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A Complete Checklist for Taking over an NBFC

Checklist for NBFC Takeover
Dashmeet Kaur
| Updated: Jan 10, 2020 | Category: NBFC, RBI Advisory

NBFCs are prominent business entities that have proven their mettle to develop India’s economy. Catering a wide variety of financial services, Non-Banking Financial Companies has overthrown the traditional lenders or banks. The foremost step to commence an NBFC is to acquire NBFC registration, but the procedure is much complicated and often leads to disappointments. However, RBI has come up with a perfect backup plan in the form of an NBFC takeover.

This blog covers a complete checklist to takeover an NBFC and guides you about the things to consider before purchasing an NBFC.  

What is an NBFC Takeover?

There are two ways to incorporate a Non-Banking Financial Company either by registration or through taking over another existent NBFC.  The latter one is the fastest way of NBFC incorporation. Since the Reserve Bank of India, has loosened the stringent provisions to takeover an NBFC now the entire process has become easier. With simplified RBI’s rules and regulations, it takes about 50-65 working days only for taking over an NBFC.

Things to Consider before Purchasing an NBFC for Sale

As the central objective of NBFC takeover is to enlarge the business and sustain a reputed position, so never make a hasty decision while acquiring an NBFC.  You must keep these things in the back of your head before you finally takeover an NBFC:

  • Due Diligence: In simple words, due diligence is the background verification of the target company. It is utmost essential to conduct comprehensive research before purchasing an NBFC for sale. Scrutinize the history of the target NBFC and analyze all the aspects like its financial status, capital structure and management competency.
  • Predetermine your Corporate Goals- Set a list of goals you want to attain through taking over an NBFC. After that contemplate whether your target NBFC will help you achieve your corporate goals or not. It is an important factor to make a decision.
  • Do Market Research-There are an array of options available for NBFC for sale in the market. Thus, prior to sealing a deal with an NBFC, you must carry research and shortlists the best candidates who fit well with your business needs.
  • Estimate the Financial Stature of Target Company: Aligning with a company can make or break your business. Therefore, you must evaluate the financial state of your target NBFC. Also, as an acquirer, you should decide onto the maximum amount payable for NBFC takeover.  Study cash flows and choose the best financial mode to acquisition. Have an estimated takeover cost that is more than the market value of the target company’s shares. Thereby, the target NBFC will not reject your offer, and you can do a friendly takeover.

Types of NBFC Takeover

The NBFC takeover procedure in India can be done in two forms in a friendly way or when the target company shows some hostility. Let’s have a better understanding of both types of takeover:  

Friendly Takeover: –

As its name suggests, this takeover is based upon the mutual consents of both the parties, i.e., the Acquirer Company and Target Company. During a friendly takeover, an acquirer sends a proposal of acquisition to the target NBFC, and thereon it willingly accepts the offer.

Hostile Takeover: –

In a hostile takeover, an acquirer company secretly strives to purchase an NBFC for sale without its knowledge. This kind of NBFC takeover happens when the Board of Directors of an NBFC opposes the offer of acquisition.

Prerequisite Approval from RBI to Takeover an NBFC

The acquirer should take prior approval from the Reserve Bank of India, in the following cases:

  • If the acquisition of control or takeover of NBFC may or may not result in the change of management.
  • Any change or fluctuation in the shareholding of an NBFC that can result in 26% acquisition/ transfer of shareholding and paid-up equity capital which can lead to progressive increase over time.
  • Further, take RBI approval beforehand, if you are taking over a listed NBFC.
  • In case the takeover affects the change in management of about 30% of the number of directors. In such a situation, there is an exception wherein 30% change in regards to 30% of Independent directors or because of the rotation of directors.
  • Also, when the takeover process possibly influences the change in the Shareholding pattern. That causes the transfer of 26% of the Paid-up capital of the acquired company, inclusive, progressive increases over time.
Note- The acquirer company does not need prior approval from RBI if the buyback of shares or reduction in the capital by the approval of a competent court is out of the purview.

An acquirer doesn’t have to take a prior RBI approval in case of:

  • If the shareholding of the company exceeds 26% resulting in buyback of shares or share reduction in the capital applies only after the approval of a competent court.
  • In case, there is a 30% change in management through the Independent Directors/the rotation of Board of Directors.

Documents required for NBFC Takeover

The acquirer company must have these documents before purchasing an NBFC for sale:

  • Information about Proposed shareholders or directors
  • A statement from all the proposed directors or shareholders which states their non-association with any other entity;
  • A statement by all the proposed shareholders/directors, stating  their non-association with any entity of which RBI has denied the Certificate of Registration;
  • Details about the fund sources of proposed shareholders that are needed to acquire shares in the NBFC;
  • A statement from all the proposed directors or shareholders that specifies their non-criminal background. Also, it should notify about their non-conviction under Section 138 of the Negotiable Instruments Act;
  • The Bankers’ Report of all the proposed directors or shareholders.

Checklist of taking over an NBFC

Follow these simple steps to takeover an NBFC:

  • Sign the MOU- All the directors/shareholders of both the acquirer and target company must sign MOU[1] first. During the signing of the MOU, the acquirer gives the token money to the target company. The memorandum of understanding should specify all the responsibilities and requirement of each party.
  • Call upon a Board Meeting- Thereon, summon a board meeting to discuss the matters such as Public Notice, date, place, and time to convene Extra-Ordinary General Meeting, to pass resolutions in EGM etc.
Note- Publish the Public Notice in two newspaper within 30 days of RBI approval for NBFC takeover to invite any objection from the public due takeover.
  • Sign a Share Transfer Agreement- After the notice gets expired, and no objection is raised its time to sign the share transfer agreement.
  • Obtain NOC from Creditors- Before the takeover of an NBFC process gets completed, the target company shall take NOC from all its creditors.
  • Transfer of Assets- Now is the time the transfer of assets from target to acquirer company. Besides, the transfer must not breach any clause of the agreement.
  • The Valuation of the Company-The valuation must compel the rules prescribed by the RBI. The valuation technique should be Discounted Cash Flow Method that reckons the net present value of the entity.
  • Provide a Notice to the Regional Office- After the approval valuation, the newly acquired NBFC must submit an application to the concerned Regional Office of RBI. Any change in the management post the takeover of NBFC should be intimated on a continuous basis to RBI.


NBFC takeover is a boon for all the companies that which to run a Non-Banking financial company. It is a perfect substitute for NBFC registration. In case, you need any assistance in the takeover process; you must reach out to Swarit Advisors, a one-stop legal advisory.

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