• Overview

  • Eligibility

  • Process

  • Compliances

Overview

India's financial sector is quite diverse, and Non-Banking Financial Companies (NBFCs) are a crucial part of it. These companies play a vital role in filling financial gaps, especially for groups and sectors that traditional banks might overlook. The Reserve Bank of India (RBI) has strict rules, especially when it comes to changes in management and control of NBFCs, to make sure the sector stays stable and trustworthy.

A big challenge for NBFCs is that they need to raise money regularly. This capital infusion is essential for the sector's growth, allowing these companies to keep offering financial services. However, raising capital is closely regulated to make sure these institutions remain financially healthy.

The RBI's rules about management changes in NBFCs are crucial. They help keep the sector in check, preventing unnecessary risks and unethical practices. This regulatory control ensures that the people leading these financial companies are competent and follow ethical standards.

Eligibility

Requirement OF Obtaining Prior Approval Of RBI In Cases Of Acquisition/ Transfer Of Control Of Non-Banking Financial Companies (Nbfcs)

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1) Any change in the shareholding of an NBFC, that results in acquisition/ transfer of shareholding of 26 per cent or more of the paid-up equity capital of the NBFC, need prior approval of RBI.

Such Approval is not required in case of any shareholding going beyond 26% due to buy back of shares / Reduction in capital with the approval of Competent court.

2) Any change in the management of the NBFC resulting in a change in the board of directors exceeding 30%, excluding independent directors, need prior approval of RBI

After obtaining prior approval of RBI, the company needs to give 30 days prior public notice if there is any sale/transfer of ownership/ control in NBFC. Also, the other party or jointly both the parties concerned, after obtaining prior permission of RBI needs to give 30 days prior public notice.

Process

Application to RBI for Obtaining Prior Approval for acquisition/ transfer of control of Non-Banking Financial Companies (NBFCs)
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Application for obtaining prior approval may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located.
 

NBFC shall submit the application on the letterhead of company for obtaining prior approval of the RBI along with following documents: (List of documents)

 

  • Information about the proposed directors/ shareholders/ Promotors;
  • Sources of funds of the proposed shareholders acquiring the shares in the company;
  • A banker’s report on the proposed director or shareholder;
  • Declaration by the proposed directors/ shareholders that there is no criminal record, including for offenses under section 138 (Dishonor of cheque for insufficiency, etc., of funds in the account) of the Negotiable Instruments Act, against them;
  • Declaration by the proposed directors/ shareholders that they are not associated with any company, whose application for Certificate of Registration (COR) has been rejected by the Reserve Bank of India;
  • CIBIL Report of all the Proposed Directors/ Shareholders / Promoters;
  • KYC copy of each Director / Promoter / Shareholder
  • Any other documents as required by the RBI

Compliances

Requirement of Prior Public Notice about change in control/management

Before selling or transferring ownership (which includes selling shares or changing control) of a Non-Banking Financial Company (NBFC), Notice must be given to the public 30 days in advance.

This notice shall be given in one of the leading English language newspaper and in one vernacular newspaper where the registered office of the company is situated

Following details shall form a part of the public notice:

  1. Transferor’s intention to transfer the ownership/ control;
  2. Particulars of transferee; and
  3. Reasons for such transfer
     

This notice is needed for two main situations:

  • Takeover or Acquisition: If someone is taking over or acquiring control of an NBFC, whether it leads to a change in management or not, a notice must be given.
  • Change in Shareholding: If there's any change in the ownership of an NBFC, including gradual increases over time, and it results in acquiring or transferring 26% or more of the NBFC's total shares, a notice must be given. Both the NBFC and the other party involved must give this notice after getting permission from the Reserve Bank.

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