A complete guide on NBFC Takeover

  • NBFC means Non-banking financial company. NBFC is engaged in the business of financial activity as defined under the Reserve Bank of India Act. A NBFC does not have a full banking license or is not supervised by any national or international banking regulatory agency.  In this blog, we discuss the meaning of  NBFC, NBFC takeover, Types of NBFC takeover and all other aspects of NBFC take over.

    What is the meaning of  NBFC?

    NBFC stands for Non-banking financial company registered under the companies act, 1956/2013. The Main business of NBFC is giving loans, assets, financing, investing in shares and other marketable securities. NBFC also provides working capital loans and credit facilities.

    What is a NBFC takeover?

    The takeover of NBFC implies the purchase of one NBFC by the other company. Only registered NBFC is entitled to acquire the control of another NBFC. In NBFC takeover the management of the target company is captured, and it is taken over either directly or indirectly with an intention to gain and acquire the control over the board of directors of the target company. In NBFC Takeover two kinds of entities are involved. One is the target company and another is the acquirer company. Target company means a company which is being targeted to be acquired by the other company. Acquirer company means a company which is acquiring the target company.

    Types of NBFC  Takeover

    There are 2 types of NBFC Takeover and same are listed below.

    1) Friendly takeover - In case of a friendly takeover, the takeover is executed by the acquirer through negotiations. Acquirer voluntarily approaches the promoters/management of the target company for negotiating and acquiring the shares. It is done on a mutual advantage basis of the acquirer and acquired companies.

    2) Hostile Takeover - In Hostile takeover, acquirer makes a direct offer by passing the management to the shareholders of the target company even without taking the prior consent of the existing promoters/management.

    Purpose of NBFC Takeover

    Purpose of  NBFC takeover is

    1. i) Increase in profitability of Target company
    2. ii) The decrease in competition

    iii) Increase in sales/revenue

    The procedure of NBFC Takeover

    Discussion on the procedure of NBFC takeover is given below

    1) Requirements of the prior approval of Reserve Bank of India during NBFC takeover

    2) Where a NBFC wants to take over management of another NBFC, then Prior public notice in case of a change in management/control is required

    3) If a NBFC seeks to takeover share of another NBFC, then preparation of share purchase agreement is necessary.

    4) Transfer of all assets and liabilities of the transferor company to transferee company.

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