NBFC takeover checklist with RBI approval
With the increasing demand for credit in India, the growth of Non-Banking Financial Companies (NBFCs) is at an all-time high. The registration of NBFCs is a complicated process, so the takeover of an already RBI-registered NBFC has become a preferred way to enter into or expand the company.
Since the Reserve Bank of India has loosened the stringent provisions to take over an NBFC now, the entire process has become easier. With simplified RBI rules and regulations, it takes about 50-65 working days only to take over an NBFC.
In this blog, we are going to explain the complete checklist for NBFC takeover along with other necessary details.
What is an NBFC takeover?
An NBFC takeover simply means an acquirer NBFC (the NBFC which wants to take over) purchases the target NBFC (an already existing RBI-registered NBFC). After the takeover, all the assets, liabilities, shares, etc., of the target NBFC will belong to the acquirer NBFC.
There are certain things that you must consider before an NBFC takeover. Given below is the list.
1. Background verification
The first thing to consider is thorough background verification and research about the target NBFC. Go through all the aspects of that NBFC that might affect your NBFC in the future. For instance, their history, capital structure, management efficiency, etc.
Before taking over an NBFC, determine your financial goals with respect to the target NBFC. Determine whether or not you can achieve your goals and accordingly take the decision about the takeover.
Explore the market and seek different options available before finalizing your takeover decision.
4. Know the financial position and stability
Take a closer look at your financial position, stability, cash flow, etc. Decide what the maximum amount you can pay is, what's the best option for financing that amount, etc. Also, have a look at the target company's financial position and stability so that you can prepare the best possible acquisition proposal.
Conditions and RBI approvals
You must take the prior approval of RBI if the following conditions exist:
If there is no surety of a change of management after the takeover.
If there will be variation in the shareholding of an NBFC, which results in a 26% acquisition or transfer of the paid-up capital, including progressive increases over the period of time.
There will be a change in the management by way of change in more than 30% of the directors of the NBFC.
There is no need for RBI's prior approval in the following conditions:
If shareholding goes beyond 26% due to the buyback of shares or reduction in the capital by obtaining the approval of a competent court.
There will be a change in the management by 30%, inclusive of Independent Directors or by rotation of the directors in the Board after the takeover.
Documents necessary for NBFC takeover
The following documents are necessary for an NBFC takeover:
A detailed list of proposed shareholders and the board of directors.
Information about the source of funds required to obtain the shares by the proposed shareholders.
A declaration that the proposed shareholders are not associated with another deposit-accepting entity.
Another declaration is that they are not associated with any RBI-rejected entity.
A declaration by the proposed shareholders and board of directors about their non-criminal, non-conviction background.
The banker's report of all of them.
Financial accounts of the previous 3 years, along with annual reports.
NBFC takeover is an excellent way to expand and increase the company's market share. If done right, no doubt, it is very profitable for the company. But, it can not be denied that a single mistake can also hurt the company badly. So it is advisable to take the help of experienced professionals.
We at NBFC Advisory, with 8+ years of experience in advisory and counseling, have experts helping you simplify the process of the NBFC Takeover with RBI.
Source: https://nbfcadvisory.com/nbfc-takeover-checklist-with-rbi-approval/
