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The Reserve Bank has laid down the process of buying and selling of NBFCs. Buying an NBFC is a much simpler and fast-growing business method, and it only takes close to 60 days to execute the whole process. In this article, we shall discuss the conditions related to buying and selling of NBFCs.
Table of Contents
In finance terms, buying of NBFCs is called business entity takeover of NBFC by consent, where the seller entity decided to sell its assets to the entity acquiring and secretly acquires the control over the business.
There are certain business organizations that experience a great success or crushing defeat after such hold because the concept of buying and selling NBFCs is not new in the financial world.
There could be a possibility of bias and ambiguity in the process of buying and selling NBFC. Therefore the RBI has prescribed the procedure for the same. Before selling the NBFC, always check if prior RBI approval is required or not for executing the sale.
The RBI approval should be taken as the first step under the following conditions of NBFC arrangements, in case of failure, the whole process will be null and void:
There are certain circumstances where the prior approval from the reserve bank is not required. They are as follows:
There are certain documents required for fulfilling the process. An application is made to the reserve bank on the letterhead of the company, along with the documents mentioned below:
Once these formalities are completed, an application must be submitted to the regional office of the department of non-banking supervision, where the control of the NBFC registration office is located for obtaining a prior approval before undertaking such arrangements.
The public notice must include the following information:
The share purchase agreement should be prepared, and it should be signed by the buyer and the seller about the management of the seller company, which is being handed over to the acquirer and, in case of any remaining consideration, will be paid off within 31 days of public notice in the newspaper or as mutually agreed upon by all parties.
In the procedure of buying and selling of NBFCs, the last process involves signing the purchase agreement wherein the assets of the transferor company is discharged in the balance sheet, and the liabilities are paid off.
The acquirer shall obtain a clean bank balance in the company’s name computed on the basis of net worth on the date of the takeover.
NBFCs, with their transparency, convenience and performance, is a standout choice among organized banking. One cannot deny that NBFCs
are the real contenders in the economic sector that represents the real potential of money lending by avoiding traditional barriers. However, as these financial institutions don’t have the liberty to obtain public deposits that are repayable on demand, many choose to sell out ultimately. The RBI has laid down the process for buying and selling of NBFCs. One can go through the entire process with ease by adhering to the details mentioned above.
Read our Article: NBFCs urge RBI for Restructuring Loans and Fresh Liquidity Support amidst Covid-19
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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