Takeover of NBFC

A takeover of NBFC entails the purchase of any NBFC by other Company. Reserve Bank of India lays down the procedure for the acquisition of NBFC's.

NBFC Takeover happens when the company aiming to acquire makes a bid in an attempt to assume control over the target company it is done by purchasing a majority stake in the company. According to RBI guidelines, before acquiring any NBFC company, the acquirer requires prior approval from RBI. An application has to be made on the letterhead of the company which has to be submitted to the regional office.

When is Prior Approval Necessary?

Before acquiring any NBFC company the acquirer company has to file an application to RBI in their letterhead, but certain takeovers are kept out of the purview of the terminology takeovers by RBI, and hence no prior approval is necessary in that case. Such cases involve takeover with minor changes in the management of the NBFC of the company.

Prior approval from the Reserve Bank of India is necessary for the following conditions only.
 

•    Whenever the acquisition or takeover results in a major change in management.

•    If any amendment is made in the management and that change result in management leads to more than 30% change of directors of the company acquired.

•    If the deviation in shareholding leads to 26% transfer of the paid-up capital of the NBFC, then prior approval is necessary

Related: Different Types of NBFC

Step by Step Process Of NBFC Takeover

Documents to be submitted to RBI are KYC documents, the projection for three years is to be prepared with reference to incoming directors which is suggested by the acquirer

1. The acquirer of the NBFC should conduct some due diligence of the financial condition of the target company. Once the acquisition of the target company has been confirmed by the board of both the companies, the acquirer has to sign the Memorandum of Association (MOA) and has to make certain advance payment.
    
2. Submission of documents which are prepared so that they can be submitted to the RBI should be done to the registered office where the company is located
    
3. Once RBI approval letter to issue public notice is received it is to be published in 2 newspapers for 30 days as per the guidelines laid down by RBI. This is done to invite any objection from the public or any interested party
    
4. The signing of Share Purchase Agreement and change in management, payment of any remaining prerequisite. That has to be carried out on the 31st day of newspaper notice or as mutually agreed by all the parties.
    
5. Report on the proposed directors/ shareholders before the transfer of ownership of shares or control of the NBFC Company is transferred, the financial statement of last three years is to be published for at least 30 days in the newspaper.

More on: Future of NBFC in India

Information about the Directors/ Shareholders

All Sources of funds received by the proposed shareholders acquiring the shares in the NBFC should be declared;
 

1.  A declaration by the proposed shareholders is to be submitted stating that they are not associated with any unincorporated body that accepts deposits.
     
2. Declaration by the proposed directors/ shareholders that there is no criminal case, including for offense under section 138 of the Negotiable Instruments Act, against them;
    
3.  All the proposed directors of the NBFC Company have to make a Declaration that they are not associated with any company whose certificate of registration has been denied by RBI.

Conclusion

The takeover of NBFC Company is easier than the registration of a new NBFC company as RBI has made takeover procedure simpler than before. Although the NBFC takeover procedure is in its starting stage In India RBI has made sure that the procedure for registering and acquiring an NBFC is systematic and Comprehensive.