Buy NBFC Online in India
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NBFC
NBFCs or Non-Banking Financial Companies are those companies which have been established either under the Companies Act of 1956 or 2013. They have been playing a vital role in the development of the Indian economy by bringing accessibility, diversity, convenience, and efficiency into the financial sector. They are involved in the principal business of providing loans and advances, acquisition of shares, stocks, bonds, insurance business, etc.
The activities they can be engaged in, are:
- ✔ Loan and credit facilities
- ✔ Asset Financing
- ✔ Acquisition of shares/stocks/bonds
- ✔ Hire-purchase
- ✔ Insurance business
- ✔ Chit Fund business
- ✔ Hedge funds
- ✔ Currency exchange
- ✔ Peer to peer lending
The activities NBFCs cannot be involved in, are:
- ✔ Agriculture activity
- ✔ Industrial activity
- ✔ Purchase or sale of any goods
- ✔ Providing any services related to Purchase/Sale/Construction of immovable property
These companies do not need to possess a banking license, yet are involved in similar financial services. Transacting with these entities is much easier because of their hassle-free terms & conditions, quicker decisions, prompt services, advisory in non-financial matters, and expertise in niche segments. The burden on the country’s financial system got reduced because of the NBFCs serving in regions where banks do not reach. And because they provide services related to finance, these companies also have to mandatorily get an NBFC License, from the Reserve Bank of India, RBI.
Buy an NBFC
If you want to buy NBFC online in India, you can choose between two options:
- ✔ Get a new company incorporated under the Companies Act, 2013 and then get it registered with the RBI as an NBFC, or
- ✔ Buy an existing NBFC.
As in most other cases, the time taken to buy-out an existing business is quicker than establishing a new one. Buying an NBFC takes around 2-3 months, whereas getting a new company established and then registered with RBI as an NBFC can take anywhere between 3-6 months. Moreover, building a business up from scratch will take a lot of time and effort.NBFC has been put up for sale, and you have the chance to buy NBFC online in India. Or, if you have zeroed in on an NBFC to buy, which is not on sale, you can do so by acquiring its control via deliberate planning. This acquisition is done without the knowledge of the seller, especially if the seller or the Target NBFC is unwilling. In both situations, the balance sheet of the Target NBFC would stand at null, after all of its assets and liabilities have been taken over by you, the Acquirer. RBI has provided a step-by-step procedure for buying NBFCs. If the deal is a friendly buying, then the first step which must be taken is to get the deal approved by the Board of Directors in a general meeting. Once the Board has consented to both the firms, an MOU with the Target NBFC has to be finalized & signed, to execute the acquisition. Generally, an MOU is signed and some advance money is paid to the seller, as a token. And then the rest of RBI’s requirements are to be met. Some precautions must necessarily be undertaken by the buyer to evaluate the worth of the seller. All matters about the field of “finance, legal, corporate and other”, must be reviewed and evaluated diligently.
Is Prior Approval from RBI Required
When purchasing an NBFC, confirm that you do not require prior RBI approval to buy NBFC online in India for chosen. The Acquirer needs to apply for approval from the RBI in certain cases, before commencing the process. Some cases, however, do not require any such prior approval.
The situations when it is necessary to take prior approval from RBI:
- Whenever an NBFC is acquired/bought/taken-over/merged/amalgamated, whether any changes have been made in the management or not.
- The structure of shareholding has changed, resulting in at least 26% transfer of the paid-up equity share capital of NBFCs. This may have happened over some time.
** Except when the buyback or reduction in the share capital has been approved by a competent court.
- An amendment in the management structure, by changing more than 30% of the Directors.
** Independent Directors are not included in this 30%. If the change is due to a routine rotation of Directors, approval from RBI is not required.
In case proper documents have not been submitted with the application, the application would be considered null and void by RBI.
Requirements for Applying for RBI’s Prior Approval
If the transaction to buy out the Target NBFC is similar to any of the above situations, then you need to apply to RBI for prior approval. And your application, along with a cover letter on the letterhead of the company, needs to be accompanied by the following documents :
- ✔ Details about the proposed Directors/shareholders/members & their ID proof, Address proof.
- ✔ Education, Qualifications, and Experience certificate of the proposed Directors.
- ✔ Origins, from where the amount has been received, by the proposed shareholders which is to be used for acquiring shares in the target NBFC.
- ✔ Statement by the proposed Directors/shareholders declaring that they are not associated with any entity which was denied a “Certificate of Registration” by the RBI.
- ✔ Declaration of not having a criminal background and/or Non-conviction u/s 138 of the “Negotiable Instruments Act” by all the proposed Directors/shareholders.
- ✔ Statement by all the proposed Directors/shareholders/members declaring their Non-association with any entity accepting deposits,
- ✔ Clean Banker’s Report on proposed Directors/ shareholders.
Once the above documents are ready, you are to submit these documents to the regional office of the “Department of Non-Banking Supervision (DNBS) of RBI”, under whose jurisdiction the Registered Office of the NBFC is situated. RBI may ask for some clarifications on the points mentioned in the application. All such queries must be replied to, well in time, and try to avoid any undue delay or cancellations from RBI, to process your application.
Is Prior Public Notice About Changes Required?
Once you have the approval from RBI to buy the Target NBFC, a public notice is to be given in one leading national newspaper and one leading local newspaper, at least 30-days before this transaction (of transfer or purchase of shares, which is to take place).
RBI requirements are:
Public notice is to be issued at least 30-days before the actual purchase of, or transfer of the ownership by sale of shares, or transfer of control (whether with or without the sale of shares) takes place. The publication needs to be done, by both the Acquirer Company as well as the Target NBFC. And also by all other parties concerned. They have to option to issue the notice together. After obtaining the prior permission of RBI. The proposal of transferring or selling ownership or control, the particulars of the Target NBFC, and the reasons for such transfer or sale of ownership or control, must be indicated clearly in the public notice. The notice shall be published in at least one leading national daily newspaper and at least one leading daily newspaper in the vernacular language of the place of registered office.
Benefits of Buying an Existing NBFC
By buying an existing NBFC rather than getting a new one registered, you save on time. You can use this time to enhance the work of the previous entity. Though, both processes, of getting a new one registered or buying an existing one involve similar steps. Still, the preparation time is quite less if you buy an existing one. Or you may take an NBFC on rent. This prevents those problems that any new entity faces while setting up a business, making it known to the associates, etc.
A few of the advantages of purchasing an NBFC have been given here:
- ✔ Competition is reduced.
- ✔ The rise in sales/revenue.
- ✔ Profitability increases.
- ✔ Customer Base and Distribution Network increases.
- ✔ Economies of scale.
Share Purchase or Transfer Agreement
During the purchase of an NBFC, the final step is to discharge the Share Purchase Agreement. This agreement is signed by both, the buyer and the seller, after the public notice of buying has been issued. The assets of the seller or the Target NBFC are discharged in the balance sheet and liabilities are paid off. So the Acquirer Company receives only a clean balance sheet. The amount is calculated on the basis of the net worth of the Target NBFC as of the date of the takeover. RBI has also provided directions that are to be followed while determining the net worth. This is the final step in the official handover of the management and the assets/liabilities from the Target Company to the Acquirer Company. In case any consideration is remaining, it shall be paid off within 31 days of the public notice in the newspaper, as per RBI. Or as mutually agreed by all the parties.