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NBFCs, the companies established under the Companies Act, are granted the NBFC License by the Reserve Bank of India (RBI). NBFCs are intermediaries engaged in providing finances as their primary business. They accept deposits, lend finance and play a vital role in channelizing the limited financial resources into infrastructure development and create chances of earning. They complement the organized banking sector by attending to the ever-increasing financial needs of the corporate sector, delivering credit to the unorganized sector and small unbanked borrowers. However, they cannot be involved in agricultural activity, industrial activity, sale, purchase or construction of immovable property.
The financial services by NBFCs include disbursement of loans, acquisition of stocks/shares/ bonds, etc. NBFCs focus on loans and advances, acquisition of shares, bonds, debentures, stocks, securities issued by the government/local authority or other similar marketable securities, leasing, insurance business, hire-purchase, etc.
To Sell NBFC
RBI has specified a guide in detail to be undertaken for the sale of NBFC in India. Therefore, there is no scope of any ambiguity about buying or selling.
The sale of NBFC would involve two parties and involves a series of transactions between the seller and the buyer. According to RBI, an NBFC can only be sold to another NBFC or an established company – not any other kind of entity. A sale transaction would merge these two companies into one. The buyer or the Acquirer Company would procure either (i) the equity of the Seller NBFC to obtain the voting powers to be able to select the Board members, or (ii) at least 30% of the management. At the time of handing over an NBFC, its balance sheet has to stand at null & void and all assets & liabilities transferred to the Acquirer.
To sell your NBFC, you need a buyer or an Acquirer Company ready to buy it.
And experts advise to have all the agreements & details of the deal with the Acquirer in written, to avoid any confusion and uncertainty.
Process of Selling NBFC
To sell an NBFC and getting RBI approval for the change in its management takes approximately 2-3 months. Therefore, it is advised to check the credential of Acquirer Company and make sure that the agreement with it will hold good during this period.
Is Prior Approval from RBI Required?
Before selling your NBFC, first, you must check whether the transaction needs prior approval from the RBI or not. Certain cases have been specified by RBI when the sale transaction needs its approval before the process is initiated.
The situations specified by RBI, where prior approval is mandatory, are given below. And if proper documents are not submitted, the application shall be considered invalid and the transaction considered cancelled.
Whenever an NBFC changes hands. Whenever it is sold/acquired/bought/taken-over, whether any changes in management occur or not.
The shareholding structure has changed, ending in at least a 26% change in the ownership of the paid-up equity capital of NBFCs. This may have happened over some time.
**Except when the capital being reduced or buyback of the shares has been approved by a judicial body.
Management structure has been modified, by changing at least 30% of the Directors.
**This 30% excludes Independent Directors. If the change has been due to a regular rotation of Directors, approval from RBI is not required.
RBI Approval to Sell NBFC
As mentioned above, the sale/takeover/merger or certain other changes in the Board of Directors of an NBFC requires prior approval from RBI. All documents to be submitted to RBI must be filed with an understanding of the Acquirer Company.
An application and a cover letter, on Company’s letterhead, are to be submitted to the regional office of RBI having jurisdiction where your NBFC is situated.
Details about the proposed Directors/shareholder members, their KYC, ID/address proof, education & qualification proofs are to be enclosed with the application.
The sources from where the Acquirer is arranging the funds needed to buy your NBFC.
Statement by the proposed Directors/shareholders declaring that they have not been involved with any other entity which is engaged in the business of loans and accepting deposits, but is not registered with RBI.
Declaration by the proposed Directors/members that they have not been involved with any such company, which was rejected for a Certificate of Registration (CoR) by the RBI.
Statement by the proposed Directors/shareholders that there is no criminal trial against them, pending or convicted. Including an offense under Section 138 of the Negotiable Instruments Act.
Clean Banker’s Report on the slated Directors/members.
Financial Statements and Annual Reports since the registration of your NBFC or past three years, whichever is more.
Apart from above, a public notice is to be given, at least 30-days prior to the planned date of the sale of, or transfer of the ownership by the sale of shares, or transfer of control, individually or jointly by the parties. This notice is to be published in at least one national daily and one vernacular daily newspaper.
Once the above documents are ready, the application is to be filed with the Regional Office of the DNBS (Department of Non-Banking Supervision) of RBI, under whose jurisdiction your registered NBFC office comes. RBI may need some explanations or put up inquiries on points mentioned in the application and other documents. These must be resolved, well in time, to avoid any undue delay from RBI to process the application.
Requirements of Prior Public Notice about Changes
After getting RBI’s approval for the sale, a public notice is to be given in one leading national daily and another in a leading vernacular daily newspaper at least 30 days before the date when this transaction is about to take place. It indicates clearly that such a sale of shares, or transfer of control, so that the members of the public can raise objection, if any.
The provisions are:
Why CompanyRegistrationOnline to Sell NBFC
Selling, buying or registering an NBFC, all such transactions are under strict regulations of RBI. All the compliances set-up by RBI in this regard must be duly fulfilled. This means that the Seller is not to make any mistakes or delay in providing any information to RBI or the Acquirer. All the provisions to complete the process successfully are to be thoroughly adhered to.
Therefore, CompanyRegistrationOnline is the best trustful companion for this journey. Having more than 10-years of experience in legal compliance, our skilful executives shall complete all requirements successfully – RBI regulations, accounting, and reporting. We also help with reconstituting NBFCs.
Your pain is over after a detailed telephonic consultation with the professional in charge of your deal. This makes us understand your requirements and goals. According to the price you are looking for, we’ll select and advise you about the companies willing to buy your NBFC.
Once you have finalized the buyer, together we go through the compliances & legal requirements, forms to be filed, information/paperwork to be completed, etc. Now, just relax. Let CompanyRegistrationOnline, your committed partner, commence the process of the sale, with RBI and the government.
You can hire us for:
Approval for Management Change from RBI
Preparing Share Purchase Agreement
Meeting RBI Compliance
Frequently Asked Questions
An NBFC Company accepts investments, in lump sum or instalments, under various schemes/plans/arrangement.
• Do a thorough check on this company (or NBFC) to ensure it is trustworthy.
• The buyer will decide whether it wants to acquire your NBFC by taking over the management or shareholding.
• Check if Prior Approval stipulations of RBI are applicable here or not.
• Publication of the planned transaction in at least 2 leading daily newspapers. One national and the other vernacular.
• Apply to RBI for approval, with the required documents, at its nearest regional office.
• Publish again in 2 leading daily newspapers.
• Settle all the objections raised.
The convenient method would be to get registered with CompanyRegistrationOnline. The best assistance for successfully carrying out RBI’s instructions.
The conditions mentioned by RBI are:
• Whenever the ownership of NBFC gets altered. Whether any changes occur in the management structure or not.
• The shareholding structure has changed. When 26% or more of the paid-up equity capital of NBFC has been bought or sold. This may have happened over some time.
(Except if a competent court has approved such a buyback of the shares or reduction in the capital.)
• The formation of management has changed. By changing 1/3rd or 30% or more Directors.
(This number is excluding Independent Directors, and approval from RBI is not required if the change is the result of a rotation of Directors.)
1. Origins of funds that will be used by the Acquirer for acquiring your shares.
2. Details about the Directors/shareholders/members about to takeover. Their ID, Address proof, and Education/Qualification/Experience proof.
3. Declaration by the proposed Directors/shareholders/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/shareholders/members, that they do not have any criminal background and Non-conviction u/s 138 of the Negotiable Instruments Act,
5. A Statement declaring that they have not been associated with any unregistered entity accepting deposits, by the proposed Directors/shareholders/members,
6. Clean Banker’s Report of all the potential Directors/ shareholders.The easier option will be to register your NBFC on the CompanyRegistrationOnline website. So that you get the best prices and the most hassle-free sale.
(i) any change in the shareholding of the NBFC, after the sale, which would result in a change of shareholding pattern of 26% or more of the paid-up equity capital of the NBFC
(ii) any change in the management of the NBFC which would result in a change of more than 30% of the directors, excluding independent directors.
However, in the event of the death of a depositor, the NBFC may choose to repay the deposit, even during this lock-in period. This matter is at the discretion of the NBFC, at the request of the joint holders with survivor/nominee/legal heir only on submission of relevant proof.
An NBFC, which is not a problem company, subject to the above provisions, may permit premature withdrawal. After the lock-in period, at its sole discretion, at the rate of interest prescribed by RBI.
On the other hand, a problem NBFC is prohibited from making premature repayment of any deposits or granting any loan against public deposit/deposits, as the case may be. The prohibition does not, however, apply for the death of depositor or repayment of small deposits, up to an amount of Rs. 10000/-.