Reserve Bank of India amends NBFC management control norms

The Reserve Bank of India (“RBI”) vide its notification dated 9th July, 2015 tightened the norms for acquisition/transfer of control of Non-banking financial companies (“NBFCs”). As per the notification RBI has made it mandatory to seek prior approval from it for any acquisition/transfer of control of an NBFC & hence modifying the 26th May, 2014 directions on ‘Non-banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014. The revised directions stipulate that:-

  • A prior written permission of the RBI would be required for any takeover or acquisition of control of an NBFC, which may or may not result in change of management;
  • Any change in the shareholding, including progressive increases over time up to 26% of the shareholding or of the paid-up capital, would have to be notified to the RBI before the deal. Prior approval will, however, not be required in case of any shareholding going beyond 26% due to share buyback or reduction in capital where it has approval of a competent court; however the same has to be reported within a month from the deal.
  • Any change in the management of the NBFC which would result in change in over 30% of directors, excluding independent directors will also not need prior approval.
  • A 30-day public notice should be given before effecting the sale/transfer of ownership/control. Such public notice will have to be given by NBFC and also by the other party or jointly by the parties concerned, after obtaining prior RBI nod.
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