NBFC Sale India


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NBFC Registration

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NBFC

NBFCs are companies established under the Companies Act. They are granted the NBFC License by the Reserve Bank of India (RBI). NBFCs are intermediaries involved in the business of providing finances. They accept deposits, deliver credit and play a very significant role in channelizing the scarce financial resources towards infrastructure development and creation of earning opportunities. They supplement the organized banking sector by meeting the ever-increasing financial needs of the corporate sector, delivering credit to the unorganized sector and other small borrowers. However, they cannot be involved in any agricultural activity, industrial activity, sale, purchase or construction of immovable property.

NBFCs focus on activities related to loans and advances, acquisition of shares, bonds, debentures, stocks, securities issued by the government/local authority or other similar marketable securities, leasing, insurance business, hire-purchase, etc. The financial services offered by NBFCs include disbursement of finances and loans, acquisition of stocks/shares/ bonds, etc.

NBFC Sale

The sale of NBFC would involve two parties and a series of transactions between the NBFC, which is selling, with the larger entity, which is the buyer. It would merge these two companies into one. The buyer or the Acquirer Company would procure:

  • equity of the Seller to obtain the voting powers to be able to select the Board members, or
  • all or substantially all of management is altered.

To sell NBFC, its balance sheet has to stand at null & void and all assets & liabilities transferred to the Acquirer. So to sell your NBFC, there must be a buyer or an Acquirer Company willing to buy. RBI has mentioned a detailed guide so any ambiguity about buying or selling NBFC has been eliminated. And experts advise having all the agreements & details of the deal, with the Acquirer, in the written and signed form to avoid any confusion and uncertainty.

Process of NBFC Sale

Selling NBFC and getting RBI approval for the change in management of the NBFC takes approximately 2-3 months. Therefore, it is advised to check the credential of Acquirer Company and that the agreement with it will hold good during this period. 

  • The first step to selling NBFC is that this sale is approved by the members, in a Board resolution, in both, the Target and the Acquirer companies. 

  • Once both the Boards have consented, you’ll have to share the business and administration documents with the Acquirer Company. When it confirms to proceed with the process of closing down, you should sign an MOU (Memorandum of Understanding) with it. At this time, you should be provided some token money as proof of buying.

  • To sell your NBFC, you need to keep ready your KYC Documents, Business Plan and Projection prepared for the next 3-years for the new or replacing Directors of the Acquirer.

  • These documents are to be submitted to the Regional Office of RBI under whose jurisdiction the registered office of your NBFC comes.

  • Organizing with and responding to any questions being raised by RBI concerning the transaction.

  • As RBI approves of the deal, the public has to be notified. This is done to invite objections, if any, from the public or any interested parties. Therefore, a publication has to be issued, as per RBI guidelines, in one daily national and one daily local newspaper, indicating that a change in management is about to take place.

  • On the 31st day of the newspaper notice, both parties can sign the Share Purchase Agreement. Or some other day of the handover can be decided between both of you. The management & administration will be handed over to the Acquirer. And you would receive the balance payment. 

  • Further, RBI stipulates that the assets as shown in your balance sheet are to be liquidated and liabilities are to be paid off. And that the Acquirer receives a clean bank balance in the name of the NBFC. The net worth of your NBFC is to be calculated on the date of sale, as per the method described by RBI.

Is Prior Approval from RBI Required?

Before selling your NBFC, you would need to first check whether prior approval from the RBI for the sale is required or not. RBI has specified certain cases when the sale transaction needs approval from RBI before the process is initiated. 

For the following situations, prior approval is mandatory. And if proper documents are not submitted, the application shall be considered null and the transaction gets cancelled.

RBI Approval to Sell NBFC

As mentioned above, sale, takeover or certain changes in the Board of Directors of an NBFC requires prior approval from RBI. All documents to be submitted to RBI must be filed in agreement with the Acquirer Company.       

  • An application and a cover letter, on the letterhead of the Company, are to be submitted to the regional office of RBI having jurisdiction. 

  • Details about the proposed Directors/shareholder members, their KYC, ID/address proof, education & qualification proofs are to be enclosed with the application.

  • The sources from where the Acquirer is arranging the funds necessary to buy out your NBFC.

  • Statement by the proposed Directors/shareholders that they have not been involved with any other entity which is engaged in the business of loans and accepting deposits, but is not registered with RBI.

  • Declaration by the proposed Directors/members that they have not been involved with any such company, whose application for Certificate of Registration (CoR) was rejected by the RBI.

  • Statement by the proposed Directors/shareholders declaring that there is no criminal case against them, pending or convicted. Including any offense u/s 138 of the Negotiable Instruments Act.

  • Clean Banker’s Report on the proposed Directors/members.

  • Financial Statements and Annual Reports since the beginning of your NBFC or the last three years, whichever is more.

  • Apart from the above, a public notice is to be given, at least 30 days before actualizing the sale of, or transfer of the ownership by the sale of shares, or transfer of control, individually or jointly by the parties. This notice is to be published in at least one national daily and one in the vernacular daily newspaper.

Once the above documents are ready, the application is to be filed with the Regional Office of the Department of Non-Banking Supervision (DNBS), under whose jurisdiction your registered NBFC office comes. RBI may require some clarifications or put up queries on points mentioned in the application and other documents. These must be clarified, well in time, to avoid any unnecessary delay for RBI to process the application.

Requirements of Prior Public Notice about Changes

After getting RBI’s approval for the sale, a public notice is to be given in one leading national daily and one leading local daily newspaper at least 30 days before the date when this transaction is about to take place. To indicate clearly that such a sale of shares, or transfer of control. To enable the members of the public to raise objection, if any. 

The conditions are:

Why Choose LegalRaasta

The whole process of selling, buying or registering an NBFC is under strict regulations of RBI. All its compliances must be duly fulfilled. Which means, the Seller is not to make any mistakes or delay in providing any information to RBI or the Acquirer. Moreover, all the provisions to complete the process successfully are to be thoroughly adhered to.

LegalRaasta, with over 10 years of experience in legal compliance, can be your trustworthy companion to complete all steps successfully – RBI regulations, accounting, and reporting. We also help in restructuring NBFCs.

We take over your woes after a detailed telephonic consultation. With this, we understand your requirements and goals. If you have listed your company with us, we can provide inside details about the companies willing to buy your NBFC.

Once you have made your selection, together we go through a checklist of compliances, legal requirements, forms to be filed, information/paperwork to be completed. This checklist will be kept current and up-to-date.

Now, you can sit back and relax. LegalRaasta shall commence the process of the sale, with RBI and the government.

You can hire us for:

  • Mergers/Demergers
  • Contract Drafting
  • Approval for Management Change from RBI
  • Preparing Share Purchase Agreement
  • Meeting RBI Compliance
  • Internal Audits 

Share Purchase & Transfer

At the time of selling an NBFC, an essential requirement is signing the Share Purchase Agreement. The Share Purchase agreement is to be signed by both, the Acquirer and the Seller NBFC. After the public has been notified of this deal. The assets of your NBFC are to be discharged in the balance sheet and the liabilities paid off. The Acquirer Company receives only a clean bank balance.

The Share Purchase Agreement is a contract between two businesses in which you are consenting to sell a specific number of shares of your NBFC to the Acquirer at an estimated price. This contract mentions the consideration amount and the total number of shares to be sold, any terms and conditions (for example, the approvals required) and agreement by the parties. The portion of the shares will be allocated depending on the terms in the agreement. The price is to be calculated based on the net worth as on the date of the sale.

Whatever part of the consideration remains, it shall be paid off within 31 days of the public notice in the newspaper or as mutually agreed by all the parties. 

Frequently Asked Questions

What is an NBFC?

An NBFC or Non-Banking Financial Company, is a Company established under the Companies Act in India. It is

involved in the business of providing finance, loans, and advances to the public. An NBFC company may be involved in acquiring shares, stocks, bonds, debentures, and securities from the government or the local authorities or some other marketable securities. It may be engaged in the business of hire-purchase, leasing, insurance, chit fund, etc. But it should not be involved in agricultural

activities, industrial activities, purchase or sale of any goods (other than securities) or providing any services and

sale/purchase/construction of immovable property.
An NBFC Company accepts deposits, in lump sum or instalments, under various schemes/plans/arrangement.

How to sell an NBFC?

To sell an NBFC has been made easy by LegalRaasta. Simply register your NBFC on our website. Our professional shall call you to discuss in detail about the NBFC you have put on sale, your objectives, and requirements, etc. We’ll advise on the buyers willing to buy out your NBFC. Once you have chosen, we’ll take over the process and file with RBI.

How to sell an NBFC?
What is meant by taking Prior Approval from RBI?
How to take Prior Approval from RBI for NBFC Sale?
Is Prior Approval required if an NBFC is sold to another NBFC?
Is Prior Approval from RBI required is an NBFC is sold to a company that is not an NBFC?
Is Prior Approval required for amalgamation of 2 NBFCs?
Is Prior Approval required before approaching any Court or Tribunal for seeking orders for merger/amalgamation?
Can a company pre-pay its public deposits?
Whether acquisition/ transfer of shareholding of 26% or more of the paid-up equity capital of an NBFC within the same group i.e. intra-group transfers require prior approval of RBI?

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