Banks in India are often on the look-out for potential acquisition opportunities to spur inorganic growth. While their strategic interests will determine their targets, in recent times, banks have been evaluating acquisition of non-banking financial companies (“NBFCs”) and more specifically micro-finance institutions (“MFIs”), which primarily cater to the rural and unorganised markets. Given that NBFCs focus on providing loans to consumers and small-scale businesses, they play a key role in driving the country’s economic growth. India’s NBFC sector grew by 10% (ten percent) in recent times to become the third largest in the world, behind only the United States and the United Kingdom.[1] Among other reasons, access to untapped market with an underserved population and the greater reach of NBFCs is a critical factor, as it facilitates enhanced compliance with priority sector lending requirements of banks. In this blog, we highlight the legal framework, regulatory and commercial considerations involved in the acquisitions of NBFC-MFIs by banks in India.
Commercial Considerations
In addition to regulatory considerations, there are several commercial aspects that the parties involved will need to factor in while negotiating and implementing such acquisition. Set out below are a few critical practical considerations:
Conclusion
Given the synergies and benefits for a bank emanating from acquiring MFIs, it is likely that banks may explore such opportunities. While it may seem to be a straightforward M&A strategy for both the financial entities, in light of the discussion above, the legal, regulatory and commercial considerations would need to be dealt with and addressed appropriately in the transaction documents, when assessing such acquisitions. With the assistance of experienced professional advisors, these challenges may be navigated smoothly.
[1] See: Non-banking Financial Sector: India’s NBFC sector now world’s 3rd largest, next only to USA & UK, ET BFSI (indiatimes.com)
[2] See: https://s.freecharge.in/content/images/shareholderdocs/Annexure-F_Accelyst-Report-adopted-by-Board-of-Directors-of-Accelyst-Solutions-Pvt-Ltd.pdf
Partner in the General Corporate Practice at the Mumbai office of Cyril Amarchand Mangaldas. Pranjita advises on mergers & acquisitions and private equity investments and specializes in the financial services sector. She can be reached at pranjita.barman@cyrilshroff.com
Principal Associate in the General Corporate practice at Mumbai office of Cyril Amarchand Mangaldas. Aanirud joined the firm in the year 2017 after graduating from West Bengal National University of Juridical Sciences, Kolkata. He advises on mergers & acquisitions and foreign investments in…
Principal Associate in the General Corporate practice at Mumbai office of Cyril Amarchand Mangaldas. Aanirud joined the firm in the year 2017 after graduating from West Bengal National University of Juridical Sciences, Kolkata. He advises on mergers & acquisitions and foreign investments in India, with a greater focus on the Indian insurance sector. He has worked on several transactions in relation to acquisition of private and public companies, business transfers and initial public offerings (including the IPO of Life Insurance Corporation of India). Anirud regularly advises insurers and insurance intermediaries in relation to, amongst other aspects: Corporate Governance, General Corporate Strategies, Business Ventures and Partnerships, Distribution and other forms of engagement between insurers and insurance intermediaries and Data Protection, Data transfer, Data Localisation.
Ayushi is a Senior Associate with Cyril Amarchand Mangaldas and is a part of the General Corporate practice in the Mumbai region. She joined the firm in the year 2020 after graduating from National Law University, Delhi. She is involved in advising private…
Ayushi is a Senior Associate with Cyril Amarchand Mangaldas and is a part of the General Corporate practice in the Mumbai region. She joined the firm in the year 2020 after graduating from National Law University, Delhi. She is involved in advising private and public companies, key Indian financial institutions (including banks) on mergers & acquisitions, business alliance, restructuring, and foreign investments in India, with a special focus on the insurance sector. She can be reached at ayushi.agrawal@cyrilshroff.com
Acquisition of NBFC-MFIs by Banks: Key Considerations – India Corporate Law
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