NBFC Due Diligence Procedure in India
by Enterslice ITES Pvt. Ltd. Start and Manage BusinessWhat
is Due Diligence of NBFC? When is This
Required?
NBFC stands for Non-Banking Financial
Company registered
under section 45-I of Reserve Bank of India Act, 1934. This is an important part of financial service Industry in
the country, creating and deploying fund
for infrastructure to micro and small-medium
sized industries in India. It’s a somewhere part of the alternative source of funding for various business and other needs
of people. As far as Due Diligence is a concern
in terms of Buying
and Selling of NBFC,
most of the case is similar to as Normal Procedure of Due Diligence. First, it’s a
company registered under Companies Act, 2013/1956 and the next is regulated by
Reserve Bank of India, hence both the authority to note simultaneously as far
as the operation of the company is a concern.
Moreover the tax either Direct or Indirect, both as far as applicability need
to be sound to have good remark due diligence report by independent
Professional excising Due Diligence activities of concern NBFC.
What
is Due Diligence?
The dictionary meaning of Due Diligence is an appraisal of business, especially to establish its assets and
liabilities and evaluate its commercial potential. According to Institute of
Chartered Accountants in England and Wales (ICAEW), there are major four types
of due diligence i.e. Legal, Financial, Commercial & Other. On each
segment, the entity is appraised based on
a various questionnaire. Legal due
diligence seeks to examine the legal basis of the transaction, legal structure, contracts, loans, property,
employment and pending litigation if any.
However, under Financial due diligence, the independent
professional is focused on verifying the financial information provided and to
assess the underlying performance of the business.
It covers area like earnings, assets, liabilities, cash flow, debt, and management. Further commercial due
diligence considers the market in which a business sits, for example involving
conversations with customers, an assessment of competitors and a fuller
analysis of the assumptions that lie behind the business plan. All of this is
intended to determine whether the business plan stands up to the realities of
the market. In fourth perspective i.e. other, it includes areas such as
Taxation, IT Systems, and Intellectual
Property.
Collection
of Information
The most required and question
matter in terms of Due Diligence process is information, the source of information, reliability, and accuracy. Hence Information of Target
Company is most to gather and acquired in a systematic
way to find the required compliance to mark in order to possess informed decision
regarding any substantial decision regarding any entity of which due diligence
is done. More or less information regarding entity can be accessed from
Business News, Market Data, and Company Financial, directors of Company as well
as an employee of the company too.
Matter
to Check
As now, discussing on Due Diligence
of NBFC matter to be check is long and as a
process flow,
the entire questionnaire session can be more or less categorized or
synchronized under four heads i.e. Legal, Financial, Commercial and other. In
each class, the information of Target Company is analyzed to form a decision. In brief, professional undertaking
the due diligence of NBFC can categorize
the questionnaire in sequence of:-
a. Corporate Matters
b. Minutes of Meetings & Secretarial Compliance
c. Foreign & Overseas Direct Investment, if any.
d. Material Agreements
e. Financing Matters
f. Regulatory Matters i.e., in this case, RBI compliance records.
g. Property
h. Litigation
i. Human Resources
j. Insurance
k. Intellectual Property Rights
l. Taxation Compliance
Based on above pointwise issue, still the concerned person required to check the
following points on NBFC Due Diligence:-
1. Compliance with Section 45-IC i.e. Creation of Statutory Reserve @ 20% profit
2. Registration to FIU-IND
3. Membership of Credit Information Company (CIC)
4. Auditor Report to Directors based on circular DNBS (PD) CC No. 129/03.02.82/2008-09 dated September 23, 2008 (now it's 2016) & Statutory Auditor Certificate (SAC)
5. Registration of Company with Central KYC Portal
6. Registration with information Utility set up under IBC, 2016
7. Appointment of Nominated Counsel in Delhi High Court
What if Foreign Entity or Resident
want to acquire the existing NBFC business in India then the entire process of
inward remittance of funding to be channelized through Banking route in supervision
and intimation of Reserve bank of India. The entire process should be read with
FEMA, 1999, FDI Scheme and RBI regulation for reporting. If the target company
is of Purely Investment Nature, then the
Foreign Entity/person require approval from Department of Economic Affairs
under extant FDI policy and FEMA regulation.
In this way, the professional
engaged in doing NBFC Due Diligence can have its report recommending the level
of risk/opinion on entity information based on sufficient appropriate due
diligence evidence collected from the entity.
Source
By: https://yourstory.com/mystory/ff440260f5-nbfc-due-diligence-pro
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Created on Feb 15th 2018 04:23. Viewed 733 times.