Introduction: Non-Banking Financial Company (NBFC)

Non-banking financial companies (NBFCs) are a vital part of the Indian financial service system. NBFC’s have multiplied in large numbers and serving the public at large to support the financial inclusion program with affordable credit at home. NBFCs are playing a key role in meeting the credit demands unmet by the traditional banks. NBFC companies are registered under section 45-I of Reserve Bank of India Act, 1934. To an extent, Non-Banking Financial Company (NBFC) Due Diligence is a worry as far as buying, selling and maintaining of NBFC is concerned.

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What is NBFC Due Diligence?

Non-banking financial companies (NBFCs) Due Diligence is an examination process of a business prior to signing a contract, or an act using a certain standard of care. Mainly there are four types of NBFC due diligence i.e. Financial,  Legal, Commercial & Other; Thus, legal due diligence of NBFC look for legal examine on basis of the legal structure, transaction, contracts, property,  loans, employment, and pending litigation if any.

NBFC Due-Diligence Checkpoints

As far as Due Diligence of NBFC is concerned, below are some key pointers.

Corporate Matters Due-Diligence:

• Company Information 
• Authorized Capital
• Date of Incorporation
• Date of Last Annual General Meeting
• Paid-up Capital
• Status of the Company
• Date of Last Balance Sheet

Registered Charges Due-Diligence

• Quantum of Secured Loans
• Details of Secured Lenders of the Company

Information of Directors Due-Diligence

• Date of Appointment of Directors
• Directors of the Company

Foreign & Overseas Direct Investment (FDA) Due-Diligence, if any.

• Other necessary requirements.
• FC-GPR, ARF Filling

Documents Due-Diligence

• Memorandum of Association (MOA)
• Certificate of Incorporation (COI)
• Articles of Association (AOA)
• Minutes of Meetings & Secretarial Compliance (MOM)

Financing Matters Due-Diligence:

• Bank statements verification
• Valuation of all assets and liabilities verification
• Cash flow information verification
• All financial statements against transactional information verification

Operational Due-Diligence:

• Number of Employees in the organization
• NBFC Business Model
• Number of Customers
• Vendor Information
• Production Information

Litigation Due-Diligence:

• No objection from Secured Creditor for transfer of the company.
• All real estate properties of the company legal due diligence.
• Court documents and court filings verification, if any.

Taxation Compliance Due-Diligence:

• Calculation of company income tax liability
• Income tax return filed
• Service Tax / VAT Returns Filed
• ESI / PF Returns Filed
• TDS Returns

Human Resources Due-Diligence:

• Intellectual Property Rights Due-Diligence:
• Material Agreements Due-Diligence:
• Regulatory Matters i.e., in this case, RBI compliance records Due-Diligence:

Including all above due diligence, NBFC promoters still required to check the following points on NBFC Due Diligence:

• An NBFC needs to be compliance with Section 45-IC
• Registration to FIU-IND
• Membership of Credit Information Company (CIC)
• Directors Auditor Report based on circular DNBS (PD) CC No. 129/03.02.82/2008-09 dated September 23, 2008 (now it's 2016) & Statutory Auditor Certificate (SAC)
• Central KYC Portal  Company Registration 
• Information Utility set up under IBC, 2016 Registration
• Incase Foreign Resident or Entity wants to take over the existing NBFC business in India
  1. The entire process of raising funds from foreign residents or entities shall be channelized through the banking path in supervision and intimation of the Reserve bank of India. 
  2. The entire process should be according to FEMA, 1999, FDI Scheme and RBI regulation for reporting.
  3. In case the target company is of 100% Investment Nature, in such cases, the Foreign Resident or Entity requires prior permission from the Department of Economic Affairs under existing FDI policy and FEMA regulation.