Takeover of NBFC – Comprehensive Guide by Vijendra & Co

The takeover of NBFC (Non-Banking Financial Company) has emerged as a strategic move for businesses aiming to diversify their financial operations or expand their footprint in the financial sector. As NBFCs continue to play a vital role in financial inclusion, the scope for acquisitions and mergers in this segment has significantly increased. Vijendra & Co, a trusted name in corporate advisory and compliance, offers specialized services for a seamless and legally compliant takeover of NBFC entities in India.

Overview of NBFC Takeover

A takeover of NBFC refers to the acquisition of control over a Non-Banking Financial Company by another individual or entity. This may occur through the purchase of shares, change in management, or acquisition of voting rights. The Reserve Bank of India (RBI) regulates the process to ensure transparency, accountability, and continued compliance with financial norms.

Takeovers are typically classified as hostile, friendly, or regulatory-mandated, depending on the circumstances under which the transaction occurs. With increasing demand for financial products and services, many startups, fintech companies, and investment groups are seeking to acquire existing NBFCs rather than establishing a new entity from scratch.

Benefits of Takeover of NBFC

• Established Operations: Acquiring an existing NBFC helps bypass the lengthy and rigorous RBI registration process.
• Pre-existing Client Base: The acquirer gains access to the NBFC’s customer base and ongoing loan accounts.
• Regulatory Edge: A takeover offers immediate regulatory approval and business continuity.
• Growth Acceleration: Merging with or acquiring an NBFC facilitates rapid market expansion.
• Cost Efficiency: Saves the costs involved in setting up a new NBFC, including capital infusion and compliance structuring.

Eligibility for Takeover of NBFC

• The acquirer must be a fit and proper person as per RBI guidelines.
• A minimum net owned fund (NOF) requirement should be met post-acquisition.
• The proposed directors and shareholders must not have any criminal background or financial irregularities.
• The entity should have a proper corporate structure and financial credentials.
• RBI must be notified before the acquisition, particularly if it leads to a change in management or control.

Future Scope of NBFC Takeover

• Fintech Integration: Tech companies are acquiring NBFCs to offer consumer credit and digital lending.
• Microfinance Expansion: Investors are acquiring NBFCs in rural areas to expand microfinance operations.
• Consolidation Trends: Regulatory tightening has led to consolidation in the NBFC sector, increasing the scope for structured takeovers.
• Foreign Investment: International financial institutions are eyeing Indian NBFCs to penetrate emerging markets.

Documents Needed for NBFC Takeover

For NBFC to be taken over legally and without incident, the following paperwork is necessary:

1. Board Resolution from both acquiring and target company.
2. An agreement for the purchase of shares (SPA).
3. Projected financial statements and a thorough business plan.
4. RBI intimation and application for change of management.
5. KYC documents of the new promoters and directors.
6. Creditworthiness and Net Worth Certificates.
7. No Objection Certificate from existing directors and lenders.
8. Income tax returns and financial statements that have been audited.
9. Corporate documents: PAN, COI, MOA, AOA, and GST registration.
10. Any pending regulatory filings or compliance records.

Procedure for Takeover of NBFC

The procedure for takeover of NBFC is a structured process involving several legal and compliance stages:

1. Preliminary Due Diligence: Assessing the target NBFC's financials, compliance history, and liabilities.
2. Valuation & Negotiation: Determining the acquisition cost based on asset quality and business potential.
3. Execution of Agreement: Signing the Share Purchase Agreement and Board Resolutions.
4. RBI Intimation: Notifying RBI about the proposed change in management/control, at least 30 days in advance.
5. Application Submission: Furnishing documents and application to RBI for approval.
6. Post-Acquisition Filings: Updating ROC, GST, and other regulatory bodies.
7. Management Integration: Appointment of new directors, modification of operational structure, and business integration.

Compliance Aspects of the NBFC Takeover

Compliance must be maintained during the NBFC takeover. Non-compliance can lead to rejection of applications or cancellation of licenses. Key compliance areas include:

• RBI’s Master Directions for NBFCs.
• Filing of Form DIR-12, MGT-7, and AOC-4 with the MCA.
• Adherence to FEMA guidelines where foreign ownership is involved.
• Intimation to SEBI, if the NBFC is listed.
• Ensuring that anti-money laundering (AML) and know your customer (KYC) regulations are up to date.
• Both the internal compliance audit and the statutory audit need to be current.

Penalties for Violations of the NBFC Takeover Regulations

Failure to adhere to the guidelines for takeover of NBFC can attract severe penalties and restrictions:

• Rejection of change in management by RBI.
• Monetary fines and penalties as per RBI Act.
• Disqualification of proposed directors or promoters.
• License cancellation or suspension of NBFC registration.
• Legal proceedings for fraudulent disclosures or concealment of material facts.

Hence, it is critical to approach the takeover process with accurate documentation, legal assistance, and proactive compliance monitoring.

Recent Updates for Acquisition of NBFC

Several recent updates have been introduced by RBI and other regulators to strengthen the NBFC ecosystem:

• Scale-Based Regulation (SBR) Framework introduced for classifying NBFCs into layers based on size and complexity.
• Mandatory Statutory Auditor Rotation to improve transparency.
• Enhanced scrutiny of Ultimate Beneficial Owners (UBOs) during takeovers.
• RBI now mandates public disclosure of major acquisitions and structural changes.
• Focus on risk-based supervision for NBFCs, especially post-acquisition.

Staying updated with these evolving norms is essential for ensuring a compliant and successful takeover of NBFC.

Why Choose CS Vijendra & Co for Takeover of NBFC?

Vijendra & Co brings deep domain expertise and a comprehensive understanding of corporate governance and RBI regulations to assist clients in every phase of the takeover of NBFC. Here’s why companies, investors, and financial institutions trust us:

• Specialized NBFC Advisory: In-depth experience with NBFC frameworks and takeover procedures.
• End-to-End Support: From due diligence and documentation to RBI liaison and post-takeover compliance.
• Regulatory Accuracy: Strict compliance with the Companies Act, FEMA, RBI rules, and other relevant legislation.
• Transparent Process: We ensure each stage is documented and auditable.
• Experienced Professionals: Our team includes Company Secretaries, Chartered Accountants, and legal advisors with NBFC-specific expertise.