NBFC

NBFCs or Non-Banking Financial Companies are those companies which have been established either under the Companies Act of 1956 or 2013. They have been playing a vital role in the development of the Indian economy by bringing accessibility, diversity, convenience, and efficiency into the financial sector.

They are involved in the principal business of providing loans and advances, acquisition of shares, stocks, bonds, insurance business, or chit business, etc.

These companies do not need to possess a banking license, yet are involved in similar financial services. Transacting with these entities is much easier because of their hassle-free terms & conditions, quicker decisions, prompt services, advisory in non-financial matters, and expertise in niche segments. The severity of the country’s financial system got reduced because of the NBFCs serving in regions where banks do not reach.

And because they provide services related to finance, these companies also have to mandatorily get an NBFC License, from the Reserve Bank of India, RBI.

Buy an NBFC

In case you are looking to own an NBFC business in India, you can opt to either:

• Get a new company incorporated under the Companies Act, 2013 and then get it registered with the RBI as an NBFC, or
• Buy an existing NBFC.

As in most other cases, the time taken to buy-out an existing business is quicker than establishing a new one. Buying an NBFC takes around 2-3 months, whereas getting a new company established and then registered with RBI as an NBFC can take anywhere between 3-6 months. Moreover, building a business up from scratch will take a lot of time and effort. This can be avoided by taking over an existing NBFC.

You have the option, again, of purchasing an NBFC which has been put on sale. Or, if you have zeroed in on an NBFC to buy, not already on sale, you can do so by acquiring its control via deliberating planning. This acquisition is done without the knowledge of the seller, especially if the seller or the Target NBFC is unwilling. In both situations, the balance sheet of the Target NBFC would stand at null, after all, it’s assets and liabilities have been taken over by you, the Acquirer.

RBI has provided a step-by-step procedure for buying NBFCs. If the deal is a friendly buying, the first step which must be taken is to get the deal approved by the Board of Directors in a general meeting.
Once the Board has consented to both the firms, an MOU with the Target NBFC has to be finalized & signed, to execute the acquisition. Generally, an MOU is signed and some advance money is paid to the seller, as a token. And then the rest of RBI’s requirements are to be met.

Some precautions must necessarily be undertaken by the buyer to evaluate the worth of the seller. All matters about the field of “finance, legal, corporate and other”, must be reviewed and evaluated diligently.

Is Prior Approval from RBI Required

Before buying an NBFC, first, check whether you need prior approval from RBI for buying the selected NBFC or not. The Acquirer needs to apply for approval from the RBI in certain cases, before commencing the process. Some cases, however, do not require any such prior approval.

The situations when it is necessary to take prior approval from RBI:

In case proper documents have not been submitted with the application, the application would be considered null and void by RBI.

Requirements for Applying for RBI’s Prior Approval

If the transaction to buy out the Target NBFC is similar to any of the above situations, then you need to apply to RBI for prior approval. And your application, along with a cover letter on the letterhead of the company, needs to be accompanied by the following documents:

Once the above documents are ready, you are to submit these documents to the regional office of the “Department of Non-Banking Supervision (DNBS) of RBI”, under whose jurisdiction the Registered Office of the NBFC is situated. RBI may ask for some clarifications on the points mentioned in the application. All such queries must be replied to, well in time, and avoid any undue delay or cancellations from RBI, to process your application.

Is Prior Public Notice About Changes Required?

Once you have the approval from RBI to buy the Target NBFC, a public notice is to be given in one leading national newspaper and one leading local newspaper, at least 30-days before this transaction (of transfer or purchase of shares, which is to take place).

RBI requirements are:

Benefits of Buying an Existing NBFC

By buying an existing NBFC rather than getting a new one registered, you save on time. You can use this time to enhance the work of the previous entity. Though, both processes, of getting a new one registered or buying an existing one involve similar steps. Still, the preparation time is quite less if you buy an existing one. Or you may take an NBFC on rent. This prevents those problems that any new entity faces while setting up a business, making it known to the associates, etc. A few of the advantages of purchasing an NBFC have been given here:

Why Buy an NBFC with “CompanyRegistrationOnline” ?

NBFC sector, their transactions, any entry or exit into this sector is stringently regulated by RBI. All compliances of RBI must be duly fulfilled. Therefore, it is advised to take the help of skilled professionals who are in the know. Someone well aware of the processes, the requirements, and all provisions of RBI.

And that skilled professional is what you shall get with “CompanyRegistrationOnline”. We assure 100% assistance at every step of the journey. From fulfilling all RBI requirements, accounting, and reporting during the deal to meeting the RBI compliances afterward. All the processes are done in strict secrecy.

We have listed NBFCs which are available for sale on our site, so you can choose according to your preference, goals, and budget. We also help with mergers, take-overs, and collaborations. We also make available NBFCs on rent in the area of your choice.

The process with us would start with a detailed telephonic consultation. We ask a few questions. To enable us to get an insight into your requirements and goals and offer you the most suitable organization.

Next, together, we go through all the compliances, legal requirements, forms to be filed, information/paperwork to be completed, as required by RBI.

Now, you can sit back and focus on your business and “CompanyRegistrationOnline” will begin the process of compliances, scrutiny, due diligence, preparation of MoU, Share Transfer Agreements, etc. Of course, we’ll update you on every step we take.

Our services, related to NBFCs are:

Important Tips for Purchasing an NBFC

Before the process of buying an NBFC with RBI begins, it is better to make sure the following checks are performed:

After verifying all this information, you also need to sign a formal “MoU” agreement, along with a certain token amount, as mutually agreed. This binds both the Acquirer and the Target to stick to the terms, conditions, and time-lines specified in it.

Share Purchase or Transfer Agreement

During the purchase of an NBFC, the final step is to discharge the Share Purchase Agreement. This agreement is signed by both, the buyer and the seller, after the public notice of buying has been issued. The assets of the seller or the Target NBFC are discharged in the balance sheet and liabilities are paid off. So the Acquirer Company receives only a clean balance sheet. The amount is calculated on the basis of the net worth of the Target NBFC as on the date of the takeover. RBI has also provided directions which are to be followed while determining the net worth. 

This is the final step in the official handover of the management and the assets/liabilities from the Target Company to the Acquirer Company. In case any consideration is remaining, it shall be paid off within 31 days of the public notice in the newspaper, as per RBI. Or as mutually agreed by all the parties.