Sell Your  NBFC

NBFC

A non-banking financial company or NBFC is a company that gives financial facilities, they are not banks. NBFCs are specific entities that are not banks neither do they fit the legal definition of a bank.

A company registered under the Companies Act, 1956, or 2013, and are administered by the Reserve Bank of India (RBI). Such entities are involved in the business of loans and advances, purchase of shares of stock or bonds or securities. That allotted by a government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, and chit fund business. But they must not be involved in agriculture activity, industrial activity, sale/purchase/construction of an immovable property, as a major business.
NBFCs have been performing a significant role in the financial sector in India.

The transparency, convenience, versatility, performance, and quick assistance with financial elements have made NBFCs very popular among the common public, than banks. This reputation has been gained by their smart decisions, timely services, and expertise. NBFCs have fed to clients from untouched territories and segments. In fact, NBFCs have served to separate the rigidity of the country’s financial system by assisting those individuals and businesses who have been out of reach to the organized banking.
Generally, these institutions are not authorized to take public deposits that are repayable on demand. Due to these financial pressures, strict RBI regulations and other reasons, the business gets hard to maintain. And many are forced to sell their NBFC.

To Sell an NBFC

Procedure to Sell NBFC

• The first step of selling an NBFC is to assure that this sale is allowed by the members, in a Board resolution. Of both, Target and the Acquirer companies.
• When both the Boards have approved, you’ll have to share the necessary financial documents with the Acquirer Company. Once it verifies to proceed with the deal, you must sign an MOU (Memorandum of Understanding) with it. At this time, you must receive some token money from the Acquirer as evidence of buying.
• To sell your NBFC, your KYC Documents should be available. And have Business Plan along with Projection prepared for the next 3-years for the new or replacing Directors of the Acquirer.
• These documents are to be registered with the Regional Office of RBI under whose jurisdiction the registered office of your NBFC is located.
• Coordinating with and solving any questions raised by RBI concerning the transaction.
• When RBI approves of the deal, the public has to be informed, 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, showing that a shift in management is about to take place, as per RBI guidelines.
• Once 30 days of this newspaper notice are over and objections fixed, both parties can sign the Share Purchase Agreement. Or some other day of the handover can be fixed by both of you, for this idea. The management & administration must be handed over to the Acquirer. And you will get the balance consideration amount.
• Moreover, as per RBI’s requirement, the assets as presented in your balance sheet are to be liquidated and liabilities are to be paid off. So that the Acquirer gets a clean bank balance in the name of the NBFC. The net worth of your NBFC is to be measured on the date of sale.

Is Former Approval from RBI Required?

• Whenever an NBFC changes hands. Whenever it is traded/acquired/purchased/taken-over, whether any modifications in management occur or not.
• The shareholding structure has improved, ending in at least a 26% difference in the ownership of the paid-up equity capital of NBFCs. This may have occurred over some time.
• **Except when the capital being overcome or buyback of the shares has been supported by a judicial body.
• The management structure has been changed, by replacing at least 30% of the Directors.
• **This 30% eliminates Independent Directors. If the change has been due to a constant rotation of Directors, permission from RBI is not needed.

RBI Approval to Sell NBFC

• 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 located.
• Specifications about the proposed Directors/shareholder members, their KYC, ID/address proof, education & qualification proofs are to be included with the application.
• The sources from where the Acquirer is managing the funds required to buy your NBFC.
• Statement by the stated Directors/shareholders stating that they have not been linked with any other entity which is involved 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 linked with any such company, which was denied for a Certificate of Registration (CoR) by the RBI.
• Statement by the stated Directors/shareholders that there is no criminal trial upon 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 3 years, whichever is higher.
• Apart from above, a public notice is to be provided, at least 30-days earlier to the planned date of the sale of, or substitution of the ownership by the sale of shares, or transfer of power, individually or together by the parties. This notice is to be written in at least one national daily and one vernacular daily newspaper.

Once the above documents are active, 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 require some information or put up inquiries on points mentioned in the application and other documents. These need to be resolved, well in time, to evade any undue delay from RBI to process the application.

Requirements of Prior Public Notice about Changes

• Public notice is to be allotted 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. Such public notice is to be provided by all the parties involved, after getting prior approval of the RBI. They may prefer to do this independently or mutually.
• The plan to sell or transfer ownership/control of the NBFC, the details of the transferee, and the purposes for this transaction, must be shown 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.

How Selling gets Easy with NBFCLicenseIndia

Frequently Asked Question