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Numerous of a financial organization which is not merely getting NBFC licenses are taking a secondary route to obtain one, by buying out some existing NBFC(Sale NBFC), ideally, some entity which is not operational or is a minute player. This is the most efficient & less costly way to obtain NBFC License. Thus, the group offers an extensive range of services to buy (takeover/acquisition) or NBFC for sale in India. Many NBFCs (Non-Banking Financial Companies) registered with Reserve Bank of India as a Non-Deposit Accepting (Category-B) companies are available for Sale through NBFC Liaising Group.
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Prior approval in writing of the Reserve Bank will be required for –
In our country, the interest rates are high in contrast to the rest of the world. Thus taking loans from other countries which have lower interest rates are very helpful for an Indian company. An NBFC also chooses foreign investment over Indian investment as foreign investors might be able to invest much more money compared to an Indian resource.
On the other hand, foreign investors are also attracted to Indian companies in various stages of growth for various reasons like this country has growing customer base and foreign capital can witness more growth in an emerging economy like India as compared to saturated western markets which offer limited growth opportunities.
All the requirements concerning to foreign exchange in & are regulated by the FEMA, 2000 & the working & operations of NBFCs are regulated by the Reserve Bank of India within the framework of the RBI Regulation Act 1934 and the directions issued by it. NBFCs are allowable up to 100% FDI but subject to the minimum capitalization norms as issued by the Government.
The Foreign Exchange Management Act, 1999 and Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulation, 2000 and the RBI regulations govern the provisions relating to foreign loans.
Loans from foreign institutions are named as external Commercial Borrowings or ECB. The foreign loans could be taken from foreign banks or foreign financial institutions.
One can also take ECB in the form of bonds, preference shares, and debenture. A loan from a foreign shareholder who owns at least 25% of the shares of the borrower company will also come under the ambit of ECB.
However, not every sector of business can avail of foreign loans. The RBI allows ECBs to be obtained only some specific sectors after fulfilling all the necessary requirements. To get foreign loans from a Non-banking financial company it only requires complying with the procedural requirements. There is no need for the approval of RBI while availing the loans.
NBFC shall bring their foreign investment not only in liquid currency but also in some other ways like an exchange of shares, conversion of loans to share, exchange of some skillsets, etc.
In Foreign Exchange Management Regulation there are certain rules and restriction mentioned about the external commercial borrowing. There are specific rules one need to follow the maturity period and the amount of interest to be paid.
The cost of an ECB includes the interest charged by the bank, other fees and expenses paid in foreign loans. It must be within the limit which is measured with respect to a reference rate called the LIBOR or London Interbank Offered Rate.
For a loan whose average maturity period is 3-5 years, its interest would be 3.5% over six months the LIBOR and for the loan which will be matured after more than 5 years its interest ceiling would be plus 5% over the six month LIBOR.
For any foreign loans under the automatic route, the NBFCs require submitting Form 83 to the Authorized Dealer bank to acquire the LRN number. The LRN number or Loan Registration Number must be certified by a company secretary or chartered accountant.
Then the AD bank must forward a copy of from 83 to the department of statistics and Information Management of RBI. The loan can be only be taken after the allotment of the LRN number. When a non-banking financial company is unable to repay its loans, it can convert some or all of its debts into equity after taking the consent of the lender. Provided that, when a company wants to convert the loan into equity it must ensure that the shares are issued under the FEMA pricing guidelines.
According to section 15 of the Foreign Exchange Management Act, if anyone contravenes the provisions of the ECB regulation he will get punishment up to thrice of the amount involved. Moreover, the corporate entities that violated the ECB policy are under investigation by RBI can only avail foreign loans under the approval route. When the violation is a continuous one in nature, an additional penalty of INR 5000 will be payable per day.
When the violation is unintended, it can be rectified by compounding with RBI, which may help in getting a much lower penalty.
In accordance, FDI policy, foreign investment in the NBFC sector is permitted under the automatic route. An automatic route is one where no Foreign Investment Promotion Board or RBI approval is needed before making the proposed investment. In automatic route up to 100%, foreign investment is permitted without the approval of the foreign investment promotion board. Under section 10 of FEMA, all foreign transactions are required to rout only through entities licensed by the RBI.
However, in accordance with FDI policy, foreign investment was permitted under automatic route only in the following 18 prescribed non-banking financial service activities. These are –
The minimum capitalization norms for foreign investment under the automatic route in non-banking sectors are permissible in these specified activities with the compliance of the below-mentioned norms. Once an NBFC is established with the requisite capital under the Foreign Exchange Management Regulation, subsequent diversification either through the existing company or through downstream NBFCs could be undertaken without any further authorization.
These investments are dependent on the following minimum capitalization norms:-
But it is subject to certain conditions. It would not be permissible for such a company to set up any subsidiary for any other activity, nor can it be participating in any equity of an NBFC holding company. All of the above capitalization norms also apply to each downstream subsidiary engaging in NBFC activities, except where its parent entity already has more than 75% foreign investment. Further, if the activity being carried out was ‘non-fund based’ then irrespective of the level of foreign investment, capitalization was capped at USD 500,000.
However, it shall not be allowable for such a business to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating company.
Note: The following activities would be classified as Non-Fund Based activities:
Note: Credit Card business includes issuance, sales, marketing & design of various payment products such as credit cards, charge cards, debit cards, stored value cards, smart card, value-added cards, etc. Leasing & Finance comprises only financial leases & not operating leases.FDI in operating leases is permitted up to 100 % on the automatic route. The NBFC will have to comply with the guidelines of the relevant regulator/s, as applicable.
The securities (bonds and debentures) offered by SC / RC should satisfy the following conditions:
Investment in debentures/bonds/security receipts/Pass-through certificates issued by SC/RC. All instruments received by banks/FIs from SC/RC as sale consideration for financial assets sold to them and also other instruments issued by SC/RC in which banks/ FIs invest will be in the nature of SLR security. In non-SLR instruments which are prescribed by RBI from time to time will be applicable to bank’s/FI’s investment in debentures/ bonds/ security receipts/PTCs issued by SC/RC related to the valuation, classification &other norms suitable to investment. Thus, the instruments supplied by SC/RC is limited to the actual realization of the financial assets allocated to the instruments in the concerned scheme the bank shall estimate the Net Asset Value (NAV), found from SC/RC from time to time, for valuation of such investments. Capital Adequacy for NBFCFor the purpose of capital adequacy, banks/FIs should assign risk weights asunder to the investments in debentures/bonds/security receipts/PTCs issued by SC/RC and held by banks as an investment:
Applicable risk weight = (i) + (ii)Exposure Norms for NBFCBanks’/FIs’ investments in debentures/bonds/ security receipts/PTCs issued by an SC/RC will constitute exposure on the SC/RC. As only a few SC/RC are being set up now, banks’/ FIs’ exposure on SC/RC through their investments in debentures/ bonds/security receipts/PTCs issued by the SC/ RC may go beyond their prudential exposure ceiling. Thus, the extraordinary nature of the event, banks/ FIs shall be allowed, in the initial years, to exceed the prudential exposure ceiling on a case-to-case basis.
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