What is the Procedure for Due-Diligence of NBFC?

Procedure for Due-Diligence
Neha Saxena
| Updated: Nov 20, 2018 | Category: NBFC

What is the procedure for due diligence of NBFC is the most important question, one may encounter before reaching the decision of takeover of NBFC or acquiring any right or control or before investing into it. Well, in this article we will enrich your knowledge on this most crucial topic, so lets us get started.

Due diligence of NBFC

Due diligence is basically a tool to inquire and look into the insides of an entity in all respects. It digs deep into the legal, financial, commercial insights of an entity. Due diligence of NBFC is taken up by the prospective buyers. It is also done by investors to take an informed decision and get a fair idea of the business of the NBFC.

An NBFC registration is done under section 45-I of the RBI Act 1934. An NBFC is engaged in financial services, deals in fund generation and deployments for small-medium sized, micro-sized industries in India. However, although RBI regulates NBFC, an NBFC is firstly required to be registered under the Companies Act 2013 (or previously 1956). Non-banking Financial Company (NBFC) is the company which works on similar lines of a traditional bank with certain exceptions. Due diligence report of NBFC is an important report and the remark about NBFC in report forms an important document, to take a decision relating to takeover, or investment or such related analysis about the NBFC.

Checklist for Due –diligence of NBFC

While undergoing the procedure for due diligence of an NBFC following things must be minutely checked:

  1. Registration with the FIU-IND (Financial Information unit of India): It is mandatory for the NBFCs to register itself with the FIU—IND, which keeps records of the transactions of the NBFC.
  2. Auditor report: It was mandated via circular of RBI introduced in 2008 to formulate the auditor report to the director. It should be made in line with the directions issued in the notification and issue the statutory Auditor certificate.
  3. NBFC Membership: NBFC is required to obtain the registration and membership of Credit Information Company (CIC) and Information utility set up under IBC 2016.
  4. Statutory Reserve creation: NBFC Compliance checklist in line with the section 45-IC of the RBI Act.
  5. Public Notice: As a statutory requirement, NBFC is required to Publish the Public Notice in line with the compliances of RBI regarding 30 Days prior to the date of Change in control.
  6. KYC Documents and registration: Obtain the KYC relating to Directors, promoters, big investors and KYC status pertaining to corporate accounts of the company.
  7. Check the legality and authenticity of the following documents:
    • Incorporation certificate of the NBFC
    • VAT registration,
    • GST registration,
    • PAN and TAN,
    • Publishment if any made by the company,
    • All documents submitted before RBI, MCA portal, other concerned departments.
    • Other Registrations or Permissions obtained since inception to until the date of conducting due diligence of NBFC.
  8. Financial analysis: Review the previous records pertaining to the last 3 year financial statements, indebtedness if any.
  9. Legal Matter status: Legal litigations civil /criminal if any pending against the company, the case went against company arising any new liability of payment, cases in favor of the company and indicating any inflow or such benefit to the NBFC.
  10. Check the documents to be maintained by the NBFC during its ongoing business as given below:
    • Board resolutions passed
    • Minutes of the meetings
    • Statutory Auditor reports
    • The net worth of the company
  11. Secretarial Compliances and Regulatory compliances: Compliances pertaining to the RBI Regulations, The Companies Act 2013 compliances and such other applicable notifications issued by the RBI time to time.
  12. Investments and borrowings: Borrowings from promoters and its investment, FDI, Overseas investments if any.
  13. Legal Agreements: Such legal agreements executed by the NBFC which are of importance in legal, financial, management prospectus.
  14. 14. Property documents: Do confirm the ownership, Loan, Mortgage, rental, encumbrance if any over the property.
  15. Insurances: Do whether certain mandatory insurances including insurances for employees (if applicable) has been taken or not? This also in one way gives the idea about the management of the company.
  16. Human resource: Check the HR policy, EPF files and records and related timely compliances filed or not?
  17. Intellectual property rights certifications: An NBFC may have obtained the trademark certifications, or patent or copyright certifications, confirm to the validity of the same and renewal dates and fees involved in such, as this will an upcoming liability for the prospective buyer.
  18. Income tax compliances: Timely Income tax payment, Income tax returns, disclosures required before the Income-tax
  19. Others: Such other details crucial from the point of view of the buyer.

It is strongly suggested by Swarit advisors to the prospective buyers that once you are done with primitive checkpoints and convinced to take up the discussions further formulate a formal MOU, get it signed and may share a certain token of money. Your step shall attribute towards building up of the trust and guide the professional conduct of both the involved parties.

How to collect information for the Due diligence of NBFC?

One must formulate a proper system to work according to the checklist provided above so as to avoid any left outs or untouched aspect during the information collection, procedure followed for collecting information for due diligence of NBFC is the most crucial thing the information can be fetched from the employees, MCA site[1], Business world, market data, Financial data of the Company, directors, government sites, etc. However, this is very time consuming and long process.

Swarit advisors have gained excellence in from its vast experience in the field of Due diligence of NBFC.

Expert Help to formulate Due Diligence report of NBFC

One wrong investment or decision can lead to many difficult situations. To formulate a Due diligence report of NBFC is exhaustive, time-consuming work. It needs an expert professional’s eye and expertise to minutely touch every aspect which may affect the buyers or investor’s decision.  One must avail the help of professionals, experts, CA, CS and such qualified personnel to fetch information. Our expert in-house team of all CA, CS, lawyers other professionals can help you out in assistance and formulation of Due –Diligence report on NBFC in the finest and professional manner and cover the NBFC compliances.


Related Articles

NBFC Securitization
Dashmeet Kaur
| Date: Jan 06, 2020 | Category: NBFC, RBI Advisory

The Reserve Bank of India extends NBFC Securitization

Securitization is the process wherein an entity sells its non-tradable assets in exchange for cash in the illiquid market to raise capital. Recently, the Reserve Bank of India has extended...

Read More
Dashmeet Kaur
| Date: Oct 12, 2019 | Category: NBFC, RBI Advisory

All you need to know about NBFC-P2P License in India

RBI framed a well structured regulatory platform of Peer to Peer lending operators. Abbreviated as P2P, Peer to Peer is an online service portal for lending money that matches the...

Read More
Types of NBFC Takeover in India
Dashmeet Kaur
| Date: Jan 03, 2020 | Category: NBFC, RBI Advisory

What is the Process of Acquiring an NBFC? Types of NBFC Takeover

NBFCs have played a vital part in strengthening the economy of India. It refers to a Non-Banking Financial Company that commences financial activities without procuring a license for the same....

Read More


Hi! My name is Akanksha! Let's talk.