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Introduction
The financial technology (fintech) sector has been experiencing unprecedented growth, with companies continually seeking innovative ways to expand their reach and enhance their offerings. One significant trend is the acquisition of non-banking financial companies (NBFCs) by fintech firms. This strategic move enables fintech companies to strengthen their credit play and navigate the increasingly stringent regulatory environment. This article delves into recent developments in the fintech space, focusing on the acquisition of NBFCs and the comprehensive process involved.
Recent Developments in Fintech Acquisitions
BharatPe’s Acquisition of Trillion Loans
BharatPe, a prominent fintech unicorn, recently acquired a 51 percent stake in Mumbai-based NBFC Trillion Loans. Trillion Loans offers a diverse range of secured and unsecured loans to small businesses and retail customers, including auto, gold, and education loans. This acquisition aligns with BharatPe’s broader mission of facilitating access to capital for underserved and unbanked businesses and customers.
Shashvat Nakrani, BharatPe’s Founder and COO, emphasized that the acquisition would help the company extend its reach and provide credit to a wider audience. Following the acquisition, Trillion Loans will operate as an independent entity under the supervision of BharatPe’s board, exploring partnerships with other fintech firms to enable credit across various sectors.
Wint Wealth Group’s Acquisition of Ambium Finserve
Another notable acquisition in the fintech sector is Wint Wealth Group’s majority stake in Chandigarh-based NBFC Ambium Finserve. Founded in 2017, Ambium Finserve specializes in providing loans to micro, small, and medium enterprises (MSMEs). Post-acquisition, Ambium has initiated wholesale lending operations under the new brand name Wint Capital, focusing on lending to growth-stage NBFCs and planning to offer retail loans in collaboration with Wint Wealth Group’s NBFC partners.
Wint Wealth Group, established in 2020, facilitates investments in various financial instruments, including fixed deposits, corporate and sovereign gold bonds, and bond baskets. The acquisition of Ambium and the subsequent NBFC license is expected to broaden the scope of Wint Wealth’s offerings, particularly in corporate bonds.
Why NBFC Takeovers Are a Feasible Strategy
Acquiring an NBFC offers several advantages for fintech companies, particularly in a regulatory environment where the Reserve Bank of India (RBI) has tightened norms for digital lending. Without an NBFC license, fintech companies face significant challenges in operating within the digital loans space. By acquiring an NBFC, fintech firms can:
- Access a Broader Customer Base: NBFCs often have established networks and customer bases, providing fintech companies with immediate access to a larger audience.
- Expand Product Offerings: With an NBFC license, fintech firms can offer a wider range of credit products, including secured and unsecured loans.
- Enhance Regulatory Compliance: Operating under an NBFC license ensures that fintech companies comply with RBI regulations, mitigating the risk of legal and operational disruptions.
- Leverage Existing Infrastructure: Acquiring an NBFC allows fintech companies to leverage the existing infrastructure and expertise of the NBFC, reducing the time and cost associated with building these capabilities from scratch.
Steps and Considerations for NBFC Takeovers
Pre-Approval from RBI
Securing RBI approval is a critical step in the NBFC takeover process. This approval is mandatory if:
- A change in the NBFC’s shareholding results in the acquisition or transfer of 26% of the paid-up capital.
- There is a change of 30% of the directors to streamline management.
Key Paperwork for NBFC Takeovers
Before filing an application with the RBI, the following documents are essential:
- A statement confirming that none of the proposed directors or shareholders have a criminal background.
- Details about the proposed directors and shareholders.
- A declaration that proposed directors and shareholders are not associated with any entity that accepts deposits.
- A report from the bankers concerning the proposed directors and shareholders.
- Information on the sources of funds for acquiring shares in the NBFC.
Public Notice and Further Steps
Transparency is crucial in the takeover process. The following steps ensure a seamless transition:
- Memorandum of Understanding (MOU): Signing an MOU with the acquiree firm to confirm the intention and norms regarding the takeover.
- Board Meeting: Convening a board meeting to decide on the date and time of the Extraordinary General Meeting (EGM).
- Public Notice: Publishing a notice in a newspaper about the takeover intention, inviting public objections.
- Share Transfer Agreement: Signing the Share Transfer Agreement and paying the token money.
- NOC from Creditors: Securing a No Objection Certificate (NOC) from creditors.
- Transfer of Assets: Executing the transfer of assets as per the Share Transfer Agreement.
- Valuation of the Entity: Estimating the company’s valuation using the Discounted Cash Flow (DCF) Method.
- Notice to Regional Office: Submitting an application to the RBI with required particulars.
Conclusion
The acquisition of NBFCs by fintech companies is a strategic move that offers numerous benefits, including expanded product offerings, regulatory compliance, and access to broader customer bases. However, the process is compliance-intensive and requires meticulous planning and execution. By following the outlined steps and securing the necessary approvals and documentation, fintech firms can successfully navigate the complexities of NBFC takeovers and unlock new growth opportunities.