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Non-Banking Financial Company as the name itself suggests they are financial companies but not banks. NBFC stands for Non Banking Financial Companies. NBFCs are businesses which are registered under either Companies Act of 1956 or 2013. NBFCs are specialized in imparting loans and different types of financial support that is provided under the section 45(IA) of the RBI Act of 1934. In order to implement an NBFC in India there are two ways which include fresh NBFC registration and NBFC takeover.
In place of going through the registration of NBFC from the start, this idea of purchasing an operating RBI registered NBFC is called the NBFC takeover. Takeovers are mostly easier and smoother than starting an entire new NBFC. For both ways one needs to take RBI approval. Without getting the RBI approval one can neither start a new NBFC nor he or she can do takeover of the NBFC.
Although takeover of NBFC is easier than registering a new NBFC, NBFC registering is not simple. This is because takeover is a multiple stage long process which must be done through an entity like Whizseed who are having experience with the same.
Once an NBFC is takeover it can be involved in the following businesses:
The entire process of the takeover of the NBFC depends on the two forms of the company which are called Targeted company and acquirer company.
“To be a purchased company” is called the targeted company. In the process of takeover one firm purchases the another firm, just like that in the NBFC takeover process one NBFC is acquired either by another NBFC or group. So in this process, the company which is going to be purchased is called the targeted company.
As explained above, NBFC takeover means purchasing one NBFC either by another NBFC or group which means the process includes two parties. This is being acquired and the second is going to be the one who is going to purchase the same. The company which is able to do the acquiring of the targeted company is called the acquirer company.
In order to complete the takeover process of NBFC smoothly follow the steps given below:
The very first step is to check all the things related to finance, operation, legal aspects and management of the non-banking financial entity through the process of due diligence. Different professionals do different due diligence like financial due diligence is done by the CA or CS, legal due diligence must be done with the help of a lawyer and just like that other due diligence related to operations and management team must be performed. This makes sure that all the compliances related to the different regulatory bodies are complete and there are no unknown liabilities on the NBFC.
The Acquirer company must pay attention towards the things which will help it out to check if the targeted company is suitable or fulfilling the requirements due to which acquirer company wants to take over the same. This is important to check in the beginning of the takeover process so that there will be no further confusion with respect to the same. Suitability cannot be checked just by analyzing the company through naked eyes. It needs thorough review of the documents of the companies which can be done only with the help of a qualified professional.
It is really important or critical for the acquirer company to check and ensure about the financial health of the targeted company. This is because the entire business depends on the financial stability of the company. Hence it is important for the acquirer company to make sure that the company they are taking over is financially strong. This can be easily determined by the finance professionals through the financial due diligence process.
In order to do anything related to the business in a company approval from the BODs is necessary, so in order to do takeover of NBFCr in India one needs to get BOD's approval for the same. This approval means consent of the company to do the takeover of the Non Banking Financial entity. It's a formality without which one cannot move forward with the process of the takeover of the NBFC. thus one must get this.
The Non Banking Financial Companies categorization in India is of two types:
When a company tries to take over another company that's not a bank, it's called a hostile Non Banking Financial Company takeover. The managers and BOD of the company being targeted usually fight against this. The process involves buying a lot of the target company's shares, to buy more, and having tough negotiations. Before it can happen, it needs approval from regulators. There are lots of things to think about, like how the managers of the target company resist, how the shareholders react, and how hard it is to combine the two companies.
When one financial entity wants to buy another one in a friendly way, it's called a friendly takeover. The ways entail speaking and negotiating, doing careful research, making advice to buy for the opposite employer, and then getting approval from the shareholders. It's crucial to ensure the whole lot follows the policies set through the system.
Some of the key benefits of NBFC takeover in India are:
NBFCs are governed by the RBI and anything related to them is part of RBI’s day to day business. If you are thinking about doing a takeover of NBFC then make sure to get Reserve Bank of India’s regulatory approval for the same because without this approval you cannot move forward with the process of NBFC takeover in India. In both the takeover of Non Banking Financial Institutions RBI plays a crucial role. Some of the key roles of the RBI are discussed below:
In the following cases only one needs to get RBI’s approval:
When the prior permission of RBI is necessary for the takeover of the NBFC, follow the steps given below in order to get the same:
The takeover of NBFC Process in India involves the following steps:
The very first step is to sign the MOU that is the Memorandum of Understanding. This is with respect to both the parties entering into a takeover agreement. In this MOU both the parties put all those terms and conditions on which they agree to do NBFC takeover. This is a formal document of takeover between both the acquirer and targeted company. Only after entering into this MOU acquirer company should pay a token amount to the targeted company.
If your NBFC takeover falls within the conditions where it is mandatory to get RBI’s approval for the takeover then you have to acquire such approval. One can acquire such approval by following the process explained above.
Public notice with respect to the takeover of the Non Banking Financial Company should be released mainly in two languages which includes english and the one regional language. Two public notices have been released. First is in the English language and second is related after getting the RBI’s approval. The second notice has been published within 30 days of getting the RBI approval in the regional language.
After completing all the steps given above now both the parties are on the stage where they can enter into a formal takeover agreement. This agreement is important to be well written and must include all the terms, conditions and responsibilities of both the parties without any confusion. Make sure to be well informed with the agreement properly before singing the same.
After officially signing the document above now it's time for the second public notice. Just like the first public notice this second one needs to be in two regional languages. The first one is English and the second should be regional languages like Gujaartati in Gujarat, Punjabi in Punjab etc.
In the beginning of liquidation following an NBFC takeover, the BOD decides and passes a resolution to commence liquidation. A liquidator is appointed to manage the process, and a public notification is issued to inform stakeholders. The NBFC's properties and liabilities are examined, ensuring compliance with regulatory duties. This marks the beginning steps towards orderly dissolution and distribution of properties in accordance with legal requirements.
It is the duty of the target company that it should get the letter of authority and NOC from the creditors in order to transfer the business. It is necessary to get it because it is the intrinsic part of the takeover process without which one cannot complete the NBFC takeover in India.
After the above steps of the non-banking financial institutions takeover process, now the properties of the targeted company can be transferred. But for the transfer of the properties of the targeted company it is important that the scheme is approved by the RBI without any sort of objection.
Because the RBI has developed a set of norms and regulations, the entity's valuation can be conducted in compliance with them. The discounted cash flow process is a valuation tool that helps with the process. It's a method of displaying an entity's net present value.
After getting the approval from the RBI one needs to do the following things:
Because of the following reasons you should choose Whizseed for the Non Banking Financial Institutions takeover: