Non-Banking Financial Companies or NBFCs are those companies that are established either under the Companies Act of 1956 or 2013. And because their principal business is related to finance, they are also regulated by RBI.
These companies have been playing a vital role in the economy in India by bringing convenience, accessibility, diversity, and efficiency into the financial sector.
These companies have been a success in India because people find transacting with them easier. This is due to their hassle-free terms & conditions, quick decisions, prompt services and expertise in niche segments. NBFCs strive to bring flexibility to the country’s financial system by serving in regions where banks do not reach.
Scope of NBFC
Since the past few years, the economy in India has witnessed significant ups and downs. The functioning and volume of capital market transactions have increased sharply. With new financial institutions and new financial instruments coming up.
NBFC sector has become vital for the development of the country’s core infrastructure. By offering quicker finances and credit to the Indian trade and commerce industry, these entities are enabling the nation-wide growth of large infrastructure projects. Moreover, small businesses, start-ups, and MSMEs/SSIs, looking for growth, rely on funds offered by NBFCs. Each NBFC creates more employment & self-employment opportunities at the macro-economic level.
NBFC sector is bound to be at the forefront of the development of the Indian economy. And its role is critical to boost the economy in the right direction.
Buy an NBFC
The customer base of NBFCs is very wide. NBFCs cater to the urban, as well as unorganized rural areas, offering loans to satisfy different requirements. On the other hand, banks provide finance to the organized sector only. So the amount of money lent by the NBFCs to the consumers phenomenally exceeds than that of banks. Due to the growth in the economy, the requirement for loans is bound to surge. With consumer lending seeing a continuous rise, and NBFCs catering to a large portion of it, the potential of advancement in this sector is quite huge.
You can own an NBFC in India by either:
- Getting a new business incorporated as a company and then registered with RBI, or
- Buy an existing NBFC.
Out of these, the process of buying an NBFC involves fewer hassles and is quicker than establishing one. The time spent in taking over an NBFC is mostly 2-3 months only, whereas getting a new company incorporated and then registered with RBI as an NBFC can take anywhere from 3-6 months. Besides, complex initial groundwork is avoided.
You may purchase an existing NBFC if it has been put on sale. Or you, the Acquirer or Buyer, can deliberately plan and acquire the control of it. This acquisition is done without the knowledge of the seller.
RBI has provided certain steps that are a must for taking over an NBFC.
If the takeover is a mutually agreed one, the first step to take is to get this planned deal approved by the Board of Directors by the way of a resolution. Once the members have consented, RBI’s approval is sought. And then a MoU with the Target NBFC has to be signed. Generally, some advance token money is paid to the seller at the time of signing an MOU.
The NBFC selected for takeover must be scrutinized thoroughly by the buyer. The due diligence must be undertaken while analysing the financials of the Target Company.
Is Prior Approval from RBI Required
Before buying an NBFC, first, check whether prior approval from the RBI would be required for buying your target NBFC. Or can you proceed without it? Before initiating the process, the Acquirer needs to apply for this in certain cases. Some other cases, however, do not require this approval.
The situations, where prior approval from RBI is necessary, are:
Whenever an NBFC is bought/merged/amalgamated, whether any changes have been made in the management or not
The structure of shareholding has changed, up to at least 26% acquisition or transfer of the paid-up equity share capital of NBFCs. This may have happened over a while.
**Except when a competent court has ruled in favor of the buyback of the shares or reduction in the capital.
The management structure has altered, by changing more than 30% of the Directors.
**The number of Directors excludes Independent Directors. If the change is due to a regular rotation of Directors, approval from RBI is not necessary.
Moreover, if proper documents have not been submitted, all applications would be considered null and void by RBI.
Requirements while Applying for RBI’s Prior Approval
If the takeover transaction of the Target NBFC is falling under any of the above-mentioned situations, you need to apply to RBI for prior approval. Then your application needs to be accompanied by the following documents:
Cover letter on the letterhead of the company,
Details about the Directors/shareholders/members proposed to takeover. Their KYC.
Education, Qualification and Experience proof of the proposed Directors.
Sources, from where the funds to be used for acquiring shares in the Target NBFC, have been arranged.
Declaration by the proposed Directors/shareholders stating that they have not been associated with any entity which was denied a Certificate of Registration (CoR) by the RBI.
Declaration of lacking any criminal background as well as Non-conviction u/s 138 of the Negotiable Instruments Act by all the proposed Directors/shareholders.
Declaration by all the proposed Directors/shareholders/members confirming no affiliation with any entity accepting deposits,
Banker’s Report on them.
Once the above documents are ready, apply to the Regional Office of the Department of Non-Banking Supervision (DNBS) of RBI, under whose region the Registered Office of the NBFC is situated. RBI may require answers to all clarifications it may seek on the points mentioned in the application. And they must be answered, well in time, to avoid any undue delay or cancellations from RBI to process your application.
Requirement of Prior Public Notice About Changes
Once RBI approves to take over the Target NBFC, a public notice is to be given in leading national and local newspapers at least 30-days before such transfer of control or purchase of shares is to take place.
RBI conditions, in detail, are:
Why NBFC Takeover is Better Than NBFC Registration
Buying an existing NBFC rather than getting a new one registered, saves you vital time, which is spent on setting up any new business. Though both the processes involve similar steps, still the time taken is quite less if you buy an NBFC than establish a new one. Or you may opt to take an NBFC on rent. Not only the teething troubles of making a business work can be avoided, but there are also a few more advantages of NBFC buying.
Increase in profitability.
Sale & revenue rises.
Distribution network & customer base gets merged & expanded.
Economies of scale.
Why Choose CompanyRegistrationOnline for NBFC Takeover
NBFC sectors and its transactions are stringently regulated by RBI. All its compliances must be properly satisfied. Therefore, those responsible for fulfilling the requirements and forms, etc. must be well-versed with all the provisions. In the Acquirer Company as well as the Target NBFCs.
CompanyRegistrationOnline assists you at all the steps of the journey. With all RBI regulations, accounting, and reporting met. Complete secrecy maintained during all processes.
NBFCs on sale have been listed out at our site for you to choose according to your objectives, requirements, and budget. We also serve for mergers, etc. There are also NBFCs available on rent in the region you prefer to operate in.
You just have to pick the one most suitable for you.
Our process begins with a detailed telephonic consultation. This is done to enable us to get an insight into your requirements and bring the most suitable solution.
Next, a checklist of all the compliances, legal requirements, forms to be filed, information/paperwork to be completed, is made.
Now, sit back and leave the NBFC takeover to us.
We’ll begin the buying process with RBI and the government. And you shall be updated on the progress, as various phases are completed.
Our services, in terms of NBFCs, include:
Approval for Management Change from RBI
Design Financial Services
Market Digital Loan Products
All RBI Compliances
Internal Audit Services
Important Points for NBFC Takeover
Before the initiating the process of NBFC takeover, make sure to fulfill the following requirements:
You need to sign a formal MOU agreement. And pay a token of money, as mutually agreed. This binds both the parties to stick to the terms, conditions, and time-periods mentioned in it.
Frequently Asked Questions
These financial institutions are allowed to accept deposits, in lump sum or instalments, under various arrangements. Though their activities are quite similar to banks, yet there are few differences between both these entities.
• Do a thorough check on this NBFC.
• Decide & inform the other party about how you want to buy it, by taking over the management or shareholding.
• Check if Prior Approval from RBI needs to be taken or not.
• Public to be notified about the planned deal in at least 2 leading daily newspapers. One national and the other vernacular.
• Apply for RBI’s approval, with the required documents, at its regional office.
• Publish again in 2 leading daily newspapers.
• Solve all the objections raised.
Simply get registered with CompanyRegistrationOnline and relax. Convenient NBFC takeover assured.
The situations are:
• Whenever NBFC ownership changes. Whether with any changes in the management structure or not.
• The shareholding has changed. When 26% of the paid-up equity share capital of NBFC or over, has been bought or sold. This may have happened over a while.
(Except if a competent court has allowed this buyback of the shares or reduction in the capital.)
• Management formation has been changed, by changing 1/3rd, or 30% or more Directors.
(Independent Directors are not included in this 1/3rd, or 30%, and approval from RBI is not required if the change is due to a rotation of Directors.)
1. Sources of funds that you will be using for buying this NBFC.
2. Details of the Directors/members who’ll be in charge after the takeover. Their ID, Address proof, and Education/Experience proof, etc.
3. Declaration by the proposed Directors/members about their non-association with any financial institution, involved in the business of financial activities, that was earlier denied a CoR by the RBI.
4. Statement by the proposed Directors/members, that there is no criminal background and/or Non-conviction u/s 138 of the Negotiable Instruments Act,
5. Their statement declaring their non-association with an unregistered entity accepting deposits,
6. Clean Banker’s Report on all them.
The easier option will be to register yourself on the CompanyRegistrationOnline website. To get NBFC at the best prices and most convenient process.
(i) shareholding of the NBFC is being changed, after the sale, which would change the shareholding pattern of the paid-up equity capital of the NBFC by 26% or more.
(ii) management of the NBFC is being changed, that would result in a change of more than 30% of the directors, and excludes independent directors.
However, if a depositor expires, the NBFC may repay the deposit, even during this lock-in period, at the request of the joint holders with survivor/nominee/legal heir and submits relevant proof. This matter remains at the discretion of the NBFC.
1. An NBFC, which is not a problem company, may permit this premature withdrawal, subject to the above provisions. On completion of the lock-in period, at its sole discretion, at the rate of interest prescribed by RBI.
2. A problem NBFC is not allowed to make premature repayment of any deposits or granting any loan against public deposit(s), as the case may be. However, the prohibition does not apply in case the depositor has expired or repayment of small deposits, up to an amount of Rs. 10000/-.
I. Returns to be submitted by NBFC-Deposit Accepting (Type-I) are:
1. NBS-1: Quarterly returns on deposits in First Schedule.
2. NBS-2: Quarterly returns on Prudential Regulations.
3. NBS-3: Quarterly returns on Liquid Assets.
4. NBS-4: Annual returns of critical specifications by a rejected company holding public deposits.
5. NBS-6: Monthly returns on exposure to capital market organisations having total assets of Rs. 100 crore and above.
6. ALM: Half-yearly returns with companies having public deposits of over Rs. 20 crore or asset size of over Rs. 100 crore
7. Audited Balance sheet and Auditor’s Report.
8. Branch Info Returns.
II. Returns to be submitted by NBFCs-ND-SI
1. NBS-7: Quarterly statement of capital funds, risk-weighted assets, risk asset ratio etc.
2. Monthly Returns on Important Financial Parameters.
a) Monthly statement of short-term dynamic liquidity in Form ALM [NBS-ALM1],
b) Half-yearly statement of structural liquidity in Form ALM [NBS-ALM2],
c) Half-yearly statement of Interest Rate Sensitivity in Form ALM – [NBS-ALM3].
4. Branch Info returns.
5. Quarterly returns on important financial values and basic information such as the name of the company, address, NOF, profit/loss during the last 3-years of NBFC-NDs with assets between Rs. 50 crore and Rs. 100 crore.