{"id":10198,"date":"2020-04-24T14:55:46","date_gmt":"2020-04-24T09:25:46","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=10198"},"modified":"2020-04-24T14:55:48","modified_gmt":"2020-04-24T09:25:48","slug":"the-consequences-of-taking-over-an-nbfc","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/","title":{"rendered":"The Consequences of Taking over an NBFC"},"content":{"rendered":"\n<p class=\"has-drop-cap\">NBFCs are financial institutions that are registered under the Companies Act, 2013, and regulated under Section 45-I of the Reserve Bank of India Act, 1934. Such entities carry the business of loans and advances, acquisition of shares, stock\/ bonds\/ securities\/ debentures issued by Government or local authorities. NBFCs cater to the needs of weaker sections, thereby stabilizing the economy. The principal mode of commencing an NBFC business is to get an <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\">NBFC License<\/a><\/strong>. However, its procedure is much complicated, and several financial entities fail to attain it. Thus, RBI provides an ideal get through in the form of NBFC Takeover. This write-up will unfold the advantages and disadvantages of Taking over an NBFC. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a35b660688\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a35b660688\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#An_insight_into_NBFC_Takeover_in_India\" title=\"An insight into NBFC Takeover in India\">An insight into NBFC Takeover in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#Conditions_under_which_RBI_prior_approval_is_mandatory\" title=\"Conditions under which RBI prior approval is mandatory\">Conditions under which RBI prior approval is mandatory<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#Advantages_and_Disadvantages_of_NBFC_Takeover\" title=\"Advantages and Disadvantages of NBFC Takeover\">Advantages and Disadvantages of NBFC Takeover<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#Pros_of_taking_over_an_NBFC\" title=\"Pros of taking\nover an NBFC\">Pros of taking\nover an NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#Cons_of_taking_over_an_NBFC\" title=\"Cons of taking\nover an NBFC\">Cons of taking\nover an NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#Checklist_of_documents_required_to_Takeover_an_NBFC\" title=\"Checklist of documents required to Takeover an NBFC\">Checklist of documents required to Takeover an NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#Prerequisites_for_takeover_of_an_NBFC\" title=\"Prerequisites\nfor takeover of an NBFC \">Prerequisites\nfor takeover of an NBFC <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#Step_by_Step_procedure_of_NBFC_Takeover\" title=\"Step by\nStep procedure of NBFC Takeover \">Step by\nStep procedure of NBFC Takeover <\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/swaritadvisors.com\/learning\/the-consequences-of-taking-over-an-nbfc\/#Conclusion\" title=\"Conclusion \">Conclusion <\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"An_insight_into_NBFC_Takeover_in_India\"><\/span>An insight into NBFC Takeover in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NBFC\ncan be incorporated either by registration or through taking over an existing\nNBFC. The Reserve Bank of India has loosened the reigns of provisions to\ntakeover an NBFC, which has made the process much feasible. With minimal regulations\nand right legal assistance, it only takes about 45 to 60 working days to\nacquire an NBFC.<\/p>\n\n\n\n<p>Mergers, Amalgamation, and Takeover are a potent means of business expansion. The <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-takeover-agreement\">concept of NBFC Takeover<\/a><\/strong> is a recent corporate style that helps budding entrepreneurs to establish the Non-Banking Financial Company. In simple terms, it refers to the purchase of one NBFC by the other company.<\/p>\n\n\n\n<p>The\nprimal step to takeover an NBFC is to take RBI approval. In some cases, RBI\napproval is required to be taken beforehand, while in the other cases, no such\nprior approval is required.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conditions_under_which_RBI_prior_approval_is_mandatory\"><\/span>Conditions under which RBI prior approval is mandatory<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A company must take prior approval from the RBI\nunder the following cases:<\/p>\n\n\n\n<ul><li>If the NBFC takeover or acquisition\nof control may or may not results in the change in management.<\/li><li>Any change in the shareholding of\nan NBFC that results in a 26% acquisition or transfer of the paid-up capital.<\/li><li>When the takeover of a listed NBFC\nis required to be done.<\/li><li>When the takeover leads to a\nchange in management, which results in a change of 30% number of directors.\nHowever, if any change incurs by the change in independent director or due to the\nrotation directors, then no approval is required.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_and_Disadvantages_of_NBFC_Takeover\"><\/span>Advantages and Disadvantages of NBFC Takeover<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An\nacquirer company can yield several benefits by purchasing an NBFC, but it does\nhave some drawbacks as well. Let\u2019s take a look at the pros and cons of NBFC Takeover,\nindividually.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pros_of_taking_over_an_NBFC\"><\/span>Pros of taking\nover an NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Increase in profitability of the\ntarget company<\/li><li>Decrease in competition<\/li><li>Increases sales or generate more revenue\n<\/li><li>Enlargement of the distribution\nnetwork<\/li><li>Economies of scale<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cons_of_taking_over_an_NBFC\"><\/span>Cons of taking\nover an NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>The takeover amount paid is\noften less than the actual value of the company <\/li><li>There\nis more scope of conflicts in new management <\/li><li>Cultural\nclashes can arise amidst both the target and acquirer company<\/li><li>Sometimes\nit may reduce employee\u2019s morale<\/li><li>The\nacquirer company may have to bear any hidden liabilities of the target company.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Checklist_of_documents_required_to_Takeover_an_NBFC\"><\/span>Checklist of documents required to Takeover an NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Any company\nthat seeks to avail the advantages of NBFC Takeover must file an application on\nthe letterhead of the company to get RBI approval affixed with these set of documents:<\/p>\n\n\n\n<ul><li>Complete details of the proposed directors or shareholders;<\/li><li>Sources of funds deployed for acquiring shares in the target NBFC by the\nproposed shareholders;<\/li><li>Declaration by all the proposed directors\/shareholders that states their\nnon-association with any entity that has been denied of Certificate of\nRegistration;<\/li><li>A statement, affidavit or declaration by all the proposed\ndirectors\/shareholders that proves their non-criminal background and\nnon-conviction under Section 138 of the Negotiable Instruments Act;<\/li><li>All&nbsp; proposed directors or shareholders\nmust provide a statement stating their non-corporation with any entity that accept\ndeposits;<\/li><li>The Bankers\u2019 Report of all the proposed directors or shareholders;<\/li><\/ul>\n\n\n\n<div class=\"shadow4\"><strong>Note- <\/strong>The application shall be submitted to the Regional Office of the Department of Non-Banking Supervision in whose\njurisdiction the Registered Office of the NBFC is located. Thereafter, the application goes under a processing, wherein the RBI raises various queries to validate the\nprovided information. To avoid any further delay in the approval, one must\ntimely address to all the queries aroused by the RBI.<\/div>\n\n\n\n<div class=\"read\"><p><b>Read, Also:<\/b> <mark><a href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-process-of-acquiring-an-nbfc-types-of-nbfc-takeover\/\" target=\"_blank\" rel=\"noopener noreferrer\">What is the Process of Acquiring an NBFC? Types of NBFC Takeover<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Prerequisites_for_takeover_of_an_NBFC\"><\/span>Prerequisites\nfor takeover of an NBFC <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before\ninitiating the NBFC Takeover process, it is essential to ensure the following\nthings:<\/p>\n\n\n\n<ul><li>Check on the authenticity of documents to be submitted with the application\nto RBI or other authorities.<\/li><li>Scrutinize all the records, such as financial statements of the last 3\nyears, legal suits or pending cases against the company, indebtedness (if any),\netc. Also, inspect other details that could impact your decision of NBFC\nTakeover.<\/li><li>Assess all important documents like VAT, incorporation certificate, GST,\nand other such registrations made at the time of the company\u2019s incorporation or\nduring the tenure period.<\/li><li>Pre-check the KYC about the proposed and current promoters, investors,\ndirectors of the company.<\/li><\/ul>\n\n\n\n<p>While\nyou accumulate and verify all the documents, it is indispensable to propose a\nformal Memorandum of Understanding Agreement to the target company.\nMOU must be signed by the directors of both acquirer\nand target companies. It must signify the fundamental responsibilities and\nrequirements of each company. The acquirer company must pay the token amount to\nthe target company while signing of MOU.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Step_by_Step_procedure_of_NBFC_Takeover\"><\/span>Step by\nStep procedure of NBFC Takeover <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>After perceiving the advantages and disadvantages of NBFC Takeover, you\nmust be eager to take over an NBFC. To streamline the procedure, follow these\nsimple steps:<\/p>\n\n\n\n<ul><li><strong>Step 1- Call up a Board Meeting <\/strong><\/li><\/ul>\n\n\n\n<p>Once\nMemorandum of Understanding is signed, both companies shall summon a Board\nMeeting for the following purposes:<\/p>\n\n\n\n<ul><li>Reply to the queries of RBI that may be raised in regard to\nthe approval of the application.<\/li><li>Fix the time, date, and place to convene the Extra Ordinary\nGeneral Meeting.<\/li><li>Pass the resolution of EGM.<\/li><\/ul>\n\n\n\n<ul><li><strong>Step 2- Public Notice<\/strong><\/li><\/ul>\n\n\n\n<p>After\nobtaining the RBI approval, a Public Notice needs to be published in two\nnewspapers within 30 days to invite any public objection regarding the NBFC Takeover. Thereon,\nresolve such objection (if any), before proceeding further. Public\nNotice must indicate:<\/p>\n\n\n\n<ul><li>&nbsp;Intention to transfer or sell the ownership\/\ncontrol;<\/li><li>The particulars of the transferor\nand transferee <\/li><\/ul>\n\n\n\n<ul><li><strong>Step 3- Share Transfer Agreement<\/strong><\/li><\/ul>\n\n\n\n<p>At\nthe expiry of the 31st day of publishing the public notice, both acquirer and\ntarget companies shall sign a Share Transfer Agreement. During signing, the\nbalance consideration amount shall be paid by the acquirer to the target company.<\/p>\n\n\n\n<ul><li><strong>Step 4- No Objection Certificate from the Creditors<\/strong><\/li><\/ul>\n\n\n\n<p>Before\ntransferring the business to the acquirer company, the target company must get\na NOC from their creditors.<\/p>\n\n\n\n<ul><li><strong>Step 5-Transferring of Assets<\/strong><\/li><\/ul>\n\n\n\n<p>If\nno creditor raises an objection in regards to the NBFC Takeover, the assets shall\nbe transferred from the target company to the acquirer company as approved by the\nRBI. However, the transfer must not contravene any clause of the Share Transfer\nAgreement<strong>.<\/strong><\/p>\n\n\n\n<ul><li><strong>Step 6- Evaluation of the entity as per RBI provisions<\/strong><\/li><\/ul>\n\n\n\n<p>The\nReserve Bank of India has laid rules for evaluation of the company. One such\ntechnique adopted to reckon company\u2019s cost is Discounted Cash Flow. Thereby, the\nChartered Accountant shall acquire a certificate briefing the method used for\nvaluation.<\/p>\n\n\n\n<ul><li><strong>Step 7- Notice to the Regional Office<\/strong><\/li><\/ul>\n\n\n\n<p>After\ndone with valuation and other prerequisites, the acquirer NBFC shall submit an\napplication on the letterhead of the company to the concerned Regional Office\nof RBI. If any changes in the management are made post-takeover, then it should\nbe intimated to the RBI.<\/p>\n\n\n\n<p><strong>The application made to Regional Office of RBI must include:<\/strong><\/p>\n\n\n\n<ul><li>Sources of funds of the Acquirer Company.<\/li><li>Information about the proposed shareholders and directors.<\/li><li>Declaration by all the proposed directors and shareholders of their non-association with any entity accepting deposits.<\/li><li>Statement by all the proposed Directors and shareholders, which proves that no criminal proceedings were initiated against them in the past or are pending in any jurisdiction.<\/li><\/ul>\n\n\n\n<p>Subsequently,\nall the assets under the Balance Sheet of the target company shall be\nliquidated and their liabilities shall be paid off. The acquirer company shall\nthen receive the balance of the target company\u2019s bank account. The balance\nshall be calculated based on the net worth, as on the date of the NBFC Takeover.<\/p>\n\n\n\n<ul><li><strong>Step\n8- Issuance of the NBFC Takeover Certificate<\/strong><\/li><\/ul>\n\n\n\n<p>On successful submission application to the Regional Office, the RBI shall scrutinize the application. When all documents are true and valid, the takeover of NBFC shall be approved. In case <strong><a href=\"https:\/\/www.rbi.org.in\/\">RBI<\/a><\/strong> raises a query through a notice and the newly formed NBFC needs to file a reply accordingly.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>There are both advantages and disadvantages of NBFC\nTakeover; however, one can say that the benefit side is much more than the downside.\nThe repercussions of taking over an NBFC are extensive resources and increased\nrevenue.<\/p>\n\n\n\n<p>RBI authorities scrutinize the application within a timeframe of 3 to 4 months. The application undergoes a stringent compliance check. Therefore, it is recommended to seek a reputed consultancy like Swarit Advisors. We hold expertise in dealings with the regulatory body of RBI for the matters of NBFC Takeover or <strong>NBFC Registration<\/strong>.<\/p>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/swaritadvisors.com\/learning\/how-to-takeover-nbfc\/\" target=\"_blank\" rel=\"noopener noreferrer\">How to Takeover NBFC<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>NBFCs are financial institutions that are registered under the Companies Act, 2013, and regulated under Section 45-I of the Reserve Bank of India Act, 1934. Such entities carry the business of loans and advances, acquisition of shares, stock\/ bonds\/ securities\/ debentures issued by Government or local authorities. NBFCs cater to the needs of weaker sections, [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":10202,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[544],"tags":[605],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10198"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=10198"}],"version-history":[{"count":7,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10198\/revisions"}],"predecessor-version":[{"id":10207,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10198\/revisions\/10207"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/10202"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=10198"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=10198"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=10198"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}