NBFC stands for NON BANKING FINANCIAL COMPANY which is registered under the Companies Act, 2013. The main business activity of NBFC is giving loans and advances, asset financing, investing in shares, debentures and other marketable securities.
While commissioning the basic compliance requirement, RBI at the same time is making the business of NBFCs smoother. The smaller NBFCs have been liberalized from the RBI regulations whereas the larger NBFCS are still in the clutches of RBI. It is continuously monitoring them so that they could be brought up on a par with global standards.
In this whole dynamic corporate world, the concept of merger and takeover is taking a roll. And now NBFCs are also a part of these arrangements and compromises. The procedure for taking over an NBFC is being laid down by the RBI. Takeover of an NBFC refers to purchase of one NBFC by another company. Only registered NBFC under the Act shall undertake to acquire the control of another NBFC.
Friendly Takeover: It is a kind of takeover that takes place between the companies with their mutual consent. The acquirer company offers the target company to be acquired and the same offer is being accepted by the target company.
If there are negligible changes in the management then it is outside the ambit of takeover whereas in case if there are some major changes in either the control or the management then the prior approval of RBI is required.
The following are the conditions where the prior approval of RBI is required –
RBI has specified certain regulations that are to be followed by NBFCs
In the following conditions the prior approval of RBI is not required
The next step involves making an application to the RBI for approval on the letterhead of the company along with the following documents.
An application has to be submitted to the Regional Office of the Department of Non-Banking Supervision in whose clutches the Registered Office of the NBFC is located. The queries raised by the RBI regarding the takeover must be answered timely so as to avoid any unforeseen delay in the approval. Usually it takes three to four months in normal course of business for an NBFC takeover application to process.
The prerequisite of Prior Public Notice in Case of Change in Management/Control
In case of transfer of ownership or control by the sale of shares or whether with or without transfer of shares a public notice shall be given in one of the leading national and one of the local newspapers, it shall be given at least 30 days prior to effecting such sale or transfer.
Eventually, all the assets of the targeted company shall be liquidated and the liabilities shall be paid off and the acquirer company will receive a clean balance in the bank on the name of the company that will be calculated on the basis of net worth as on the date of takeover.
The very first step involves the signing of the MOU i.e. Memorandum of Understanding with the projected company specifies that both the companies agree to come into an agreement of the takeover. It is signed by both the directors of the Acquirer Company as well as the Target Company. While signing the MOU, token money is given by Acquirer Company to the target company. It shall also specify the responsibilities and requisite of each company.
Following the signing of the MOU, Board Meeting shall be convened in both the companies to discuss following matters:
After obtaining the RBI sanction, public notice shall be made to invite any objection of the public which is taking place due to take over in two newspaper within 30 days of such approval.
After the termination of the 31st day of the notice in the newspaper, share transfer agreement shall be signed and outstanding consideration shall be paid by the acquired company.
Target Company shall acquire NOC from its creditors before the transfer of business from Target Company to Acquirer Company.
After this, transfer of assets shall take place in case no objections have been received and RBI permitted the scheme. But the transfer should not breach any clause of the agreement.
The Valuation shall be done in accord with the rules provided by the RBI. The procedure adopted for valuation shall be Discounted Cash Flow (DCF) Method, this will represent the net present value of the entity. Subsequent to the evaluation, a certificate shall be obtained by the Chartered Accountant briefing the method adopted for valuation.
After the process of valuation and authorization of the takeover scheme, NBFC shall submit an application to the Regional Office of RBI. The application must be on the letterhead of the company. Any change in management of the NBFC after the takeover should also be communicated on a constant basis to RBI.
Non-Banking Financial Company (NBFC) is that kind of financial institution which offers various financial and non-financial services to business enterprises, individuals, entrepreneurs, etc. NBFC License must be taken from RBI
Peer-to-peer lending platforms offers a simple key to borrow money for short-term necessities. This shall include buying consumer electronics, medical emergency, business loan, home renovation, repay credit card dues, travel loan, or any other such requirements.
The procedure for taking over an NBFC is being laid down by the RBI. Takeover of an NBFC refers to purchase of one NBFC by another company. Only registered NBFC under the Act shall undertake to acquire the control of another NBFC.
NBFCs do not have those prosperities, which means that the NBFCs need alternate sources of the money supply, which are higher than the deposits taken by banks, where the interest rate offered is between 4%-6%.
Collaboration means coming together for a shared goal. India has more than 9000 active NBFC but barely 954 the NBFCs have book size more than 40 crores. Rest 8460 NBFCs are only able to meet the regulatory cap of the loan book of INR twenty Million.
RBI and other related regulators set rules and regulations, which keep on altering because of changing needs and circumstances. It is important for the NBFC management to know about what to do and how to do it, and there is a strong need to keep abreast of the times.
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