandum of Understanding): For taking over an NBFC, at first, an MOU is signed with the Target Company. It specifies that both the companies are entering into an agreement of takeover. It is signed by the Directors of both the companies i.e. Acquirer Company and Target Company. At the time of endorsing MOU, token money is handed to the Target Company by the Acquirer. MOU defines the responsibilities and requirements of each party.
• Convening of Board Meeting: After the MOU has been signed, a Board Meeting shall be convened in both the companies to discuss the following matters;

1. Date, timing, place of convening Extra Ordinary General Meeting (EGM).
2. For passing required resolutions to take over an NBFC, in the EGM.
3. Replying to the queries from RBI about the takeover scheme.

• Public Notice: After the application for takeover has been approved by the RBI, a public notice to invite any objection of the public on the takeover. This notice is to be published in two leading newspapers within 30 days of such approval.
• Share Transfer Agreement: After 31 days have been passed of the newspaper notice being published, the Share Transfer Agreement is to be signed and the remaining consideration paid by the acquired company.
• NOC from Creditors: An NOC (No Objection Certificate) from the creditors of the Target Company is to be taken before the sale of business or transfer of business.
• Assets Transfer: If no objections have been received and the RBI has approved the takeover then the transfer of assets shall take place. But the transfer should not be in violation of any clause of the agreement.
• Evaluation: The Target Company gets evaluated. This shall be in accordance with the rules provided by RBI. The approved technique for evaluation is DCF i.e. Discounted Cash Flow Method. This determines the net present value of the entity. Afterward, a certificate shall be obtained by a Chartered Accountant briefing the method adopted for valuation.
• Notice to Regional Office: Now an application is to be submitted to the Regional Office of RBI. It must be on the letterhead of the company. All changes in the management structure of the NBFC after the takeover is also to be intimated on a continuous basis to RBI. The application contains details about:

1. ID, address and qualifications of the proposed directors and shareholders.
2. Shareholders who are acquiring the NBFC and their source of funds.
3. Declaration by the Directors and the shareholders that they are not associated with any unincorporated entity which is accepting the deposit.
4. Declaration by the Directors that no criminal proceedings have been initiated against them in the past or are pending against them in any court of law.

Benefits of NBFC Takeover

1. Increase in profitability.
2. Reduction in competition.
3. Rise in sales/revenue.
4. Business expansion with more distribution network and customer base.
5. Economies of scale.

How NBFCLicenseIndia Helps

RBI has laid down a systematic and step-wise procedure for a NBFCs takeover. All the NBFCs are under strict regulations by the RBI. Therefore, compliances must be completed thoroughly. And if the parties, especially the Acquirer Company is not well-versed with the Target Company as well as all the compliances to be met, it becomes difficult to complete the process successfully.

Buying an NBFC is quite a long process for which a properly planned approach is quite necessary to adhere to the compliances of the applicable laws.

NBFC License India will assist you at all steps of NBFC takeover. Whether it is RBI regulations, accounting, and reporting. We also have listings of NBFCs on sale in the region you want to expand your business to.

You can take our help in:

• Mergers/Demergers
• Takeovers
• Business Re-structuring
• Contract Drafting
• Approval for Management Change from RBI
• Designing Financial Services
• Marketing Digital Loan Products
• Meeting RBI Compliance
• Internal Audit Services

Useful Tips for NBFC Takeover

Before the NBFC takeover procedure is initiated, it is advised you have:

1. Checked that all the documents that are to be submitted to the RBI and other authorities are genuine legally.
2. Examined all previous records, such as liabilities, last 3-years financial statements, cases pending against the company (if any), legal suit pending against the company (if any), etc. Or other such details that may affect the decision of NBFC takeover.
3. Inspected all the important documents such as Certificate of Incorporation (COI), PAN, GST, and other such registrations availed during the ongoing tenure of the company.
4. Checked the KYC about the Directors, investors, promoters, presently associated with the company.

Frequently Asked Questions