Companies that provide financial services and products but are not formally recognized as banks with a complete banking license are referred to as non-banking financial firms or non-banking financial institutions. A non-banking financial firm is also a corporation whose primary activity is accepting deposits under any plan or arrangement via any channel.
Traditional banks have an alternative in the form of non-banking financial institutions. However, financial concerns may arise from inadequate capital, noncompliance, or bad management. Thus, the possibility of an NBFC takeover emerges. The protocols for the acquisition of NBFCs have been devised by the Reserve Bank of India in order to remove any prejudice or ambiguity.
Impact of NBFC on Indian Economy
As things stand, the nation’s overall economic development is being propelled by the NBFC sector. The RBI is always working to make the essential adjustments to the NBFC regulatory zone in order to support the industry with the necessary regulatory assistance and to ensure long-term financial stability. NBFCs have seen several advances in their operations, management, and compliance as a result of the financial market’s positive position in the Indian economy. In light of this, the RBI has loosened the rules governing NBFCs, particularly those that don’t accept deposits and don’t have a consumer interface or access to public money.
Reasons for NBFC Takeover
The several reasons for NBFC Takeover are mentioned below:
Company Expansion:
The desire to grow a firm is one of the main drivers of an NBFC acquisition. Businesses may expand their reach and presence into other regions and reach unexplored markets and consumers by purchasing another NBFC.
Entry into New Markets and Customer Segments:
Purchasing another NBFC might provide you access to areas of the market and clientele that you might not have been able to reach on your own. Using this tactic, businesses may expand their market reach and use their current clientele.
Portfolio Diversification:
Increasing the variety of goods and services offered is another benefit of a takeover. By diversifying one’s firm, one may lessen one’s reliance on a particular industry and lower one’s risk exposure to market swings.
To Boost Scalability and Efficiency:
Acquiring or merging with another NBFC can lead to chances for cost savings and improved operational effectiveness. Process simplification and resource consolidation can result in economies of scale, which eventually boost profitability.
Acquisition of Specialized Technology and Skills:
In order to get specialized technology, knowledge, or skills that are critical to their expansion and competitiveness, businesses may choose to pursue a takeover. They are able to obtain a market advantage thanks to this tactic.
Regulatory Compliance:
To guarantee adherence to RBI rules and regulations, businesses may occasionally conduct an NBFC takeover. To comply with regulations, this may entail reorganizing ownership or management.
Advantages of NBFC Takeover
- By diversifying the company’s and its product line, it lowers risk and increases profitability.
- Acquiring an NBFC increases its market share by aiming for a sizable client base.
- Promotes cost reduction and increased productivity.
- A takeover multiplies the company’s resources, technology, and experience.
Guidelines for NBFC Takeover
Following are the guidelines for NBFC takeover:
- One of the first guidelines for NBFC takeover is that the net-owned funds of the takeover NBFC must be at least Rs. 2000 crore.
- The takeover NBFC promptly obtains RBI permission prior to the transaction’s end, which is the next vital guideline for an NBFC takeover.
- The Takeover NBFC is unable to alter the targeted NBFC’s management or level of control without first receiving regulatory clearance, which is also one of the guidelines for an NBFC takeover.
- The Takeover NBFCs must ensure that regulations governing takeovers, money laundering, and knowing your customers are followed as the next guidelines for NBFC takeover.
- One of the guidelines for NBFC takeover is that written permission is what’s needed for approval.
- A minimum of 10% of the shares may be acquired or transferred, but only with RBI’s prior consent, which is also one of the crucial guidelines for NBFC takeover.
- One of the major guidelines for NBFC takeover is that if there is a change in shareholding of more than 26% due to repurchase or reduction in share capital, RBI clearance is not needed; nonetheless, the relevant authority should have authorized the buyback or reduction in share capital.
- Whether or not there is a change in management, the RBI must approve every takeover or purchase of an NBFC.
- If the company’s directors are changed by more than 30%, prior written consent will be needed, which is also a significant guideline for an NBFC takeover.
- Any change in the company’s direction must be announced to the public at least thirty days in advance, which is one of the important guidelines for an NBFC takeover.
There are other guidelines for NBFC takeover as well. All these guidelines for NBFC takeover are to be adhered to in order to have a successful NBFC takeover.
Professional Assistance with NBFC
Corpbiz is one of the platforms that strives to fulfil all of your legal and financial requirements and connects you with reputable experts. With years of expertise in this field, we can help you with the processing. Since we are committed to providing you with the finest service possible, we strive to make the NBFC takeover process as simple as possible. Furthermore, our customers may always check the progress of their registration on our site. In the event that you have any questions about the NBFC takeover process, our helpful staff is accessible by phone. Corpbiz will ensure that all guidelines for NBFC takeover are adhered to.
Frequently Asked Questions
How do I start a NBFC?
Whether or not there is a management change, the RBI must first approve any takeover or acquisition of an NBFC. A written approval is what's needed. If a shareholding is acquired or transferred for a value greater than 10%, RBI permission must be obtained.
Why do individuals prefer NBFC over banks?
Lending laws and regulations are less stringent for NBFCs than for banks because they are governed by the Companies Act. This facilitates loan receipt for borrowers. The simpler loan procedure has greatly increased borrower satisfaction.
Can one NBFC purchase another one?
The process by which one Non-Banking Financial Company (NBFC) buys out or takes control of another NBFC is referred to as an NBFC takeover. This can be accomplished by buying shares, merging with another company, combining, or by any other strategy that modifies the target NBFC's management or control.
What steps are taken to regulate NBFC?
Under the RBI Act of 1934, the Reserve Bank is authorized to register, establish guidelines, give orders, inspect, control, oversee, and monitor NBFCs that satisfy the 50/50 primary business requirements.
What part of the economy does NBFC play?
An important factor in fostering India's economic growth is NBFCs. By offering a wide variety of financial services, they facilitate the use of these services by more people and companies, promoting financial inclusion and economic expansion.
In what ways is NBFC limited?
In addition to not being able to issue checks drawn on them, NBFCs are not a part of the payment and settlement system and are not permitted to receive demand deposits.
Can NBFC take time deposits?
NBFC may accept or renew the public deposits for a maximum of 60 months and a minimum of 12 months. Refundable deposits are not accepted by them. ii. NBFCs are not permitted to offer interest rates greater than the cap rate that the RBI occasionally sets.
What is the NBFC internal audit?
These NBFCs' internal audits have been instructed to conduct risk assessments (in accordance with RBI guidelines) and schedule audits according to anticipated business risk and severity, ensuring that all high-risk areas are evaluated and examined first.
Is an audit required of NBFC?
The Reserve Bank of India (RBI) regulations for non-bank financial companies (NBFCs) and the Companies Act of 2013 both require statutory audits.
How is money raised by NBFC?
In order to raise money, NBFCs offer a variety of debt securities. These instruments consist of bonds, non-convertible debentures (NCDs), commercial papers, and debentures.
Read Our Article: Complete Checklist For NBFC Compliance
