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NBFC

 
 

NBFCs belong to a category of companies and are established under the Companies Act, 2013. They are granted the NBFC License by the “Reserve Bank of India (RBI)”.

NBFCs are intermediaries, which are 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 provided 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 certain guidelines/requirements in detail, which are to be followed/met, for the sale of an NBFC in India. Therefore, there is no scope of any ambiguity about buying or selling.

The sale of NBFC would involve two parties and it will also include 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 are transferred to the Acquirer.

To sell your NBFC, you need a buyer or an Acquirer Company, which is ready to buy it.
And experts advise to have all the agreements & details of the deal with the Acquirer in writing, to avoid any confusion and uncertainty.

Process of Selling NBFC

 
 

To sell an NBFC and get RBI approval for the change in its management, will take 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 well during this period.

The first step of selling an NBFC is to ensure that this sale is accepted by the members, in a Board resolution (Of both, Target and the Acquirer Company).

When both the Boards have been approved, you’ll have to share the essential financial documents with the Acquirer Company. Once it confirms to proceed with the deal, you should sign an MOU (Memorandum of Understanding) with it. At this time, you should get some token money from the Acquirer as proof of buying.

To sell your NBFC, your KYC Documents must be ready. And you must have a “Business Plan”, prepared for the next 3-years for the new or replacing Directors of the Acquirer Company.

These documents are to be filed with the Regional Office of RBI, under whose jurisdiction the registered office of your NBFC is situated.

There must be proper coordination, with the RBI, and all questions raised by RBI concerning the transaction must be coherently answered.

When RBI approves of the deal, the public has to be notified, to invite objections, if any, from any interested parties. For this, a publication has to be issued in one daily national and one daily local newspaper, indicating that a change in management is about to take place, as per RBI guidelines.

Once 30 days of this newspaper notice are over and objections (If any) are resolved, then both parties can sign the “Share Purchase Agreement”. Or some other day of the handover can be fixed by both of you, for this purpose. The management & administration shall be handed over to the Acquirer. And you would receive the balance consideration amount.

Further, as per RBI’s requirement, the assets as shown in your balance sheet are to be liquidated and liabilities are to be paid off. So that the Acquirer receives a clean bank balance in the name of the NBFC. The net worth of your NBFC is to be calculated on the date of sale.

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 will be considered canceled.

  • Whenever an NBFC changes hands. Whenever it is sold/acquired/bought/taken-over, whether any management changes 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.

  • The 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 which are being submitted to the 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 the above, a public notice is to be given, at least 30-days before 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 it may put up some inquiries on points mentioned in the application and other documents. These queries 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 newspaper and another in a leading local 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 object if any.

The provisions are:

Public notice is to be issued at least 30-days before the planned date when the actual sale or transfer of the ownership by sale of shares, and/or transfer of control is going to happen. Such public notice is to be given by all the parties concerned, after receiving prior approval of the RBI. They may choose to do this separately or together.

The plan to sell or transfer ownership/control of the NBFC, the particulars of the transferee, and the reasons for this transaction, 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 language of the place of the registered office of your NBFC.

Why Choose “CompanyRegistrationOnline” to Sell NBFC ?

 
 

Selling, buying, or registering an NBFC, all such transactions are under the 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 be completed must be thoroughly adhered to.

Therefore, “CompanyRegistrationOnline” is one of the best and the most trustful companion for this journey. Having more than 10-years of experience in legal compliance, our skillful 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 will go through the compliances & legal requirements, forms to be filed, information/paperwork to be completed, etc.  Now, just relax. Let “CompanyRegistrationOnline” become your committed partner and commence the process of the sale, with RBI and the government.

You can hire us for:

  • Mergers/Demergers/Amalgamations

  • Contract Drafting

  • Approval for Management Change from RBI

  • Preparing Share Purchase Agreement

  • Meeting RBI Compliance

  • Internal Audits

Frequently Asked Questions

What is an NBFC?
How to sell an NBFC?
What is the procedure to sell an NBFC?
What is meant by Prior Approval from RBI?
How to take Prior Approval from RBI for NBFC Sale?
Is Prior Approval required when an NBFC is bought by another NBFC?
Is Prior Approval from RBI required is an NBFC is bought by a company that is not an NBFC?
Is Prior Approval necessary for amalgamating or merging 2 NBFCs?
Can an NBFC pre-pay its public deposits?
Is Prior Approval from RBI required before approaching any Court or Tribunal for seeking orders for merger/amalgamation?
Whether acquisition/ transfer of shareholding of 26% or more of the paid-up equity share capital of an NBFC within the same group i.e. intra-group transfers need prior approval from RBI?