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Non-banking financial companies (NBFCs) are playing an important role in India’s financial sector. They provide loans, investments, and other financial services to meet the financial needs of people outside the banks. NBFCs are important in making credit available to small businesses, new entrepreneurs, and people in the unorganized sector.
Sometimes, NBFC owners think of selling their companies. This may be due to regulatory burden, changing business strategies, or plans to merge with a larger organization. However, the process of selling an NBFC is not like a normal transaction. It is regulated by the RBI and requires approvals at many stages. Therefore, if you want to sell, it is important to follow the right steps and comply with all the rules. So, read the article properly to know the NBFC’s selling process.
NBFCs are financial institutions that are registered under the Companies Act and licensed by the RBI. They provide loans, invest in shares or bonds, and are financial intermediaries. Although they are like banks, they have some limitations. For example, they cannot directly engage in agriculture, industrial production, or real estate business.
If you are planning to start an NBFC instead of selling one, obtaining an NBFC Registration from the RBI is the first and most crucial step. Enterslice assists businesses in securing NBFC Registration by ensuring end-to-end compliance with RBI norms, helping new financial ventures get licensed faster and operate smoothly within India’s regulatory framework.
NBFCs play an important role in the economy. They provide easy access to credit to small businesses, the unorganized sector, and the public. This creates new jobs and helps in economic growth.
RBI regulates and supervises NBFCs. They register, require annual reports, check capital adequacy, and regulate the composition of the board of directors. Therefore, RBI approval is very important when selling or changing ownership of an NBFC. Failure to comply with the rules can lead to the transaction being cancelled. Ensuring proper documentation and transparency makes the NBFC for sale process easier.
Given below are the key points to consider before selling an NBFC-
Financial Preparation: Before selling, it is necessary to have a clean balance sheet by settling all debts and liabilities. The buyer should get only net assets or a clean balance.
Right Buyer Selection: The buyer should have financial strength, a clean legal record, and the ability to meet RBI’s criteria.
Compliance Check: Any pending issues related to RBI, tax, or audit must be resolved before the sale.
Transparency: It is important to disclose all agreements and information. Withholding or providing incorrect information can create legal risks later.
The process of selling an NBFC follows a clear and structured process. It protects the interests of both the seller and the buyer and complies with RBI regulations. The steps are briefly outlined below:
Board Approval: Formal approval is required from the boards of both the seller and the buyer before the sale can commence. This serves as the legal basis for the sale process.
Due Diligence: All the important information about the company is shared with the buyer. NBFC due diligence includes audited accounts, compliance reports, loans and other financial liabilities, business information, and management documents. This allows the buyer to understand the financial condition of the company.
Signing of Memorandum of Understanding (MoU): Both parties sign an MoU to confirm the purpose of the sale. The buyer usually also pays a small token payment, which is considered their commitment.
Preparation of Documents: KYC documents, a business plan, and three-year financial forecasts must be prepared for the proposed new directors. This document has to be submitted to the RBI.
RBI Submission: The application must be submitted to the regional RBI office concerned along with all the required documents. This ensures all the norms are followed.
RBI Review: RBI verifies the application and contacts for queries or clarifications if necessary. Both parties need to respond in a timely and accurate manner.
Public Notice: Information regarding the sale has to be published in one national and one local daily newspaper. This provides transparency and allows the public or other participants to raise objections.
Signing of Share Purchase Agreement (SPA): After 31 days of public notice, the SPA is signed. It mentions the transfer of shares, payment terms, and other terms and conditions.
Final Transfer: Finally, the balance sheet is cleaned up, all liabilities are settled, and a clean balance is transferred in the name of the buyer, and the management responsibility is transferred to the new directors.
Following this process makes NBFC sales simple, transparent, and legally secure.
RBI approval is crucial when selling an NBFC. Here are the steps:
In the event of a change of ownership, such as a sale or acquisition of an NBFC, RBI approval is mandatory.
Shareholding change: Approval is required for the transfer of a minimum of 26% or more paid-up equity shares.
Management change: A Change of 30% or more of the board of directors (excluding individual directors) cannot be made without RBI approval.
Submission of application: All the required documents are to be submitted to the regional RBI office concerned.
RBI review: RBI verifies the application and asks for questions or clarifications.
Coordination: Both parties need to respond to RBI’s queries in a timely and accurate manner.
Timeframe: The entire approval process usually takes 2–3 months.
Risk of non-approval: The sale will not be legally valid without approval. Share transfers and management changes will not be effective.
Legal and financial consequences: Selling without RBI approval carries legal risks for both the seller and the buyer and may result in the transaction being cancelled.
Therefore, it is essential to obtain RBI approval before selling an NBFC. It keeps the transaction transparent, secure, and legally valid.
The most important aspect of an NBFC sale is the Share Purchase Agreement (SPA). It protects both the seller and the buyer. The SPA specifies the number of shares, price, payment terms, time frame, and liabilities. It also clearly states any contractual conditions or contingencies.
It is important to strengthen the SPA from a legal perspective. This avoids any disputes or misunderstandings in the future. Legal experts draft and review the agreement to ensure that it is applicable and enforceable as per RBI norms. They also protect the interests of both the buyer and the seller. Therefore, it is important to seek the help of an experienced lawyer while selling an NBFC.
The management and transfer of responsibilities need to be done smoothly after the sale. It is important to update all legal and regulatory documents in the name of the new directors. This includes filing with the ROC, informing the RBI, and updating other statutory records.
Also, it is important to maintain employee transfers, ongoing contracts, and business continuity. Even after the sale is completed, regular compliance is required. This can avoid any complications from the RBI or other authorities later.
Some common challenges may arise during NBFC sales. Such as:
Delay in RBI approval: Approval may be delayed due to incomplete documents or queries.
Public objections: The public or participants can raise objections during the 30-day public notice period.
Disagreements in the valuation of assets and liabilities: There may be confusion in the accounting between the seller and the buyer.
Experienced professionals should be consulted to mitigate these risks. They oversee the document verification, buyer verification, and approval process. So, the sale process is fast, safe, and risk-free.
NBFC sale is a complex process, where proper preparation, regulatory approvals, and legal security are of utmost importance. It is necessary to ensure clear documentation, transparency, and full compliance for both the seller and the buyer. If these steps are missed or incomplete, the sale process may be delayed, legal complications or financial risks may arise.
Therefore, it is essential to analyze the financial situation, select the right buyer, and verify all aspects of RBI approval before the sale. Taking the help of experienced professionals makes this process fast, safe, and risk-free.
If you want to sell your NBFC or need assistance with RBI approvals, legal documents, and compliance, Enterslice can help. Our experts will guide you through the entire process. Contact us today and make your NBFC sales easy and risk-free.
Yes, RBI approval is mandatory for the sale of an NBFC. This approval is essential for a change of ownership, transfer of more than 26% shares, or a change of the board of more than 30%. Sales without approval will not be valid. The transaction may face legal risks.
The documents required for the sale of NBFC include KYC of the new director, a banker's report, proof of source of funds, a declaration of financial or criminal exemption, and financial statements of the company. All the documents must be prepared properly and submitted to the regional RBI office.
The process of the sale of NBFC is completed in a step-by-step manner. It usually takes 2-3 months, including board approval, documentation, RBI review, and public notice. However, if the documents are not complete or RBI raises additional questions, the time may increase further.
Public notice is important for transparency. It has to be published in a national and a local newspaper at least 31 days before the sale. This allows investors, lenders, or third parties to express their objections. So, the sale process is legally safe.
No, an NBFC should be sold only after paying off the debt or financial obligations. Usually, the balance sheet is cleaned before the sale. So, the buyer does not face any risk; the seller must complete the transaction after paying all the liabilities.
After signing the SPA, the process of share transfer, payment terms, and management transfer between the seller and the buyer begins. The SPA comes into effect 31 days after the publication of the public notice. This is one of the final steps of the sale.
Not just anyone can buy an NBFC. The buyer must be financially capable, trustworthy, and legally clean. RBI checks the background of new shareholders or directors. It is difficult to get approval if there are any financial irregularities or a criminal record.
If there is a change in more than 30% of the directors on the board, RBI approval is required. RBI investigates the qualifications, background, and business experience of the new directors. The aim is to ensure the NBFC is in safe hands and the interests of the customers are protected.
NBFC sales are a complex process. Lawyers or legal advisors draft SPAs, MoUs, and other agreements. They ensure that the transaction is legal and risk-free. Also, their assistance in preparing the documents required by the RBI is important.
Yes, sometimes an NBFC sale is done through a merger or acquisition instead of a direct share transfer. In this, one company acquires another company, or two companies merge. RBI approval is essential in this process, and legal requirements must be followed.
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