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Non-Banking Financial Company Registration Takeover

Register a “Non-banking financial company”

  • Rs. 6,00,000 + Govt. Fees
  • NBFC License from RBI
  • 100% NBFC license assurance

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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.

The activities they can be engaged in, are:

  • ✔   Loan and credit facilities
  • ✔   Asset Financing
  • ✔   Acquisition of shares/stocks/bonds
  • ✔   Hire-purchase
  • ✔   Insurance business
  • ✔   Chit Fund business
  • ✔   Hedge funds
  • ✔   Currency exchange
  • ✔   Peer to peer lending

The activities NBFCs cannot be involved in, are:

  • ✔   Agriculture activity
  • ✔   Industrial activity
  • ✔   Purchase or sale of any goods
  • ✔   Providing any services related to Purchase/Sale/Construction of immovable property
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 burden on 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.

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Buy NBFC
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RBI Apporval
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Important
FAQ

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:

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.

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 requirements are:

At least 30-days before the actual purchase/transfer of ownership is planned. Whether by selling shares, or transferring control (whether with or without the sale of shares) takes place. Public notice is to be issued, by both the Acquirer Company as well as the Target NBFC. And also by other parties concerned. This public notice can be issued by them together or not. After RBI has approved of the deal.

The planned sale or transfer of ownership or control, the particulars of the Target NBFC and the reasons for this deal, must be indicated clearly in the public notice.

The notice shall be published in at least one leading national daily newspaper and another leading daily newspaper in the local vernacular of the place of registered office.

Important Points for NBFC Takeover

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

Ensure that the documents being submitted to RBI and other authorities are legally genuine.

Examine all previous records of the Target NBFC, such as indebtedness (if any). Since its incorporation or at least the last 3-years financial statements of its existence. Check for all lawsuits pending against the company, or some legal proceedings pending against the NBFC, etc. And all other such details which may impact the decision of acquiring this NBFC.

Inspect all the essential documents such as PAN, GST, Certificate of Incorporation, and/or other registrations availed during its existence.

Check KYC of the Directors, promoters, investors presently associated with the NBFC.

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.

FAQ

NBFCs are institutions that offer financial assistance and various banking services but do not have a banking license. They are not the same as both “Cooperative and Commercial” banks, They don’t have to hold a financial permit however they should carefully follow the standards and guidelines given by RBI from time to time. NBFCs, most usually, work in the field of industrial and commercial loans, hire-purchasing, investment funds, deposits, debentures, chit fund business, leasing, insurance business, instruments of the capital & money markets like “bonds, stocks, and various other similar activities.”

Any business willing to commence activities of non-banking financial nature as defined under Section 45-IA of the RBI Act, 1934 should comply with: 1. It should be a company incorporated under section 3 of the Companies Act, 1956 or 2013, 2. It should have a minimum NOF of Rs.2 crores. (The minimum NOF requirement for specialized NBFCs like NBFC-MFIs, NBFC- Factors and CICs differs).

NBFCs provide loans and make investments. These characteristics are the same as that of banks. However, there are some differences: 1. NBFCs cannot accept deposits payable on demand, 2. They are not part of the payment and settlement system and cannot issue cheques drawn on itself, 3. The deposit insurance facility of “Deposit Insurance and Credit Guarantee Corporation” is not available to the investors of NBFCs.

Just call “LegalRaasta” at +91 875 000 8585. We'll complete the advantage of accumulating the documents as required by RBI according to how you wish to start your NBFC. Advise you on the procedures to be met and arrange for them to get completed. File them with the RBI regional office. Provide consultancy on the steps to be taken by you. Answer all the queries on time. And get you registered conveniently.

• Certificate of Incorporation of the Company. • MoA and AoA. • Administrative Documents of the Company. • Address proof of the Company. • Detailed information about Directors or Partners of the Company. • Well-audited accounts of the Company since its formations or for at least the past 3-consecutive years. • Board Resolution approving the creation of NBFC. • Bank Account that holds the paid-up equity share capital of minimum Rs. 2 Crore. • Latest KYC. • Net worth certificate. • Clean banker's report. • Other relevant documents on request.

No, “Merchant Banking Companies, Stock Exchanges, Housing Finance Companies, Venture Capital Fund Companies, Stock-broking/Sub-broking Companies, Nidhi Companies, Insurance Companies, and Chit Fund Companies” are NBFCs and they do not need to be registered with RBI but are subject to certain conditions. They are regulated by other regulators.

RBI has the authority to register, lay down policy & provisions, issue directions, regulate, supervise, inspect, and exercise surveillance over NBFCs meeting the “50-50” criteria of principle business. It can penalize NBFCs for infringing the provisions of the RBI Act or directions/orders issued under it. The penal action can also be cancelation of the CoR or prohibiting them from accepting deposits and alienating their assets or filing a winding-up petition.

Businesses whose principle activity is “lending, investing, or accepting deposits” must be registered with the RBI as NBFCs .If they are found without an NBFC license, then RBI can impose a penalty or fine on them. They can even be indicted in a court of law. Members from the general public are invited to report such firms to the nearest Regional Office of RBI. Appropriate action will be taken against such entities for violating the provisions of the RBI Act, 1934.

The provisions are as follows: a) They shall not be subjected to any statutes, whether prudential or conduct of business regulations if they have not accessed any public funds and do not have a customer interface. The norms are “Fair Practice Code, KYC, etc.” b) Those with a customer interface are subject to these codes if they are not accessing public funds. c) If public funds are accessed, NBFCs will be subjected to certain prudential regulations but no conduct of business regulations if no customer interface is there. d) When both public funds are accepted and the customer interface also exists, those companies are subject to both the limited prudential regulations and the conduct of business regulations

Public Fund means “public deposits, bank finance, inter-corporate deposits, and all funds received” whether directly or indirectly, from outside sources. It could be funds raised by issuing Commercial Papers etc.

A. Returns to be submitted by NBFC-Deposit Accepting are: 1. NBS-1 - Quarterly returns on deposits in the First Schedule. 2. NBS-2 - Quarterly returns on Prudential Norms. 3. NBS-3 - Quarterly returns on Liquid Assets. 4. NBS-4 - Annual returns of critical parameters by a rejected company holding public deposits. 5. NBS-6 - Monthly returns on exposure to capital market institutions with total assets of Rs. 100 crore and above. 6. Half-yearly ALM 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. B. Returns to be submitted by NBFCs-ND-SI: 1. NBS-7 - Quarterly statement of capital funds, risk-weighted assets, their ratio, etc. 2. Monthly Returns on Important Financial Parameters. 3. ALM returns: a. Monthly statement of short term dynamic liquidity in format ALM [NBS-ALM1], b. Half-yearly Statement of structural liquidity in format ALM [NBS-ALM2], c. Half-yearly Statement of Interest Rate Sensitivity in the form ALM -[NBS-ALM3]. 4. Branch Info returns. 5. Quarterly returns on important financial values & basic information like name of the company, its address, NOF, profit & loss statement during the last 3-years of NBFC-NDs with assets between Rs. 50 crore and Rs. 100 crore.

Residuary Non-Banking Company (RNBC) is a type of NBFC whose principle business is of receiving deposits under any “scheme/arrangement/some other manner”. It is not an “Investment Company, Asset Financing Company, or Loan Company.” They are required to maintain investments and liquid assets as required by RBI. Their functioning is quite different from those of NBFCs in terms of how they mobilize deposits and the requirement of deployment of depositors' funds as per RBI Directions. Besides, Prudential Norms Directions apply to them also.

All NBFCs are not permitted to accept public deposits. Only the NBFCs which have taken specific permission from the RBI to do so, are allowed to accept/hold public deposits. To get permitted by RBI, they must have an investment-grade rating to a limit of 1.5 times of it’s NOF.

RBI has capped the annual rate of interest an NBFC to a maximum of 12.5%. The interest may be paid or compounded at a frequency of one month or more.

The deposits with NBFCs can be accepted/renewed for a minimum period of 12 months and a maximum of 60 months. They cannot accept demand deposits.

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