Testing an NBFC loan book before an acquisition
A buyer was about to acquire a non-banking finance company. We tested the loan book line by line before a price was agreed.
A strategic buyer had agreed the broad terms to acquire an NBFC. The management presentation showed steady growth, low overdues and healthy margins. The buyer's board wanted the price to rest on what the loan book would actually collect, not on the summary page.
The seller had a short timeline and a long data request list in the way. The buyer needed a view quickly, but not at the cost of missing the accounts that would move the price.
What we did
- Step 1
Rebuild the book from the ledger
We tied the loan-level data to the general ledger and the audited accounts, so every figure in the deck had a source we could trace and re-add.
- Step 2
Re-age the overdues
We recomputed days past due loan by loan, instead of using the bucket labels in the deck, and compared the result with the provisions that had been booked under Ind AS 109 and the RBI asset-classification norms.
- Step 3
Follow the restructured and rolled-over loans
We listed every account that had been restructured, rescheduled or topped up, and checked whether the borrower had actually started paying again.
- Step 4
Check related parties and funding
We read the related-party loans and the borrowing covenants, and tested whether a change of ownership would trigger a lender consent or an early repayment.
A price the buyer could defend to its own board.
The buyer received a short report that separated what was confirmed, what was adjusted and what could not be tested. Each adjustment pointed back to the ledger entries behind it.
The final price and the protections in the agreement followed that report, not the original deck.
A re-aged loan book
Overdues were shown on one consistent basis, and the provision gap was stated in rupees.
Clear red flags
Restructured accounts and related-party loans were listed with the evidence for each.
Protection in the agreement
Specific indemnities and a price adjustment mechanism replaced general assurances.
Quality of earnings in a lender is mostly quality of the loan book. The work is to re-age it from the ledger, not to repeat the summary.
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