Loan Company

LOAN COMPANY REGISTRATION

Loan Company is a type of financial institution carrying its principal business of providing finance in the form of loans or advances. They obtain funds by taking deposits from the public and give loans to small-scale traders. Generally, these type of companies obtain funds in the form of public deposits and give loans to wholesale and retail traders, small-scale industries and self-employed persons. By offering higher rates of interest, they collect fixed deposits from the public and give loans to others at relatively higher rates of interest.

Now come to the takeover process of Loan Company, here are the following takeover requirements:

Takeover process requires prior approval of the Reserve Bank of India whereas minor changes in the management or control are outside the purview of the approval but in case of significant changes, prior approval of RBI is required to be obtained.

In the following circumstances, prior approval of Reserve Bank of India is required:

  • The Takeover of NBFC or acquisition of control, which may or may not results in the change in management.
  • Variation in the shareholding of an NBFC, which is resulting in 26% acquisition or transfer of the paid-up capital including progressive increases over the period of time.
  • Change in the management by way of change in more than 30% of the directors of the NBFC.
  • Prior approval of RBI will be required in case of acquisition or transfer of shareholding for more than 10%.
  • In case there is a change in shareholding for more than 26% for the reason of buyback/reduction in share capital but this reduction/buyback should have been approved by the competent authority, no RBI approval will be required.
  • No RBI approval will be required in case of a change in the management by 30 % inclusive of Independent Directors or by rotation of the directors in Board.
  • Change in direction of the company requires a prior public notice at least 30 days prior to the announcement of such change.

APPLICATION FOR PRIOR APPROVAL OF RBI

The next step is to make an application to the RBI for the approval on the letterhead of the company along with the following required documents:

  • Information of Proposed directors and shareholders.
  • Information regarding sources of funds required for acquiring shares in the NBFC by the proposed shareholders.
  • Declaration by all the proposed directors and shareholders stating their non-association with any entity accepting deposits.
  • Declaration by all the proposed directors and shareholders stating their non-association with any entity to whom Certificate of Registration is denied by the RBI.
  • Statement regarding non-criminal background as well as non-conviction under section 138 of the Negotiable Instruments Act by all the proposed directors as well as shareholders.
  • Bankers’ Report with regard to proposed directors and shareholders.

An application shall be submitted to the Regional Office of the Department of Non-Banking Supervision in whose control the Registered Office of the NBFC is located. All the queries raised by the RBI shall be timely answered in respect of the takeover so as to avoid any unforeseen delay in the approval. Usually, an application for NBFC takeover goes through a processing time of three to four months in the normal course of business.