Interested in the Takeover of an NBFC?
Non-Banking Financial Company (NBFC) is a type of company that is registered under the Companies Act. Its major lines of business include loans and advances, asset finance, and stock, debenture, and other marketable securities investing. It also offers credit and loans for working capital
The first step to kickstart the process of NBFC Takeover is to find an NBFC available for sale. With NBFC Advisory, we have experts helping you simplify the process by walking along through each step no matter how complex the procedure and documentation of the process of NBFC Acquisition/ NBFC Takeover with RBI is.
Here we simplify the steps of the process:
What is NBFC Takeover
The process of acquiring a functioning RBI-registered NBFC by way of Change in Control/Management by taking an NOC and approval from RBI by an Acquirer is NBFC Takeover.
This procedure is appropriate for individuals or corporations who prefer to secure operation of their financial business by taking over a running/operational NBFC from Day 1.
This process is complex and involves multiple stages as mentioned above, necessitating the requirement of the highest level of professionalism and diligence.
The following is the need for NBFC Takeover:-
- Mergers and acquisitions are common in the global business sector.
- These talks and stipulations influence NBFCs, which are being viewed as an addition to the concerned bank.
- The Reserve Bank of India has established a framework for NBFC takeovers. The purchase of NBFC by another firm is referred to as an acquisition.
- Only registered NBFCs are allowed to assume control of other NBFCs.
What documentation is required for an NBFC takeover?
To Takeover any existing NBFC, permission from the Reserve Bank of India is required. The following are the documents that are necessary for the Takeover:
- Material of the potential shareholders’ sources of funds, which are needed for the acquisition of NBFC shares;
- Information on the proposed Board of directors or shareholders;
- Every proposed director or shareholder must sign a declaration saying that they are not affiliated with any entity that the RBI has denied;
- A statement from each potential director or shareholder stating that they are not affiliated with any entity that accepts deposits.
- Furthermore, all proposed shareholders or directors must provide a report under section 138 of the Negotiable Instruments Act qualifying their non-criminal and non-convicting backgrounds.
- All submitted directors/shareholders’ bankers’ reports.
Why is it required to obtain RBI approval before an NBFC Takeover?
As per the regulatory framework, to take over an NBFC, you must first obtain NOC from RBI for Changing in Control/ Management in Target NBFC in case the change in shareholding is more than 26% and change in management is more than 30%.
The Reserve Bank of India's prior consent must be obtained under the following conditions:
- NBFC management may or may not change due to any buyout or acquisition of control.
- Furthermore, any change in shareholding that results in a 26 per cent acquisition or transfer of NBFCs’ paid-up capital, with any incremental increases over time;
- Any change in management requires the approval of more than 30% of the Board of directors, excluding the NBFC’s independent directors.
In what circumstances does the RBI's prior permission for an NBFC takeover not apply?
There are several circumstances in which you do not require the RBI’s prior approval-
- If there is a change of 26% in the company’s share capital due to share buybacks or a decrease in the money with the consent of a competent Court.
- Alternatively, if the administration changes by 30% due to a change in the Autonomous Directors or a rotation of the directors on the Board.
Follow these steps after you've received RBI approval:
Publicise the Notice to the Public
The first thing you should do is post the Public Notice in two different regional languages. One should be English, and the other should be a vernacular tongue. After the RBI approves the notification, make sure to disseminate it.
Formalise your agreement
The next step is to reach a formal agreement with the target firm to purchase shares, transfer management, transfer shares, or other interests in the NBFC Takeover.
Publication of the Second Notice to the Public
It’s time to post a second public notice when your organisation will complete 30 days after getting into the specified agreement. The notification must also be written in two regional languages, one in English and the other in a vernacular language.
What is the procedure for changing a company's name while the NBFC takeover is in progress?
The acquirer company must get a name availability certificate from the Ministry of Corporate Affairs to change the company’s name. The acquirer must then contact RBI for a NOD or Notice of Default. Once the NOD has been obtained, the company can move forward with the name change.
Get started on your NBFC Takeover right now!!
Any change in an NBFC’s shares of more than 26% or a change in management of more than 30%, or both, shall be regarded a takeover of the NBFC.
You must keep a minimum current assets level of INR 2 Cr, which may be informed of client loans or bank balances.
NOD must acquire RBI’s permission before changing management, transferring shares, or selling an NBFC.
Paid-up share capital + profit + reserves and surplus + share premium balance + additional free reserves –direct or indirect involvement in a group firm –accumulated loss – provision for non-performing assets (NPA) – expenditures that have been postponed -Investments in other NBFCs’ shares – investments in group firms’ shares, bonds, or debentures in excess of ten percent of NOF.
To seek for an NBFC licence, you must have a minimum fixed deposit of Rs. 2 crore, according to RBI. This is also known as net owned fund or starting capital. After receiving RBI approval for an NBFC licence, you can use the funds from your fixed deposit to lend or engage in any other pre-approved business activity.
To change your name, you must first receive a name availability certificate from the MCA, and then apply for a NOD from the RBI. Once you have received NOD, you can begin the process of changing your name.
Yes. You must submit your income tax returns for the last three years to the RBI.
Yes. You must have a CIBIL score of 700 or above, and you must have had no disputes or loan write-offs with banks or NBFCs in the previous 24 months.
A Private Limited Company Registration certificate provided by the company’s registrar is valid for the duration of the company’s existence.