Process of acquiring an NBFC in India

India’s non-banking financial company (NBFC) sector is the third largest in the world, following only the United States and the United Kingdom.

This impressive growth is driven by a strong demand for credit within the country.

Given the sector's potential for profitability, many businesses are interested in entering the NBFC market.

However, obtaining a new NBFC license can be complex and challenging. As a result, many opt for a simpler route: acquiring an existing NBFC.

Here’s a straightforward guide to the process of acquiring an existing NBFC in India, based on the Companies Act of 2013 and the Master Directions – RBI (NBFC - Scale Based Regulations), 2023:

Process Involved:

There are two things you need to know:

-> The process followed under the Companies Act

-> Few additional steps that have been prescribed under the Scale Based Regulations when a company (“Acquirer”) is acquiring an NBFC (“Acquiree”)

1) Draft the Share Purchase Agreement (SPA):

Create a Share Purchase Agreement (SPA) where the current shareholders of the NBFC agree to sell their shares to the acquiring company.

This agreement should detail the terms and conditions agreed upon by both parties.

2) Conduct Board and Shareholder Meetings:

Hold a board meeting and an extraordinary general meeting (EGM).

During these meetings, resolutions must be passed to authorize the execution of the SPA and to appoint a representative to seek RBI approval for the acquisition.

3) Obtain RBI Approval:

Submit an application to the Reserve Bank of India (RBI).

This application must include several documents, such as declarations from the proposed shareholders or directors, information about the source of funds, and reports from bankers.

4) Issue a Public Notice:

Once the RBI’s initial approval is received, issue a public notice about the acquisition.

This notice must be published in two leading newspapers 30 days before completing the sale. The public has this time to raise any objections to the transaction.

5) Avoid FATF Non-Compliant Jurisdictions:

While 100% foreign direct investment (FDI) is permitted in NBFCs, investments from countries with weak anti-money laundering and counter-terrorism financing measures are not allowed.

6) Complete Post-Closing Actions:

After the public notice period ends, fulfill the remaining obligations to complete the share transfer.

This includes transferring shares from the seller’s Demat account (if applicable) to the buyer and releasing the payment from the escrow account to the sellers.

End Notes

Acquiring an NBFC in India is quite a profitable opportunity, but the process is filled with hurdles.

Every step, from drafting the SPA to handling post-closing actions, requires careful attention to detail.

If you’re ready to dive into the NBFC sector, make sure you’re prepared for the complexities.

But why take the headache of handling the process alone?

If you need help, consider reaching out to me. I can help you with the whole process. Through every step.

How to start? Reply to this with "NBFC" and I will tell you the details n how we can work together.

Talk to you soon.

-- Akhil Mishra