Strategic Management

What Is Strategic Management?

Strategic management refers to the process of planning, implementing, and evaluating strategies to achieve long-term organisational goals. It decides where the company is going, how it will get there, and how it will stay competitive along the journey.

The heart of strategic management lies in defining:

  • Goals of the organisation
  • Means of achieving those goals
  • Game plan for business operations
  • Long-term perspective
  • Blueprint of organisational direction

When you hear managers talk about “future roadmap”, “expansion plans”, or “market positioning”, they are referring to strategic management.

What Is Strategy?

A strategy is the game plan that a business uses to achieve its market position, improve customer satisfaction, strengthen operations, and accomplish organisational objectives.

A good strategy is:

  • Long-range in nature
  • Focused on organisational growth
  • Designed to build competitive strength
  • Aimed at future-oriented actions

In simpler terms, strategy answers three big questions:

  1. Where are we now?
  2. Where do we want to be?
  3. How do we get there?

Characteristics of Strategy

A good organisational strategy is a blend of both proactive and reactive approaches.

1. Proactive Strategy

A proactive strategy means planning ahead by anticipating:

  • Market shifts
  • Consumer behavior
  • Competitive moves
  • Industry disruptions

Companies use proactive strategies to:

  • Improve market share
  • Strengthen financial performance
  • Respond to fresh market conditions
  • Tackle unanticipated developments

This is often known as a planned strategy.

2. Reactive Strategy

A reactive strategy comes into action when unexpected situations appear.

It includes:

  • Adjusting to market changes
  • Adapting to competitive threats
  • Modifying plans due to economic shifts
  • Responding to environmental challenges

Most successful businesses use a balanced blend of proactive and reactive strategies.

How Strategies Are Formulated

Every organisation creates three major types of strategies. These are essential for long-term planning and ensuring smooth functioning across every department.

1. Corporate Strategy

A corporate strategy deals with high-level decisions such as:

  • Business expansion
  • Vertical integration
  • Horizontal integration
  • Diversification
  • Mergers and acquisitions
  • Takeovers
  • New market entry

It sets the overall direction of the organisation.

2. Business/Divisional Strategy

This strategy focuses on individual business units or divisions. It helps them:

  • Define competitive advantage
  • Improve financial performance
  • Plan operational tactics
  • Manage divisional resources

Each business unit creates strategies suited to its own market environment.

3. Functional Strategy

This involves strategies at the department level, such as:

  • Marketing strategy
  • HR strategy
  • Finance strategy
  • Production strategy
  • R&D strategy
  • Customer service strategy

Functional strategies ensure that each department works in alignment with organisational goals.

Importance of Strategic Management

Understanding the importance of strategic management helps explain why companies invest heavily in planning and analysis.

Here’s what strategic management does for a business:

1. Provides Direction

It sets a clear path for the future so employees understand what the company aims to achieve.

2. Helps Organisations Become Proactive

Instead of reacting to competition, the company can shape the future through forward-thinking actions.

3. Improves Decision-Making

Strategic management influences decisions related to:

  • Products
  • Services
  • Markets
  • Investments
  • Manufacturing
  • Organisational structure

4. Prepares Organisations for Opportunities

It helps identify and seize business opportunities before competitors do.

5. Acts as a Defence Mechanism

Strategic planning helps avoid:

  • Costly mistakes
  • Business pitfalls
  • Market misjudgments

6. Enhances Business Longevity

Companies that plan strategically are more likely to sustain through market upturns and downturns.

7. Builds Core Competency

It strengthens the company’s unique abilities that competitors cannot easily copy.

8. Creates Competitive Advantage

Strategic management ensures that the organisation stands out in the market.

Limitations of Strategic Management

Even though it’s powerful, strategic management has its limitations:

  • It’s highly complex in a turbulent business environment
  • It’s time-consuming
  • It can be a costly process
  • It requires skilled managers
  • It needs continuous monitoring and revision

Still, the benefits outweigh the limitations for most organisations.

The Strategic Management Process

The entire strategic management process includes:

  1. Strategy formulation
  2. Strategy implementation
  3. Strategy evaluation
  4. Strategy control

The objective is simple — help the organisation achieve strategic intent.

What Is Strategic Intent?

Strategic intent is the long-term vision that guides a company’s energy and resources. It ensures that every action taken by the organisation moves in a predetermined direction.

Strategic intent includes:

1. Vision

A vision statement defines the future position the company wants to achieve.
It acts as a blueprint for long-term aspirations.

2. Mission

A mission statement defines the organisation’s purpose in society.

It helps:

  • Investors understand the company’s purpose
  • Customers relate to brand philosophy
  • Employees align with organisational goals

3. Goals and Objectives

  • Goals: Broad end results an organisation wants to achieve
  • Objectives: Specific, measurable, time-bound targets

Objectives support the achievement of bigger goals.

Values and Value System

A company’s value system includes deep-rooted principles that guide decisions, behaviours, and strategies.

Values influence:

  • Ethical practices
  • Organisational culture
  • Strategic choices
  • Leadership style
  • Long-term sustainability

Levels of Strategy in an Organisation

Strategic management operates at three major levels:

1. Corporate Level Strategy

This is developed by top management.
Corporate-level decisions include:

  • Expansion
  • Diversification
  • New business acquisition
  • Resource allocation
  • Strategic partnerships

2. Business Level Strategy

This focuses on how individual business units compete.
It includes:

  • Pricing strategy
  • Product strategy
  • Customer targeting
  • Operational efficiency

3. Functional Level Strategy

Created by department managers such as:

  • HR managers
  • Marketing managers
  • Production managers
  • Finance managers

These strategies ensure smooth and efficient operations.

Network of Relationships Between the Levels

There are three major relationships within organisational levels:

1. Functional/Divisional Relationship

Each division operates independently but reports directly to top management.

2. Horizontal Relationship

People at similar hierarchical levels collaborate across departments.

3. Matrix Relationship

A flexible structure where employees from different departments come together for project-based work.
This helps organisations manage large and complex projects efficiently.

Why Strategic Management Matters Today

In a world full of:

  • Market disruptions
  • Economic uncertainty
  • Technological innovation
  • Global competition

Strategic management acts as a shield, guide, and growth engine for organisations.

Companies that master strategic management achieve:

  • Better profits
  • Stronger brand positioning
  • Improved decision-making
  • Sustainable business growth

Conclusion

Strategic management has become the foundation of modern business success, guiding organisations through competition, technological shifts, regulatory changes, and evolving market demands. It gives companies a clear direction, sharper decision-making abilities, and the confidence to pursue long-term growth instead of reacting to short-term challenges.

Here’s the thing, building an effective strategy is only half the journey. To actually implement it, companies must maintain strong documentation, disciplined governance, regulatory compliance, and a risk-free operational structure. That’s where having the right partner makes all the difference.

Habinx Compliance LLP supports organisations in aligning their strategic goals with strict regulatory and compliance requirements. From company registration, statutory filings, and annual compliance management to documentation, governance frameworks, and end-to-end advisory, Habinx ensures every process is accurate, timely, and fully aligned with India’s legal and regulatory standards. Their expertise helps businesses stay focused on growth while all critical compliance responsibilities are handled with precision.

If you’re planning to strengthen your organisation’s strategic foundation, streamline regulatory processes, or reduce compliance risks, partnering with Habinx Compliance LLP ensures a smooth, secure, and professionally managed journey.

Contact Habinx Compliance LLP
 📧 info@habinxcompliance.com
 📞 +91 95111 17743

Frequently Asked Questions (FAQs)

1. What is strategic management?
Strategic management is the process of planning, implementing, and evaluating strategies that help an organisation achieve long-term goals and maintain a competitive position.

2. Why is strategic management important for a business?
It provides direction, improves decision-making, helps companies become proactive, strengthens competitive advantage, and ensures long-term sustainability.

3. What are the main components of strategic management?
The core components include strategy formulation, strategy implementation, strategy evaluation, and strategic control.

4. What is the difference between goals and objectives?
Goals are broad long-term outcomes, while objectives are specific, measurable, and time-bound targets that help achieve those goals.

5. What are the three levels of strategy in an organisation?
The three levels are corporate strategy, business (or divisional) strategy, and functional strategy.

6. What is strategic intent?
Strategic intent refers to the long-term vision, mission, goals, and values that guide the direction and purpose of an organisation.

7. What is a proactive strategy?
A proactive strategy involves planning ahead by anticipating market trends, competition, and industry changes rather than reacting to them later.

8. What is a reactive strategy?
A reactive strategy focuses on responding to sudden, unexpected changes in the market, competition, or environment.

9. How does strategic management help with competitive advantage?
It helps organisations identify strengths, build unique capabilities, optimise resources, and position themselves better than competitors.

10. What are the limitations of strategic management?
It can be time-consuming, costly, complex, and requires continuous monitoring and skilled managers.

11. How often should a company review its strategy?
Most organisations review their strategies annually, but dynamic industries may review them quarterly or even monthly.

12. Who is responsible for strategic management in a company?
Top-level management drives strategic planning, but middle and functional managers play key roles in implementing and supporting the strategy.

13. How does strategic management differ from operational management?
Strategic management focuses on long-term goals and direction, while operational management handles day-to-day activities and short-term efficiency.

14. Can small businesses also use strategic management?
Yes. Strategic management helps small businesses improve focus, manage resources better, and compete effectively.

15. What is the role of a vision statement in strategy?
A vision statement outlines what the organisation wants to become in the future, guiding all long-term planning efforts.

NBFC Takeover

NBFC Ready Reckoner (Part 1)

A Simplified Guide to Understanding Non-Banking Financial Companies in India

If you’re trying to understand the world of NBFCs, here’s the thing, this sector isn’t just growing; it’s reshaping India’s financial landscape. Over the last decade, NBFCs have become the go-to source of credit for individuals, small businesses, and entrepreneurs who often feel ignored by traditional banks.

They offer quicker approvals, flexible lending structures, and products that match the real needs of borrowers. No unnecessary paperwork. No long delays. No rigid processes.

Let’s break down everything you need to know.

What Exactly Is an NBFC?

An NBFC is a company registered under the Companies Act, 2013, engaged in:

  • Loans and advances
  • Leasing and hire purchase
  • Investment in securities
  • Microfinance
  • Financing assets and businesses

NBFCs operate under Chapter IIIB of the RBI Act, 1934, and must obtain approval from the Reserve Bank of India (RBI) before starting operations.

Unlike banks, NBFCs cannot accept demand deposits, cannot issue cheques, and are not part of the payment and settlement system. But they fill a massive gap left by banks by offering accessible and customizable credit.

The Principal Business Criteria (PBC)

For a company to qualify as an NBFC, it must meet two conditions:

  1. More than 50% of its total assets must be financial assets
  2. More than 50% of its total income must come from financial activities

If both conditions are met, RBI treats the company as a financial institution.

Types of NBFCs in India

NBFCs aren’t one-size-fits-all. They come in multiple categories, depending on what they do. Here’s a simple breakdown.

1. Investment and Credit Company (NBFC-ICC)

These NBFCs provide loans, finance assets, and invest in securities. They form the largest and most common category.

2. Infrastructure Finance Company (NBFC-IFC)

These companies finance large-scale infrastructure projects such as:

  • Roads
  • Power plants
  • Ports
  • Railways

At least 75% of their assets must be in infrastructure loans.

3. Infrastructure Debt Fund (IDF-NBFC)

IDFs channel long-term funds from domestic and foreign investors into infrastructure projects. They often raise money by issuing bonds or units that attract pension and insurance funds.

4. Mortgage Guarantee Company (MGC-NBFC)

These companies provide mortgage guarantees—a safety net for lenders in case a borrower defaults.
At least 90% of their income must come from this activity.

5. Non-Operative Financial Holding Company (NOFHC)

An NOFHC is a parent holding company that owns a bank and other financial institutions within a group. RBI uses this structure to ensure clean separation between banking and non-banking businesses.

6. Micro Finance Institution (NBFC-MFI)

NBFC-MFIs lend to low-income individuals and small businesses. Their focus is financial inclusion through:

  • Small ticket loans
  • Savings support
  • Micro-insurance
  • Remittance services

7. NBFC-Factor

NBFC-Factors purchase business receivables at a discount to provide companies with immediate working capital. It’s a crucial service for MSMEs with long receivable cycles.

8. Systemically Important Core Investment Company (CIC-ND-SI)

These companies primarily invest in shares and securities of group companies.
They must hold 90% or more of total assets in such investments.

How NBFCs Differ From Banks

While NBFCs and banks offer similar financial services, the distinctions are crucial:

  • NBFCs cannot accept demand deposits
  • NBFC deposits do not have insurance protection
  • NBFCs are not allowed to issue cheques
  • NBFCs are outside the payment and settlement system

Yet, NBFCs outperform banks in flexibility, speed, and outreach.

Requirements for NBFC Registration

To become an NBFC in India, a company must:

  • Be registered under the Companies Act, 2013
  • Maintain a minimum Net Owned Fund (NOF) of ₹10 crore
  • Ensure at least one director has financial/banking experience
  • Maintain clean credit history for the company and its directors/shareholders

NBFC Registration Process: Step-by-Step

Here’s how the registration process typically unfolds:

1. Submit Online Application on RBI’s COSMOS Portal

Upload documents and complete the form.

2. Obtain the Application Reference Number (ARN)

This helps track the application status.

3. Send a Physical Copy to RBI’s Regional Office

The hard copy must match the online submission.

4. RBI Conducts a Thorough Review

This includes:

  • Financial stability
  • Management background
  • Board structure
  • Business plan
  • Source of Net Owned Funds

5. RBI Issues the Certificate of Registration (CoR)

Once satisfied, RBI grants approval – allowing the company to operate as an NBFC.

Documents Required for NBFC Registration

You’ll need:

  1. Incorporation Certificate
  2. Memorandum of Association with financial activities clause
  3. Board resolutions confirming no NBFC activity prior to registration
  4. Banker’s certificate + Fixed Deposit receipt (showing NOF compliance)
  5. Last 3 years of audited financial reports
  6. Banker’s report for company and directors
  7. Qualification and experience proofs for directors

Conclusion

NBFCs have become a cornerstone of India’s financial ecosystem, filling the gap left by traditional banks and supporting millions of borrowers, entrepreneurs, and small businesses. Their flexibility, faster processing, and customer-first approach make them essential for financial inclusion and economic growth.

But here’s the thing, running or registering an NBFC is not just about lending money. It requires disciplined compliance, strong documentation, a clean regulatory track, and a deep understanding of RBI’s evolving guidelines. That’s where having the right support makes all the difference.

Habinx Compliance LLP helps businesses and NBFC aspirants navigate this entire landscape with confidence. From company registration and GST filing to accounting, legal documentation, and RBI-focused compliance, Habinx ensures every process is smooth, accurate, and aligned with regulations. Their guidance helps financial companies focus on growth while critical compliance work is handled with precision.

If you’re planning to register an NBFC, expand operations, or streamline regulatory filings, partnering with Habinx Compliance LLP simplifies the journey and reduces compliance risk.

Contact Habinx Compliance LLP
 📧 info@habinxcompliance.com
 📞 +91 95111 17743

FAQs

1. What is an NBFC and how is it different from a bank?

An NBFC is a company registered under the Companies Act, 2013, that provides loans, credit, leasing, and other financial services. Unlike banks, NBFCs cannot accept demand deposits, cannot issue cheques, and are not part of the payment and settlement system. They focus more on flexible and customer-friendly lending solutions.

2. What is the Principal Business Criteria (PBC) for NBFCs?

A company qualifies as an NBFC when more than 50% of its total assets are financial assets and more than 50% of its total income comes from financial activities. Meeting both criteria is mandatory for RBI recognition.

3. How many types of NBFCs are there in India?

NBFCs come in multiple categories including Investment and Credit Companies (ICC), Infrastructure Finance Companies (IFC), Infrastructure Debt Funds (IDF), Mortgage Guarantee Companies (MGC), NBFC-MFIs, NBFC-Factors, NOFHCs, and Core Investment Companies (CIC-ND-SI). Each type has a distinct function and regulatory requirement.

4. What is the minimum Net Owned Fund (NOF) required for NBFC registration?

RBI mandates a minimum NOF of ₹10 crore for any company applying for NBFC registration. The amount must be maintained as liquid, unencumbered funds.

5. What is the complete process for registering an NBFC with the RBI?

The process includes submitting an online application through RBI’s COSMOS portal, receiving the Application Reference Number (ARN), sending a physical application to the regional office, undergoing RBI scrutiny, and finally receiving the Certificate of Registration (CoR) upon approval.

6. What documents are required for NBFC registration?

Key documents include the Certificate of Incorporation, MoA with financial activity clause, board resolutions, banker’s certificate showing NOF, audited financials for three years, banker’s reports for directors, and proof of qualification and experience of directors.

7. How do NBFCs contribute to India’s financial inclusion?

NBFCs provide faster approvals, flexible products, and customer-centric credit solutions, making them accessible for small businesses, first-time borrowers, and individuals who may not qualify for bank loans. They play a major role in bridging credit gaps in underserved areas.

8. How can Habinx Compliance LLP help with NBFC registration and compliance?

Habinx Compliance LLP assists with NBFC registration, GST filings, accounting, documentation, and full regulatory compliance. They help entrepreneurs meet RBI requirements efficiently and ensure all paperwork, filings, and legal processes are managed correctly.
Contact: info@habinxcompliance.com | +91 95111 17743

NBFC READY RECKONER

NBFC Funding and Takeover Procedure in India: The Complete Detailed Guide (2025 Edition)

Non-Banking Financial Companies, or NBFCs, have become one of the most influential pillars of India’s financial system. They lend where banks hesitate, operate in markets that banks often overlook, and support millions of customers and businesses. Whether it’s micro-loans, SME credit, vehicle financing, gold loans, consumer durable loans, or infrastructure support—NBFCs play a bigger role today than ever before.

To understand NBFCs completely, you need clarity on two major areas:

  1. How NBFCs raise funds, manage them, and stay profitable
  2. How NBFC takeovers work and what RBI expects during the process

This guide brings both topics together- in full detail, exactly as written by the original author but rewritten in an expert, conversational way that’s search-friendly and clear to understand.

Why NBFC Funding Works Differently Than Banks?

One thing sets NBFCs apart: they cannot accept CASA deposits (Current Account Savings Account). Only banks with RBI permission can raise low-cost public deposits.

Because NBFCs lack this advantage:

  • They borrow at higher interest rates
  • Their cost of funds is significantly higher
  • Their margins are tighter
  • They must be smarter with risk and liquidity

Most NBFCs borrow at rates above what banks themselves offer on deposits (usually 4–6 percent). Despite this, they still need to maintain a Net Interest Margin (NIM) of roughly 1–3 percent, which is the difference between the interest they earn from lending and the interest they pay on borrowed funds.

So where do NBFCs get their funding from? Let’s go deep.

Primary Funding Sources for NBFCs (Explained in Full Detail)

NBFCs raise funds from banks, investors, capital markets, long-term loans, bonds, debentures, and short-term instruments. Let’s break each one down thoroughly.

1. Bank Finance to NBFCs

Banks are the largest lenders to NBFCs.

They offer:

  • Term loans
  • Working capital lines
  • Cash credit facilities
  • Overdraft limits

According to RBI data, banks extended nearly ₹1.9 lakh crore to the NBFC sector in just one year (2018–19), marking almost 40% growth.

For NBFCs, bank loans are attractive because:

  • Banks can lend at relatively lower interest rates
  • Banks have access to cheaper funds through CASA
  • NBFCs can borrow in bulk (large ticket sizes)

However, NBFCs need:

  • A strong credit rating
  • Solid financials
  • A clean track record
  • Low NPAs

Only then they can obtain large loans at competitive rates.

2. Private Equity (PE) and Venture Capital (VC)

Investors love NBFCs for a simple reason: they grow fast.

When banks struggled with non-performing assets (NPAs), private equity and venture capital firms started investing in:

  • NBFCs
  • Housing finance companies
  • Small finance banks
  • Microfinance institutions
  • Fintech lenders

Reasons investors prefer NBFCs:

  • High demand for credit
  • Underserved markets
  • Flexibility in lending
  • Strong growth potential

Many NBFCs (especially in fintech, microfinance, gold loans, and consumer lending) have raised multiple rounds of funding from global investors.

3. Long-Term Loans from Banks

NBFCs often take large, long-term loans from banks for consistent operations.

These loans may be:

  • Secured – backed by assets
  • Unsecured – depending on credit strength

Repayment structures can be:

  • Bullet repayment – paid at the end
  • Structured repayment – EMI-style or customized

A strong credit rating helps negotiate better terms.

4. Bonds and Debentures

Many NBFCs raise long-term money from the capital market by issuing:

  • Secured bonds
  • Unsecured bonds
  • Non-convertible debentures (NCDs)
  • Tax-free bonds (especially infrastructure-focused NBFCs)

Key details:

  • Coupon rate depends on NBFC’s credit rating
  • Rates are typically higher than government securities
  • Tenure matches the maturity of assets

Retail and institutional investors often invest heavily in NBFC bonds.

5. Commercial Papers (CPs) – Short-Term Funding

When NBFCs need short-term funds, they issue Commercial Papers.

These are:

  • Unsecured promissory notes
  • Maturity between 3 to 12 months
  • Used for short-term liquidity
  • Issued at a discount, redeemed at face value

NBFCs rely on CPs to fill temporary funding gaps.

How NBFCs Measure Fundraising Efficiency

Raising money is one thing. Using it wisely is another. Two major aspects help NBFCs maintain financial health.

1. Asset–Liability Mismatch (ALM)

NBFCs must ensure that:

  • The money they borrow doesn’t mature before
  • The money they lend starts generating returns

If outflows come before inflows, the NBFC may run out of cash.

ALM management ensures:

  • Liquidity safety
  • Stability of operations
  • Controlled risk
  • Better financial planning

2. Net Interest Margin (NIM)

NIM = Interest earned from borrowers – Interest paid to lenders

Since NBFCs borrow at higher rates than banks, maintaining NIM is crucial.

How NBFCs Manage Funds Internally

Two major departments handle fundraising and fund deployment.

1. Rupee Resources Department

Responsible for:

  • Raising short-term and long-term funds
  • Maintaining liquidity
  • Negotiating with banks and investors
  • Ensuring no shortage of capital

2. Treasury Department

Responsible for:

  • Deploying funds
  • Managing investments
  • Monitoring interest rates
  • Ensuring perfect ALM
  • Managing market risks
  • Using tools like VaR for risk analysis

The Treasury ensures that every rupee raised is used wisely.

Major Risks NBFCs Must Watch Closely

NBFCs track several high-impact risks:

1. Liquidity Risk

Inability to liquidate assets to meet obligations.

2. Interest Rate Risk

Fluctuating interest rates reduce margins.

3. Foreign Exchange Risk

Currency movements can cause losses (especially in global borrowings).

4. Equity Price Risk

Market fluctuations can reduce investment value.

NBFCs use:

  • Value at Risk (VaR)
  • Loss Given Default (LGD)
  • Strong IT tools
  • Real-time dashboards

…to stay ahead of these risks.

Role of Asset-Liability Committee (ALCO)

Every NBFC has an ALCO, typically led by CXOs.

ALCO handles:

  • Liquidity management
  • Pricing strategy
  • Risk-return decisions
  • Maturity structure of assets and liabilities
  • Base rate setting
  • Market trend analysis

It is the most important risk-management committee inside an NBFC.

Treasury Operations: Front, Mid, and Back Office

NBFCs divide treasury into three clear units:

1. Front Office

  • Active trading
  • Market interactions
  • Risk-taking within limits

2. Mid Office

  • Monitors risk
  • Ensures front office stays within limits
  • Independent analysis

3. Back Office

  • Settlement
  • Accounting
  • Compliance
  • Reconciliation

This structure maintains checks and balances across the organization.

Understanding NBFC Takeovers in India

A takeover is simply one NBFC gaining control of another NBFC.

Only an NBFC can acquire another NBFC.

Two companies are involved:

  • Target Company – being acquired
  • Acquirer Company – acquiring

Types of NBFC Takeovers

1. Friendly Takeover

Mutual agreement between both companies.

2. Hostile Takeover

The acquirer takes control without consent.

Benefits of NBFC Takeovers

  • Greater market share
  • Higher revenue
  • Reduced competition
  • Expanded network
  • Economies of scale
  • Better operational synergy

Challenges in Takeovers

  • Hidden liabilities
  • Conflicts in management
  • Cultural mismatch
  • Compliance delays
  • Integration difficulties

When Does RBI Approval Become Mandatory?

RBI approval is needed when:

  • 26% or more shareholding changes
  • 30% or more board members change
  • Control or management changes

How to Apply for RBI Approval

The acquirer must submit:

  • Details of proposed directors
  • Shareholding pattern
  • Source of funds
  • Business plan

The application goes to the RBI Regional Office.

Approval usually takes 3–4 months.

Public Notice Requirement

Before final transfer:

  • Issue notice in 1 national and 1 local newspaper
  • Minimum 30 days before the takeover

This maintains transparency for creditors, employees, and stakeholders.

Step-by-Step NBFC Takeover Procedure (Full Detailed Breakdown)

Here’s the complete process:

  1. Signing the Memorandum of Understanding (MOU)
    Outlines terms and responsibilities.
  2. Board Meetings
    Both companies approve the takeover plan.
  3. Public Notice
    Published in newspapers for objections.
  4. Share Transfer Agreement
    Legal agreement to transfer shares.
  5. NOC from Creditors
    Ensures no creditor objects to the takeover.
  6. Valuation of Company
    A CA or merchant banker evaluates the NBFC’s assets.
  7. Transfer of Assets and Liabilities
    Acquirer takes control.
  8. Intimation to RBI
    The final update after takeover completion.

Conclusion

NBFCs fuel India’s economic engine by offering flexible credit where banks often fall short. Their long-term success depends on efficient fundraising, disciplined risk management, and strategic expansion – including mergers and takeovers when the timing is right. A well-managed NBFC with a strong treasury, an alert ALCO, and a strict compliance framework can scale quickly while staying aligned with RBI’s expectations.

This is where Habinx Compliance LLP becomes a valuable partner. With services covering company registration, GST and tax filing, trademark registration, accounting, legal documentation, and startup consultation, Habinx simplifies the compliance journey for businesses and financial institutions. Their team ensures that all registrations, filings, and regulatory requirements are handled accurately, allowing NBFCs to focus on growth instead of paperwork.

If your NBFC is planning to expand, raise capital, or undergo a takeover, partnering with a trusted compliance expert like Habinx Compliance LLP can make the entire process smoother and fully RBI-compliant.

Contact Habinx Compliance LLP:
 📧 info@habinxcompliance.com
 📞 +91 95111 17743

FAQs

1. What are the primary sources of funding for an NBFC in India?

NBFCs typically raise funds through bank loans, private equity, long-term borrowings, bonds and debentures, and short-term instruments like commercial papers. Because they cannot use CASA deposits, they rely heavily on external borrowing to maintain liquidity and support lending operations.

2. Why do NBFCs have a higher cost of funds compared to banks?

Banks enjoy low-cost deposits through current and savings accounts (CASA), but NBFCs are not allowed to accept these deposits. This forces NBFCs to borrow at higher interest rates from banks, investors, and the market, increasing their overall cost of funds.

3. What is Asset-Liability Management (ALM) in NBFCs?

ALM is the process of matching the timing of cash inflows (from loans and investments) with cash outflows (borrowings and liabilities). Effective ALM ensures that an NBFC has enough liquidity to meet obligations and prevents financial stress due to mismatched maturity profiles.

4. What is the importance of ALCO in NBFC operations?

The Asset-Liability Committee (ALCO) monitors liquidity, sets loan pricing, manages interest rate risk, and ensures the correct maturity structure of assets and liabilities. A strong ALCO helps an NBFC maintain financial stability and regulatory compliance.

5. When is RBI approval required for an NBFC takeover?

RBI approval is mandatory if there is a change in control, a change in 26% or more of shareholding, or a change in more than 30% of the board of directors. The acquiring NBFC must submit details of directors, shareholders, and funding sources to RBI for review.

6. What is the complete process of an NBFC takeover?

The takeover process includes signing an MOU, holding board meetings, publishing a public notice, executing a share transfer agreement, obtaining creditor NOCs, completing valuation, transferring assets, and finally intimating RBI. The process typically takes 3–4 months.

7. How do NBFCs manage risks related to funding and investments?

NBFCs monitor risks such as liquidity risk, interest rate risk, equity price risk, and forex risk. Tools like Value at Risk (VaR), Loss Given Default (LGD), and strong IT systems help evaluate financial exposure and maintain stability.

8. How can Habinx Compliance LLP help NBFCs with regulatory and operational requirements?

Habinx Compliance LLP assists NBFCs with company registration, GST and tax filing, accounting, trademark registration, legal documentation, and complete compliance support. They also guide NBFCs through takeover procedures, RBI filings, and regulatory processes.

Contact: info@habinxcompliance.com | +91 95111 17743

NBFC Compliance

NBFC Compliance – A Complete Guide

Non-Banking Financial Companies (NBFCs) are one of the most important pillars of India’s financial ecosystem. They play a key role in driving credit access, supporting businesses, and contributing significantly to the country’s GDP.

Because NBFCs deal with public and institutional funds, they are subject to strict supervision by the Reserve Bank of India (RBI) and other regulators. These compliance requirements evolve regularly to match changing economic conditions, financial trends, and risk environments.

For every NBFC, understanding what needs to be done, when, and how is essential.

Non-compliance can lead to heavy penalties, cancellation of the NBFC licence, and even closure of business operations.

Why NBFC Compliance Matters?

Compliance ensures that NBFCs function transparently, protect investor confidence, and maintain financial stability. RBI’s directions are designed to make sure NBFCs manage risk properly and operate ethically while serving customers efficiently.

In September 2016, the RBI issued a set of consolidated rules known as the Master Direction

NBFC Non-Systemically Important Non-Deposit Taking Company (Reserve Bank) Directions, 2016.

These directions outline the dos and donts for NBFCs, covering everything from accounting

standards to customer practices. There’s a separate master direction for larger NBFCs (those with asset sizes above 500 crore) or those that accept public deposits.

Applicability of RBI Master Directions

The Master Directions apply mainly to NBFCs that do not accept public deposits and have assets below 500 crore.

Exemptions include:

– NBFCs that don’t raise public funds and have no customer interface.

– NBFCs that raise public funds but don’t deal directly with customers.

– NBFCs with customer dealings but no public funds.

– Smaller entities such as NBFC-Factors, Microfinance Institutions, and Infrastructure Finance

Companies with assets below 500 crore.

Key Definitions

  • Public Funds: Include money raised through bank finance, inter-corporate deposits, public deposits, and the issue of commercial papers, debentures, or other borrowings. Instruments mandatorily convertible into equity within 5 years are not treated as public funds.
  • Customer Interface: Refers to any direct interaction between the NBFC and its customers during lending, borrowing, or financial transactions.

Prudential Regulations

1. Accounting Standards: NBFCs must follow ICAI standards unless conflicting with RBI directions.

2. Investment Policy: Must be approved and followed by the board.

3. Call Loans: Policy for short-term loans should be documented and followed.

4. Asset Classification: Assets classified as Standard, Sub-Standard, Doubtful, or Loss Assets.

5. Provision for Standard Assets: Maintain 0.25% of outstanding assets as provision.

6. Consolidation: All group NBFC assets are considered for the 500 crore threshold.

7. Balance Sheet: Disclose provisions for bad debts and doubtful loans separately.

8. Loan Against Own Shares: Not permitted.

9. Loan Against Listed Shares: Maintain a 50% loan-to-value ratio; correct within 7 days if exceeded.

10. Report any change in address, directors, or auditors to RBI within 6 months.

Fair Practices Code (FPC)

All NBFCs dealing with customers must adopt a Fair Practices Code approved by their board. It

includes:

– Transparent loan terms and conditions

– Clear loan appraisal and disbursement process

– Grievance redressal system

Governance and Miscellaneous Requirements

1. Prior RBI Approval: Required before change in control, opening branches, or setting up ventures

abroad.

2. Credit Rating: Any change must be reported to RBI within 15 days.

NBFC Compliance Checklist

– File all required returns and statements within 60 days of financial year-end.

– Ensure 50% of total assets and income are from financial activities.

– Upload the auditor’s certificate confirming compliance on the RBI website.

Monthly Compliance

1. Monthly Return for NBFCs-NDSI with assets above 100 crore.

2. NBS_ALM1 Statement of short-term dynamic liquidity within 10 days of month-end.

3. NBS6 monthly return showing exposure to capital markets.

Quarterly Compliance

1. NBS1 Financial parameters (Deposit-taking NBFCs)

2. NBS2 Statement of capital funds and risk assets

3. NBS3/3A Statutory liquid asset returns

4. NBS7 Capital fund statement for non-deposit taking NBFCs

5. SCRC Statement of assets securitized or reconstructed

Half-Yearly Compliance

1. NBS_ALM2 Asset-liability mismatches (within 20 days of half-year end)

2. NBS_ALM3 Interest rate sensitivity analysis

Yearly Compliance

1. ALM Return Asset-liability management and interest rate exposure

2. NBS1A Annual return on deposits (by September 30)

3. NBS8 Annual return for NBFCs with assets 100500 crore

4. NBS9 Annual return for NBFCs with assets below 100 crore

5. NBS4 Repayment of deposits (for rejected/cancelled NBFCs)

Company Law Compliance (Under Companies Act, 2013)

1. MGT-7 Annual Return (within 60 days of AGM)

2. AOC-4 Filing of financials (within 30 days of AGM)

3. DIR-12 Report changes in directors (within 30 days)

NBFC Compliance by Type

1. Non-Deposit Taking NBFCs: File Monthly Returns, NBS_ALM1, NBS7, and ALM Returns.

2. Deposit-Taking NBFCs (Assets > 100 Crore): File NBS6 and NBS_ALM2.

3. Deposit-Taking NBFCs (Others): File NBS1, NBS2, NBS3, and NBS4.

4. Residuary NBFCs: File NBS3A, NBS1A, and Schedule A.

5. NBFCs with 50100 Crore Assets: File Quarterly Return.

6. NBFCs with 100500 Crore Assets: File NBS8.

7. NBFCs with < 100 crore Assets: File NBS9.

8. All NBFCs: File Special Return (General info and Net Owned Funds) and Branch Information

Return.

Conclusion

Compliance isn’t just a legal requirement; it’s the backbone of trust and credibility for every NBFC. Adhering to RBI guidelines, filing returns on time, and maintaining transparency help NBFCs operate confidently, attract investors, and grow sustainably in a changing financial landscape.

FAQs:

1. What is NBFC compliance?
It refers to the regulatory requirements NBFCs must follow under RBI guidelines and the Companies Act, including timely filing of returns, maintaining asset quality, and ensuring ethical customer practices.

2. Why is NBFC compliance important?
It keeps operations transparent, protects customer trust, prevents financial risks, and helps the NBFC avoid penalties, licence cancellation, or operational restrictions.

3. Who issues compliance rules for NBFCs?
The Reserve Bank of India issues Master Directions that dictate how NBFCs should manage risks, maintain records, and interact with customers.

4. Which NBFCs must follow the RBI Master Directions?
Mainly non-deposit-taking NBFCs with assets below 500 crore. Some smaller entities and NBFCs without public funds or customer interfaces get exemptions.

5. What are the key monthly compliance requirements for NBFCs?
Returns like Monthly NDSI, NBS_ALM1 for liquidity, and NBS6 for capital market exposure must be filed depending on the NBFC category.

6. What annual returns must an NBFC file?
Reports like ALM Returns, NBS1A, NBS8, and NBS9 apply based on asset size and deposit-taking status, along with filings under the Companies Act, such as MGT-7 and AOC-4.

7. What is the Fair Practices Code for NBFCs?
A mandatory framework ensuring transparent lending, fair customer treatment, responsible recovery practices, and a proper grievance redressal setup.

8. What happens if an NBFC fails to comply with RBI guidelines?
It can face monetary penalties, restrictions on operations, loss of licence, or even closure in severe cases.

9. How does asset classification work for NBFCs?
Loans are tagged as Standard, Sub-Standard, Doubtful, or Loss Assets based on the borrower’s repayment behaviour and overdue period.10. Do all NBFCs need RBI approval for organisational changes?
Yes, major changes such as control transfer, opening branches, or setting up overseas ventures require prior approval.

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