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As per the Companies Act 2013, Non-Banking Financial Company or NBFC is that type of company which is involved in the business of receiving Loans and Credit Facilities, Acquisition of Bonds/Stocks/Shares, Hire-Purchase, Leasing, Assets Financing, Insurance, Currency Exchange, Peer to Peer Lending, Hedge Funds, Chit Business, etc. NBFCs are companies registered under the Companies Act, and, regulated according to the provisions mentioned in Chapter III B of the RBI Act 1934.

The companies that are in the business of:

  • loans and advances,
  • investments in stock/equity/shares/bonds/debentures and other Govt securities,
  • hire-purchase,
  • hire-purchase,
  • lease,
  • hedge funds,
  • currency exchange,
  • insurance business,

But they cannot be involved in:

  • agricultural activity,
  • industrial activity,
  • purchase/sale of any goods and services (except securities), and
  • sale, purchase, or construction of the immovable property.

NBFCs provide various banking and non-banking services to their clients. They do not hold banking licenses but their functions are similar, and, therefore, regulated and supervised by RBI.
The primary business activity of the NBFCs is to raise funds from public depositors & investors and then lend further. NBFCs are the option for the banking and unregulated financial sector.
Though their financial activities are quite similar to banks, still, there are quite a few differences between the two. For example, the deposits in NBFC are not insured. Or, unlike banks, all NBFCs are not allowed to accept deposits payable on demand or issue cheques.
Because of these financial constraints, strict RBI regulations, and other reasons, the operations are sometimes difficult to keep up.
So if you are looking to sell NBFC, then the expert team of LegalRaasta for a smooth and hassle-free process.

Sale of an NBFC

The sale serves to merge two companies into one, and, is usually initiated by the larger company to take over a smaller one. To sell NBFC, its balance sheet has to stand at null. And all its assets and liabilities are transferred to the buyer or the Acquirer.
And if you are looking to sell your NBFC, you need to find an Acquirer Company. Listing your NBFC for sale at the LegalRaasta portal would help you get a genuine buyer and the best prices for your company.
It is further recommended to have all the deals and agreements written, and signed, concerning the Acquirer to avoid any ambiguity and misunderstanding in the future.
RBI has provided a step-by-step guide to buy or sell NBFC to have more clarity. And these compliances are mandatory.

Steps to Sell NBFC Process

The entire procedure of the sale, RBI approvals, changes in the management of the NBFC would take at least 2-3 months. Therefore, the seller must also take out due diligence and check the credential of Acquirer Company and that it will be able to hold on during this period.

  • The first step to sell NBFC is that the Board of Directors of both, your NBFC and the Acquirer companies, approve of this sale, in a General Meeting.

  • Once consent from the Board has been received, the Acquirer will go through your company’s documents related to the business and administration. Once they confirm for you to proceed with the closure, you and the Acquirer will be signing an MOU. At this time, you would be given some token money as confirmation of buying.

  • To sell your NBFC, the KYC Documents of the new Directors need to be sent to RBI and must be prepared. Also, Business Plan and Projection are to be prepared for the next 3-years for the new Acquirer.

  • Submit these documents with the nearest regional office of RBI where the registered office of the company is located.

  • Coordinating with and responding to any queries raised by RBI concerning the sale.

  • Once RBI approves of the sale, a public notice is to be issued. As per its guidelines, this should be published in one leading daily national and one leading daily local newspaper, indicating that a change in management is planned and invite objections, if any, from the public or interested parties.

  • After 31 days of the newspaper, publication are over, both parties can sign the Share Purchase Agreement. The management and administration will be handed over. And the balance payment to be received.

    The final day of the hand-over can be decided between you and the Acquirer.

  • Further, as per RBI regulations, all assets existing in your balance sheet are to be liquidated and all liabilities are to be paid off. So that the Acquirer gets a null and void balance sheet in the name of the company.

  • The price of your NBFC for sale will be calculated as net worth as of the date of sale. The calculation method of this net worth has been prescribed by RBI.

    Contact the team of professionals at LegalRaasta to sell NBFC and we will assist along every step of the way.

Is Prior Approval from RBI Required?

Before selling your NBFC, first, check whether prior approval from the RBI for the sale is required or not. RBI has described specific cases when the buy-sell transaction needs approval from RBI before initiating the process.
In the following situations, prior approval from RBI is mandatory. And if the required proper documents are not submitted, the application shall be considered null and the transaction will be canceled.

  1. Whenever an NBFC is sold/acquired/bought/taken over, whether any changes have occurred in the management or not.
  2. There have been changes in the shareholding, resulting in at least 26% acquisition or transfer of the paid-up equity capital of NBFCs. This may have happened over a period of time.
    • Except when the buyback of the shares or reduction in the capital has been approved by a judicial body/court of law.
  3. A change in the management, of at least 30% of the Directors.
    • This 30% is excluding Independent Directors. If the change is due to a rotation of Directors, approval from RBI is not required.

So when you sell NBFC, make sure to keep all of these things in mind. So that the selling process get smoothly completeds

RBI Approval for Sale of NBFC

Sale, buying, or certain changes in the Board of Directors of an NBFC requires prior approval of RBI. The documents to be submitted to RBI are to be filed with the agreement of the Acquirer Company

  • Application is to be submitted to the regional office of RBI having jurisdiction over the region where the NBFC is based, on the letterhead of the Company. And a covering letter.
  • Details about the proposed Directors/shareholders/members are to be enclosed with the application.
  • The sources from where the Acquirer is getting the funds necessary to buy your NBFC.
  • Statement by the proposed Directors/shareholders/members declaring that they are not 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/shareholders/members that they are not involved with any such company, whose application for Certificate of Registration (CoR) was rejected by RBI.
  • Statement by the proposed Directors/shareholders/members declaring that there is no criminal case, including any offense under Section 138 of the Negotiable Instruments Act, against them. Pending or convicted.
  • Banker’s Report on the proposed Directors/shareholders/members.
  • Financial Statements and Annual Report for the entire duration your NBFC has been existing or the last 3-years, whichever is longer.
  • Apart from the above, a public notice, of at least 30-days, is to be given before completing 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 newspape

Once the above paper-work is ready, the application is to be submitted to the Regional Office of the Department of Non-Banking Supervision (DNBS), under whose region your registered NBFC office is situated. RBI may require some clarifications on points mentioned in the application for approval. All these must be answered, well in time, to avoid any unnecessary delay for RBI to process your application.

Requirements of Prior Public Notice about Changes

RBI Conditions for Issuing Public Notice Prior to Sale of NBFC

  • After RBI’s Approval to Sell Your NBFC on the Planned Date
  • Announce to the Public by Issuing a
  • Public Notice in One Leading Daily National Newspaper
  • Public Notice in One Leading Daily Vernacular Newspaper
  • At least 30-days Before the Planned Date of Hand-over
  • By Acquirer, Target, and Other Parties Concerned
  • Clearly Mentioning the Planned Transaction, the Date, and Other Information.

Once RBI approves for you to sell your NBFC, a public notice is to be given in one leading national and one leading local newspaper at least 30-days indicating the planned sale of shares, or transfer of control. To enable members of the public to raise an objection, if any.

Conditions concerning the publication are:

  • At least 30-days before the planned date of the actual sale or transfer of the ownership by sale of shares, or transfer of control (whether with or without the sale of shares), a public notice is to be issued.
  • Such public notice is to be given by all the parties concerned after receiving prior approval of RBI. They may choose to get this published together or separately.
    The public notice must mention clearly, the plan to sell or transfer ownership/control of the NBFC. The particulars of the transferee and the reasons for this transaction must be shown.
  • The notice shall be published in at least one leading daily national newspaper and another leading daily newspaper in the local language of the place of registered office.

How LegalRaasta helps to Sell your NBFC

The entire NBFC sector is being stringently regulated by RBI. All the compliances as laid down by RBI must be duly met.
This means that you cannot miss providing any essential information to the Acquirer Company. And there are many more compliances to be met while completing the transaction successfully.
LegalRaasta will take all the necessary steps on your behalf – RBI regulations, accounting, and reporting. We also help with other services related to NBFC compliance.
Our first step would be to get an insight into your requirements, expected price, and other goals. We have the details about the companies willing to buy you NBFC listed on our website when you listed your company with us.
Once both parties finalize the other party, a checklist will be prepared. About compliances, legal requirements, forms to be filed, various information/paperwork to be completed. This checklist will be discussed frequently and you’ll be kept updated.
Now, you can sit back and focus on the growth of your work. Legalraasta will initiate the sale process with RBI and the government.
You will be kept updated on the progress report, as we keep completing the phases.

You can seek our assistance for all services concerning:
• Preparing Share Purchase Agreement
• Mergers/Demergers
• Contract Drafting
• Approval for Management Change from RBI
• Meeting RBI Compliance
• Internal Audit Services

We will be with you along every step of the way when you decide to sell NBFC.

Share Purchase & Transfer

Before selling an NBFC, an essential requirement is signing the Share Purchase Agreement. This agreement is to be signed by both, the buyer and the seller, after 31st days of the public notice of buying.
The assets of your NBFC are to be discharged in the balance sheet and the liabilities to be paid off. The Acquirer Company shall get only a clean bank balance, calculated based on the net worth as on the date of the sale.
This agreement is a contract between two entities. One is consenting to sell a specific number of shares of the NBFC to the Acquirer at an estimated price.
This helps to make sure the conditions of the contract are agreed upon by both parties. The contract mentions the consideration and the sum of shares to be sold, any terms and conditions, and agreement by both parties.
The shares will be allocated depending on the terms in the agreement. If a part of the consideration is remaining, it shall be paid off within 31-days of the public notice in the newspaper or as mutually agreed by all the parties.
So contact the team of “LegalRaasta”, if you want to sell NBFC. We will make sure that sure that you do not miss any step in the selling process.

Frequently Asked Questions

Before selling an NBFC, it’s balance sheet must stand at null.

Any company, which should be registered with RBI but isn’t, then RBI has the right to impose a penalty on such a company.

If you want to sell NBFC in India, then make sure that it’s balance sheet stands at zero. When all of it’s assets and liabilities have been transferred to another company

A period of 2-3 months.

If you want to know and understand the complete procedure for buying and selling an NBFC in India, then reach our experts at LegalRaasta. Our experts will assist you in understanding the complete process of “How To Sell NBFC”.

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