NBFC Sales in India
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NBFC
Today, in India, due to the instability in the economic sector since the last few years, businesses are being sold, bought, taken over, merged, or collaborated. The small banks, that were proliferating 5-6 years ago, have been taken over by the bigger ones or been merged. Their number has reduced by at least 30-40%, if not more. Similarly, the NBFC sector also has been impacted by these compromises and arrangements. Reserve Bank of India (RBI) has laid down specific procedures to be followed, for all these buying, selling, and other collaborations. The sale of NBFC is when an NBFC is being sold to another company in India. An NBFC can only be sold to another registered NBFC or an established Non-NBFC Company, as per RBI provisions.
NBFC sale would bring two companies together. For this transaction to be executed successfully, the balance sheet of the NBFC on sale has to stand at null. So that the buyer can take it over all its assets and liabilities.
To sell your NBFC, you need a buyer or an Acquirer. Your company or NBFC which is on sale is referred to as the Target Company.
NBFC for Sale in India
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
The transaction of selling your NBFC may need prior approval from the RBI before initiating the process. This approval is mandatory in certain cases only, as specified by RBI.
These situations are:
Whenever an NBFC is acquired/bought/taken-over/merged/amalgamated, whether any changes have been made in the management or not.
The structure of shareholding has changed, resulting in at least 26% transfer of the paid-up equity share capital of NBFCs. This may have happened over some time.
**Except when the buyback or reduction in the share capital has been approved by a competent court.
An amendment in the management structure, by changing more than 30% of the Directors.
**Independent Directors are not included in this 30%. If the change is due to a routine rotation of Directors, approval from RBI is not required.
In case proper documents have not been submitted with the application, the application would be considered null and void by RBI.
Please note: If the proper documents have not been submitted with the application, on time, it shall be considered null and the transaction will be considered cancelled.
Process of NBFC Sale
This application has to be submitted to the Regional Office of the Department of Non-Banking Supervision (DNBS), under whose jurisdiction your registered NBFC office comes. Regular follow-ups with RBI and resolving any queries must be done. Necessary to ensure that there is no delay from RBI in processing your application.
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The first step is that the Board of Directors of both, the Target and the Acquirer companies, favour this sale, in a Resolution.
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Once approval from the Board has been exacted, the Acquirer Company would need to go through the financials and administrative documents.
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You both need to sign an MOU (Memorandum of Understanding). And you must take some token money as confirmation of buying, from the Acquirer.
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Now get KYC Documents, Business Plan and Projection prepared for the next 5-years for the Directors of the Acquirer.
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These documents are to be submitted to the regional office of RBI under whose jurisdiction your NBFC comes.
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Resolve all queries of RBI.
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Public notice is to be published when RBI approves of the deal, following its guidelines. It is to inform the general public that a sale/transaction is about to take place. And invite objections, if any, from the public or some other party involved.
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After 31 days have passed of this notification and all disputes settled. Both companies can sign the Share Purchase Agreement. The management will be handed over. And you receive the balance payment. You and the Acquirer can decide another day for the transfer, before-hand.
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Before this, all assets in your balance sheet are to be liquidated and liabilities are to be paid off. So the Acquirer gets a clean bank balance in the name of your NBFC. The net worth is to be calculated on the date of sale. RBI has also prescribed how to determine this net worth.
This application has to be submitted to the Regional Office of the Department of Non-Banking Supervision (DNBS), under whose jurisdiction your registered NBFC office comes. Regular follow-ups with RBI and resolving any queries must be done. Necessary to ensure that there is no delay from RBI in processing your application.
Process to take RBI Approval for NBFC Sale in India
Sale/purchase/merger, etc. or making certain changes in the management of an NBFC requires prior approval of RBI. All documents to be submitted to RBI must have a mutual understanding of the Acquirer Company.
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Apply, on the letterhead of the Company, to the regional office of RBI having jurisdiction. Along with a cover letter.
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Provide details about the proposed Directors/shareholder members is to be enclosed with the application.
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Statement by the proposed Directors/shareholders declaring their non-involvement with any other entity which is engaged in the business of loans and accepting deposits, but is not registered with RBI.
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Declaration by the proposed Directors/members that they are not involved with any such financial institution, whose application for CoR (Certificate of Registration) was rejected by RBI.
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Proposed Directors/shareholders to also declare that there is no criminal case, against them, including any offense u/s 138 of the Negotiable Instruments Act. Whether pending or convicted.
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Banker’s Report on the proposed Directors/members.
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The sources from where the funds are being arranged to buy out your NBFC.
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Financial statements and Annual Reports for the years your NBFC has been in existence or the last 3-years, whichever is higher.
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There is a requirement of RBI to notify the public. Either individually or jointly by the parties. A notification is to be published at least 30 days before actualizing the sale of, or transfer of the ownership.
This application has to be submitted to the Regional Office of the Department of Non-Banking Supervision (DNBS), under whose jurisdiction your registered NBFC office comes. Regular follow-ups with RBI and resolving any queries must be done. Necessary to ensure that there is no delay from RBI in processing your application.
Requirements for Applying for RBI’s Prior Approval
After RBI has approved for selling your NBFC, a public notice is to be given in one leading national and one leading local vernacular newspaper. The notice must be published at least 30 days prior to the date when the actual sale is planned. Giving enough time for the public to raise an objection, if any. The notification must mention the details of sale of shares, or transfer of control, is about to take place
RBI requirements about the notification are:
The public notice is to be issued at least 30 days before the planned date when the actual sale or transfer of the ownership is planned to take place. Whether it would be by sale of shares, or transfer of control (whether with or without the sale of shares). Such public notice is to be given by all the parties concerned. They can choose to do this together or separately. After receiving prior approval of the RBI, for initiating the process.
The planned NBFC sale or transfer of control in India. Details about your NBFC and the reasons for this transaction must be indicated clearly in the public notice. The notice is to be published in at least one leading daily national newspaper and another leading daily newspaper in vernacular of the place of registered office.
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