{"id":22675,"date":"2019-08-04T15:06:53","date_gmt":"2019-08-04T09:36:53","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=22675"},"modified":"2020-06-26T16:45:08","modified_gmt":"2020-06-26T11:15:08","slug":"rbi-regulations-related-to-nbfc-takeover","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/rbi-regulations-related-to-nbfc-takeover\/","title":{"rendered":"RBI Requirements in Case of NBFC Takeover"},"content":{"rendered":"<p><a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;NBFC&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Non-Banking Financial Companies (NBFC) operate similarly to banks but do not possess the legal status of a bank. Registered under the Companies Act 2013 and governed by the RBI Act&amp;#039;s section(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/nbfc\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>NBFC<\/a> takeover is one of the ways, how anyone starts a business in the NBFC sector. The other way is to <strong><a href=\"https:\/\/enterslice.com\/nbfc-registration\" target=\"_blank\" rel=\"noreferrer noopener\">incorporate a new Non-Banking Financial Company.<\/a><\/strong> The takeover means acquiring the control of the management of one NBFC by another business entity. In this blog, we are going to learn about NBFC takeover, RBI Regulations related to NBFC Takeover and the cases in which NBFCs need prior approval from RBI. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is an NBFC Takeover?<\/h2>\n\n\n\n<p>There are specific activities related to NBFCs which cannot be carried out without taking prior permission from the Reserve Bank of India. However, minor changes in the NBFC may not need approval from the RBI, but it is compulsory to take RBI&rsquo;s consent in case of any significant changes in the company. <\/p>\n\n\n\n<p><strong><a href=\"https:\/\/enterslice.com\/takeover-of-nbfc\" target=\"_blank\" rel=\"noreferrer noopener\">NBFC takeover<\/a><\/strong> is one of the most popular forms of the business strategy of NBFCs. It means acquiring or gaining control over the management of an already established NBFC. Usually, NBFC takeover is of two types, which are either Friendly or Hostile. <\/p>\n\n\n\n<ul><li><strong>Friendly Takeover<\/strong>: Acquiring after giving prior consent to the\ntarget company. In this, the acquirer voluntarily approaches the management of\nthe target company; they negotiate and then acquire their shares. In this\nsystem, both parties are in a win-win situation as it includes mutual\nadvantages of both the parties.<\/li><li><strong>Hostile Takeover<\/strong>: In Hostile takeover, the scenario is the\nopposite of the Friendly takeover. In this system, the acquirer passes a direct\norder without any prior consent and acquires the control over the management of\nthe target company.<\/li><\/ul>\n\n\n\n<h3>Also, Read: <a href=\"https:\/\/enterslice.com\/learning\/checklist-for-takeover-of-nbfc\/\">Checklist for Takeover of NBFC<\/a><\/h3>\n\n\n\n<h2 class=\"wp-block-heading\">RBI Regulations Related to NBFC\nTakeover<\/h2>\n\n\n\n<p>RBI regulates the functioning of the NBFC sector. The regulatory body has specified certain rules <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Regulatory Approvals: <\/h3>\n\n\n\n<ul><li>Any NBFC takeover or acquisition\nwhich may or may not result in the change of management<\/li><li>Any variation in the NBFC\nshareholding that results in acquiring\/transfer of 26% or more of the paid-up\nequity capital of the entity<\/li><li>&nbsp;Any difference in the NBFC&rsquo;s management&nbsp; that results in a change in 30% or more of\nthe directors excluding the independent directors of the body <\/li><li>The acquirer must notify the Bank\nwithin thirty days in case of change of control or management and when no prior\napproval is required<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Supervisory\nApproval: <\/h3>\n\n\n\n<ul><li><strong>The instances where prior approval from the RBI is required:<\/strong><ul><li>One\ndirector is nominated where three directors are already appointed<\/li><\/ul><ul><li>One\ndirector is expected to be appointed where one out of four directors resigns<\/li><\/ul><ul><li>If\nthere is a variation in 26% &nbsp;or more of\nthe paid-up capital<\/li><\/ul><\/li><li><strong>The cases where prior approval from the RBI is not required:<\/strong><ul><li>One\ndirector is appointed where four directors are already present<\/li><\/ul><ul><li>Where\nthere is an increase in paid-up capital but not in shareholdings<\/li><\/ul><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">The <a href=\"https:\/\/enterslice.com\/learning\/nbfc-takeover-procedure\/\" target=\"_blank\" rel=\"noreferrer noopener\">Procedure of NBFC Takeover<\/a><\/h2>\n\n\n\n<p><strong><em>The following are the procedure of taking over an NBFC:<\/em><\/strong><\/p>\n\n\n\n<ul><li>First, the acquirer&nbsp; goes through the documents of the target company, and when it confirms the acquisition, it signs the Memorandum Of Understanding {MOU} after taking some token money<\/li><li>The&nbsp;&nbsp; acquirer&nbsp; suggests preparing the details of the KYC documents, business plan, and projections, for three years for the reference to the&nbsp; incoming director<\/li><li>Submission of the information on the company location to the RBI<\/li><li>Coordination and replying to the queries put up by the RBI regarding the takeover of the NBFC<\/li><li>After receiving the RBI&rsquo;s approval, the target company needs to publish a public notice in two newspapers for the general public to see it. It is also done to invite objections if any<\/li><li>Lastly, signing of <a href=\"https:\/\/enterslice.com\/share-purchase-agreement\"><strong>Share Purchase Agreement<\/strong><\/a>, handing over of the management, payment of any residual amount, etc. are carried out on the 31<sup>st<\/sup> day of publishing of the notice in the newspaper&nbsp; <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Application for NBFC Takeover<\/h2>\n\n\n\n<p>NBFCs\nneed to submit an application along with the following documents to obtain\nprior approval of the Bank in the company&rsquo;s letterhead;<\/p>\n\n\n\n<ul><li>Details of the proposed directors or shareholders as mentioned in the Annexure<\/li><li>The sources of fund of the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Shareholder&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;A shareholder is an individual or entity that owns at least one share of a company&amp;#039;s stock, granting them partial ownership of the company. This status allows them certain rights, including(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/shareholder\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>shareholder<\/a><\/li><li>Declaration by proposed directors or shareholders stating that they are not involved in any unincorporated body accepting deposits<\/li><li>Statement by proposed directors or shareholders saying that there is no criminal case {Including the offence under Section 138 of the Negotiable Instruments Act} against them<\/li><li>Report of the Bank on the proposed directors\/shareholders<\/li><li>The directors\/shareholders have to submit a declaration that they are not a director of any other company whose Certificate of Registration {CoR} is rejected by the RBI<\/li><\/ul>\n\n\n\n<h3>Also, Read: <a href=\"https:\/\/enterslice.com\/learning\/sale-purchase-agreement-sample-format\/\">Sample Format of Sale Purchase Agreement (SPA)<\/a><\/h3>\n\n\n\n<h2 class=\"wp-block-heading\">NBFC Registration VS NBFC takeover<\/h2>\n\n\n\n<p>In case, of <strong><a href=\"https:\/\/enterslice.com\/nbfc-registration\" target=\"_blank\" rel=\"noreferrer noopener\">NBFC registration<\/a><\/strong>, you file a fresh application and have a completely new team of management. While in case of an NBFC takeover, there may be a conflict when you try to retain the members of the target company. When you file an application of NBFC registration, you have the knowledge of all liabilities and its rules &amp; regulations. While when you are planning to acquire the target company, there is a risk of not being aware of the hidden liabilities, which causes a problem in the process.<\/p>\n\n\n\n<table class=\"table table-bordered aligncenter is-style-stripes\"><tbody><tr><td>\n  <strong>NBFC\n  Registration<\/strong>\n  <\/td><td>\n  <strong>NBFC Takeover<\/strong>\n  <\/td><\/tr><tr><td>\n  If the finance assets of an\n  entity increases above 50% of the total asset or income generated from\n  financial assets is more than 50% of total gross income then the company will\n  be NBFC. \n  <\/td><td>\n  The amount paid for goodwill is\n  generally less than the actual price\n  <\/td><\/tr><tr><td>\n  Incorporation of new\/fresh\n  company and norms\n  <\/td><td>\n  Conflicts in new management\n  <\/td><\/tr><tr><td>\n  New team of Management and\n  other employees, so no conflicts\n  <\/td><td>\n  Clash of cultures of two\n  different companies\n  <\/td><\/tr><tr><td>\n  More zeal to work in the new\n  employees\n  <\/td><td>\n  Employee morale decreases\n  <\/td><\/tr><tr><td>\n  No hidden liabilities\n  <\/td><td>\n  The liabilities of the Target\n  Company may be hidden\n  <\/td><\/tr><tr><td>\n  You are aware of all the rules\n  and regulations\n  <\/td><td>\n  There is a risk of not being\n  aware about all the norms \n  <\/td><\/tr><tr><td>\n  Lesser problems in the\n  functioning\n  <\/td><td>\n  Various problems faced in the\n  entity&rsquo;s processing\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>The\nNBFC takeover is the process of taking over an NBFC by any other business\nentity. There are two types of NBFC takeover. One is &lsquo;Friendly takeover&rsquo; in\nwhich the acquiring company takes over an NBFC by providing them prior notice\nand negotiating various terms. Second is &lsquo;Hostile takeover&rsquo; which as the name\nsuggests is the way of acquiring over an NBFC by force and not providing any\nprior intimation or notice.<\/p>\n\n\n\n<p>The\nmanagement of the NBFC must notify and take prior permission from the RBI to\nmake any significant changes in the NBFC. &nbsp;However, small changes made in the company are\nnot subject to receive any approvals from the RBI.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>NBFC takeover is one of the ways, how anyone starts a business in the NBFC sector. The other way is to incorporate a new Non-Banking Financial Company. The takeover means acquiring the control of the management of one NBFC by another business entity. In this blog, we are going to learn about NBFC takeover, RBI [&hellip;]<\/p>\n","protected":false},"author":17,"featured_media":22678,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3202],"tags":[2636],"acf":{"service_id":"60"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>RBI Requirements in Case of NBFC Takeover - RBI Regulations<\/title>\n<meta name=\"description\" content=\"In this blog, we are going to learn about NBFC takeover, RBI Regulations related to NBFC Takeover and the cases in which NBFCs need prior approval from RBI.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/rbi-regulations-related-to-nbfc-takeover\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"RBI Requirements in Case of NBFC Takeover - RBI Regulations\" \/>\n<meta property=\"og:description\" content=\"In this blog, we are going to learn about NBFC takeover, RBI Regulations related to NBFC Takeover and the cases in which NBFCs need prior approval from RBI.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/rbi-regulations-related-to-nbfc-takeover\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2019-08-04T09:36:53+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-06-26T11:15:08+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/imgpsh_fullsize_anim-2.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"630\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Tanya Verma","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/07\/IMG-20190703-WA0001__01.jpg","authorDescription":"Tanya is working as writer &amp; editor from past 2 years with experience in covering startup and technology related topics.","postViews":533,"readingTime":4,"nextPost":{"id":22694,"slug":"digilocker-initiative-under-digital-india"},"prevPost":{"id":22672,"slug":"major-concerns-of-nbfc-sector"},"featuredMediaUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/imgpsh_fullsize_anim-2.jpg","postTerms":"NBFC Takeover","_links":{"self":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/22675"}],"collection":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/comments?post=22675"}],"version-history":[{"count":0,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/22675\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media\/22678"}],"wp:attachment":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media?parent=22675"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/categories?post=22675"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/tags?post=22675"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}