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NBFC

A non-banking financial company or NBFC is a company that provides financial facilities but are not banks. NBFCs are special entities that are not banks neither do they meet the legal definition of a bank.

A company registered under the Companies Act, 1956, or 2013, and are governed by the Reserve Bank of India. Such entities are engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, and chit fund business. But they must not be engaged in agriculture activity, industrial activity, sale/purchase/construction of immovable property, as principal business.

NBFCs have been playing a significant role in the financial sector in India. The transparency, convenience, flexibility, efficiency, and quick assistance with financial requirements have made NBFCs very popular among the general public, than banks. This popularity has been gained by their quick decisions, prompt services, and expertise. NBFCs have catered to clients from untouched territories and segments. In fact, NBFCs have served to remove the rigidity of the country’s financial system by serving those individuals and businesses who have been out of reach to the organized banking.

Generally, these institutions are not entitled to take public deposits that are repayable on demand. Due to these financial constraints, strict RBI regulations and other reasons, the business gets difficult to sustain. And many are forced to sell their NBFC.

To Sell an NBFC

A sale is usually initiated by the larger company for a smaller one. It serves to merge two companies into one. To sell NBFC, the balance sheet of the seller company has to stand at null after all its assets and liabilities are transferred to the buyer.

So to sell your NBFC, you need to have a buyer company, or an Acquirer Company. And your company or NBFC for sale is the Target Company.

It is recommended to have all the deals and agreements in the signed and written form concerning the Acquirer to avoid any ambiguity in the future.

The RBI has provided step-by-step guide to buy or sell NBFC so any ambiguity has been eliminated.

Procedure to Sell NBFC

The process to sell and getting RBI approval for the change in management of the NBFC takes at least 2-3 months. Therefore, it is advised to check the credential of Acquirer Company and that it will be able to hold on during this period.

  • The first step to sell NBFC is that the Board of Directors of both, the Target and the Acquirer companies, approve of this sale. 
  • Once the Board has consented, you’ll have to share the documents related to the business and administration, with the Acquirer. Once they confirm to proceed with the process of closing down, you and the Acquirer will be signing an MOU. At this time, you would be provided some token money as confirmation of buying.
  • To sell your NBFC, You need to get KYC Documents, Business Plan and Projection prepared for 3-years for the new or replacing Directors of the Acquirer. These documents are to be submitted to the nearest regional office of RBI where the registered office of the company is located.
  • Organizing with and responding to any queries raised by RBI regarding the sale.
  • Once RBI has approved of the sale, a public notice is to be issued. As per the guidelines, this should be published in one national and one local newspaper, indicating that a change in management is forth-coming and invite objections, if any, from the public or any interested parties.
  • After the 31st day of the newspaper notice, both parties can sign the Share Purchase Agreement. The management, etc will be handed over. Along with receiving the balance payment. The day can be decided between you and the Acquirer, before-hand.
  • Further, as per RBI regulations, all assets as shown in your balance sheet are to be liquidated and liabilities are to be paid off. So that the Acquirer gets a neat and clean bank balance in the name of the company which will be calculated as net worth as on the date of sale. This net worth is to be calculated as described by RBI.

Is Prior Approval from RBI Required?

The process to sell and getting RBI approval for the change in management of the NBFC takes at least 2-3 months. Therefore, it is advised to check the credential of Acquirer Company and that it will be able to hold on during this period.

Before you sell your NBFC, first, you would need to check whether prior approval from the RBI for the sale is required or not. RBI has specified certain cases when the transaction needs approval from RBI before the process is initiated.

For the following situations, it is necessary to take prior approval. And if proper documents are not submitted, the application shall be considered null and the transaction gets cancelled.

  • Whenever an NBFC is sold/acquired/bought/taken-over, whether any changes in management occur or not.
  • There are changes in the shareholding, resulting in at least 26% acquisition or transfer of the paid-up equity capital of NBFCs. This may have happened over time.

**Except when the buyback of the shares or reduction in the capital has been approved by a judicial body.

  • An alteration in the management, by changing at least 30% of the Directors.

**This 30% is excluding Independent Directors. If the change is due to a rotation of Directors, approval from RBI is not required.

RBI Approval to Sell NBFC

Sale, takeover or certain changes in the Board of Directors of an NBFC requires prior approval of RBI. All documents to be submitted to RBI are to be filed in agreement with the Acquirer Company.

  • Application is to be submitted to the regional office of RBI having jurisdiction, on the letterhead of the Company. Along with a covering letter.
  • Details about the proposed Directors/shareholder members are to be enclosed with the application.
  • The sources from where the Acquirer is getting the funds necessary to acquire your NBFC.
  • Statement by the proposed Directors/shareholders that they are not involved with any other entity which is engaged in the business of loans and accepting deposits, but is not registered with RBI.
  • Declaration by the proposed Directors/members that they are not involved with any such company, whose application for Certificate of Registration (CoR) was rejected by the RBI.
  • Statement by the proposed Directors/shareholders declaring that there is no criminal case, including any offense u/s 138 of the Negotiable Instruments Act, against them. Pending or convicted.
  • Banker’s Report on the proposed Directors/members.
  • Financial Statements and Annual Report for all the years your NBFC has been existing or the last three years, whichever is more.
  • Apart from the above, a public notice of at least 30 days is to be given before actualizing the sale of, or transfer of the ownership by the sale of shares, or transfer of control, individually or jointly by the parties. This notice is to be published in one national daily and one in the vernacular daily newspaper.

Once the above documents are ready, the application is to be submitted to the Regional Office of the Department of Non-Banking Supervision (DNBS), under whose region your registered NBFC office is located. RBI may ask for some clarifications or put up queries on points mentioned in the application for approval. All these must be clarified, well in time, to avoid any unnecessary delay for RBI to process your application.

Requirements of Prior Public Notice about Changes

After getting RBI’s approval for the sale, a public notice is to be given in one leading national and one leading local newspaper at least 30 days indicating that such a sale of shares, or transfer of control, is about to take place. So that, members of the public can raise objection, if any.

Conditions are:

  • At least 30 days before the planned date of actual sale or transfer of the ownership by sale of shares, or transfer of control (whether with or without the sale of shares), a public notice is to be issued. Such public notice is to be given by all the parties concerned, whether together or separately, after receiving prior approval of the RBI.
  • The plan to sell or transfer ownership/control of the NBFC. The particulars of transferee and the reasons for this transaction, must be indicated clearly in the public notice. 
  • The notice shall be published in at least one leading national newspaper and another leading newspaper in the local language of the place of registered office.

How Selling gets Easy with NBFCLicenseIndia

The whole process required to sell NBFCs is under strict regulations by the RBI. All the compliances must be duly met. Which means, the Target Company is not to miss in providing any information to the Acquirer Company which is essentially required. Moreover, all the compliances to complete the process successfully.

With NBFC License India, you have a companion to take you through all steps – RBI regulations, accounting, and reporting. We also help to buy NBFC.

Work starts with a detailed telephonic consultation. This enables us to get an insight into your requirements and goals. We tell you the details about the companies willing to buy your NBFC, in case you listed your company with us.

Once you have selected, we go through a checklist of compliances, legal requirements, forms to be filed, information/paperwork to be completed. This checklist will be discussed and kept updated.

Now, you can sit back and focus on your work. NBFC License India will initiate the sale process with RBI and the government.

You will be updated as the process progresses, as we keep completing the phases.

ou can seek us for all services concerning:

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