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Procedure for Sale NBFC in India | NBFC For Sale in India

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Introduction

Non-banking finance company (NBFC) is company incorporated in India under the provision of Companies Act, 2013 with an object to do finance business, regulated and license by Reserve Bank of India (RBI). Incorporation may be easier but getting the license from RBI is always tough and time taking process, however, India has witnessed successful licensing from RBI around 12k entity across India since long till date. Its been long for few market players in the sector and few of them on serious note wants to leave the market. During the period, many have surrendered the license and on the others hand, again RBI has also issued the cancellation order of issued licenses due to severe violation and non-compliance of prescribed guidelines and set of regulations thereon.

In this article, we will be more focused on seller perspective while executing the sale of NBFC business or transfer of control. Seller being regulated from RBI, need to put special cautions to transact such sale of business or transfer of control things.
Read More: NBFC Sale in India: In and out Strategy of NBFC Business in India

Precautions:

It is imperial to note before hanging with any interested party to buy the entity. Entity should do internal due diligence in terms of financial, human resources, assets and liabilities thereon. As on date of negotiating the entity is operating in the eyes of RBI and obviously do have some sort of ongoing business. So, it may cause the deterioration of fair value of shares to be transfer, assets and liabilities thereon. Further, being regulated entity such entity needs to make various report and submission of documents/information monthly, quarterly and annually either to RBI, MCA or other external agency as per the nature of business. When internal compliance and clearance are been done then obviously the selling entity can do more negotiation as far as deal closure is concern. 

Identifying the Buyer:

Selling the NBFC business is not an easy task as it involves good amount of investment and time, therefore seller entity can have agent or consultant to keep them posted on eligible buyer as like us. We do facilitate the existing NBFC to get good premium for exit from business if existing promoters are not ready to run this business any more. Over and out, we do keep them posted on regular compliance, due diligence and operating support for their NBFC business, so any of NBFC related matter you can connect with us without any hesitation. We are happy to serve this segment institution. Once buyer is been identified and long tripartite discussion and negotiation then obviously major terms sheet are finalized and then process of RBI application is prepared and submitted to RBI for their review and observation, if any in order to provide prior approval for asked changeover in board and shareholding suggested by guidelines issued by RBI dated 9th July, 2015. Buyer should have clean image and people of integrity and positive financial strength. They should possess the required experience of financial business and its operation guidelines along with strong financial position to serve the public at large.

Process:

Upon once precautions are been cleared and initial buyer discussion and terms sheet are been finalized then the selling entity need to put an application for change in control. Before that entity need to put the matter on Board and conduct board meeting to pass the agenda and present the same for shareholders approval either in Annual General Meeting or Extra Ordinary General Meeting, as the case may be. After that selling entity need to put an application with RBI along with other documents, forms and information as per the guidelines given by RBI. Thereafter, upon the RBI observation, the applicant need to respond on time till the RBI is not fully satisfied and make decision. Before final decision, RBI will ask to make 30 days public notice regarding the ongoing process of change in control or sale of business. Once prior approval is received from RBI then the process comes to end with few pending activities like again conduct of board meeting, appointment of directors, filing forms in MCA, share transfer certificate and transfer of share consideration to old shareholders by new shareholders.
Read Our Blog: RBI Proposes Regulatory Changes for NBFCs. Here's All You Need to Know.

Documents Checklist:

The documents initially asked by RBI for this approval is not lengthy but the things asked by RBI once initial submission need to be clear on top priority within given time frame.

  1. Information and documents asked as per the given format for both Directors/shareholders
  2. Declaration
  3. Sources of fund by new shareholders
  4. Banker report of shareholders/directors

Other than above, it is conditional and observation based on RBI officer, for the submission of information and documents thereon to close the process from RBI. Further to remove their query from first submission, the basic know your customer (KYC) documents, academic qualification, CIBIL report, financial statements and experience certificate can be enclosed in advance. Precisely often they asked for the submission of business plan too. So, either providing it advance helps you to speed up the process or you can wait and watch for their query and list of requirements from the RBI officer observation. Choice primarily depends on consultant or selling team on it.

Conclusion:

Seller being regulated entity first need to diagnose its health and then further understand the buyer well enough so that the application can be placed well enough. Seller should not have any non-compliance regarding share transfer compliance earlier years, its investment and assets are well presented and recovery are there instead of NPA or provisioning required for same. Other than that, the regular reporting of its transaction needs to be done to other external agencies on time. Accordingly, RBI and MCA reporting and filing should be up to date. After all, Seller entity should diagnose well enough for the buyer party too. Buyer party due diligence in terms of financial health, managing capability, experience, integrity, education, and good track record as far as financial transaction is concern should be there on topmost for processing the application else the negative results on application can be hazardous to both the party. Therefore, before proceeds further, need to have good interactive team negotiation and discussion to proceed ahead and each move for the process need to be highly calculative in the hands of legal provision and its consequences. Of course, corpseed can help you out to process out the entire assignment from day one to end date. For any support, guidance and requirements, do remember corpseed.

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Author
Shamshad Alam
Experienced Digital Marketer with a demonstrated history of working in the internet industry. He likes to write about the latest technology trends, Skilled in Digital Marketing likes. Search Engine Optimization, SMO, SEM, PPC, Content Writing, and, Designing, etc.