Non-Banking Financial Company or NBFC is an incorporated company that is a financial institution having primary business as loans and advances, acquisition of shares, stocks, bonds, and other marketable instruments, insurance business, or chit business, etc. These companies are known for introducing a wide range of products, hassle-free finances, and ease of access to the unbanked sector. Their decisions are quicker, involves much less paperwork, prompt disbursal of loans, broader reach, and the eligibility requirements are not as rigid as the organized banks. Due to all these reasons and personalized products, more customers prefer transacting with NBFC than banks.
All NBFCs are regular companies, registered under the Companies Act of 1956 or 2013. They must not be involved in any agricultural or industrial activities, or sale, purchase or construction of immovable property, etc.
In India, NBFCs have made finance accessible to rural and semi-urban parts of the country. Providing easier working loans and credit facilities, especially where most banks either do not finance due to their stringent rules or have absolutely no reach.
You can own an NBFC in India by either
a) Get a New Registration with RBI, or
b) Take-over an existing one.
To make a new company and then an NBFC means building a customer base, marketing the new business, hiring employees and establishing cash flow. All from scratch. This takes time and extra effort.
Getting a new NBFC registered takes approximately 3-5 months in the registration process only.
Whereas acquiring an existing NBFC takes around 2-3 months. And the time required to design and formulate the framework of the organization is saved.
The term NBFC Takeover implies buying an existing NBFC by another company or another NBFC. The takeover can be undertaken only if both, the Target as well as the Acquirer, are already registered under the Companies Act.
However, it may be a case of a friendly takeover. That is when the seller has put his company on sale. The terms are based on mutual understanding.
Or it may be hostile. When the Acquirer deliberately plans to take control of the other entity. Acquires shareholding in the Target Company without its knowledge.
In both these situations, the balance sheet of the Target NBFC has to be nullified for its assets and liabilities to enable the Acquirer to take hold of its management.
To Takeover an NBFC, check first whether prior approval from the RBI is required or not? Or is the transaction is exempt? Certain situations have been specified by RBI when this transaction needs its approval. For situations not matching these conditions, no such prior approval is needed.
Following are the situations of NBFCs arrangements that have been mentioned as requiring RBI’s approval before proceeding:
Except for cases when a competent court has approved the buyback of the shares or reduction in the capital.
If any of the above situations are being met for your NBFC takeover, then prior approval from RBI needs to be applied for. This application, along with the Declarations, needs to be made on the letterhead of the company. And the following documents are to be attached:
This application is to be submitted to the Regional Office of the DNBS (Department of Non-Banking Supervision), under whose jurisdiction the Registered Office of the NBFC is located. RBI may send some queries or ask for clarifications and/or proofs for details mentioned in the application. All such queries must be answered, and well in time, so that your application with RBI doesn’t get backtracked and delayed. Generally, this approval takes about 1-3 months, differing according to the case.
Just note that in case any required document is missing while applying, the application shall be considered null and void.
On getting the approval from RBI for the takeover, the general public has to be notified by publishing the planned takeover. In at least one leading national and one leading local newspaper, at least 30 days before such sale of shares, or transfer of control, is planned to take place. Whether the shares are being transferred or not. The terms laid out for such publications are:
Peer to Peer Lending can be classified into following types:
Buying an existing NBFC saves you time that is essentially required for setting up any new business when compared to getting a new one registered. Besides avoiding the troubles faced in starting a business fresh, below are a few more advantages of an NBFC takeover:
Before the process of taking over an NBFC is initiated, you must:
A Non-Banking Financial Company is that kind of financial institution which facilitates financial services but does not require a banking license. An NBFC is:
NBFCs, majorly, serve customers from rural and semi-urban sectors. That are, generally, not financed by the more organized banking sector, that have more stringent rules for financing. The stipulations demanded by NBFCs for extending loans are much more flexible and convenient. NBFCs may cater specifically to a certain sector and develop an advantage in the area of data.
The convenient option would be to get registered with LegalRaasta. Let us help you out with carrying RBI’s instructions to the letter.
(Except if the buyback of the shares or reduction in the capital has the approval of a competent court.)
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