RBI Regulation NBFC Takeover India

When an NBFC is set for acquisition, the process typically begins with a thorough review of the target company's documentation. Once the acquiring party is satisfied and approves the acquisition, a Memorandum of Understanding (MOU) is signed, often accompanied by a token payment. The buyer will then prepare the necessary Know Your Customer (KYC) documents, a comprehensive business plan, and a three-year financial projection for the incoming directors.

This blog will explore the Reserve Bank of India's (RBI) regulations governing the takeover of an NBFC.

Document Submission and Coordination with RBI

Once the NBFC acquisition plan is in place, the relevant documents are prepared for submission to the RBI's regional office, where the NBFC's registered office is located. This step includes coordinating with the RBI and addressing any queries related to the takeover.

RBI Approval and Public Notice Requirement

Following the submission, the acquiring company must receive an approval letter from the RBI. This approval allows them to publish a public notice in two newspapers (one national and one local) for 30 days. The notice must detail the change in management and invite any objections from the public.

RBI’s Prior Approval for NBFC Acquisition

The Reserve Bank of India mandates prior written approval for several scenarios, including:

• Any takeover or acquisition of  NBFC, whether it involves a change in management or not.
• Any change in shareholding that results in the acquisition or transfer of 26% or more of the NBFC’s paid-up equity capital. However, no prior approval is needed if the shareholding change is due to a buyback or capital reduction approved by a competent court, though such changes must be reported to the RBI within a month.
• Any change in the NBFC registration process structure that results in a shift of more than 30% of its assets.
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Re-election of directors by rotation does not require prior RBI approval.

Public Notice Before Change in Control/Management

A public notice must be given at least 30 days before the sale or transfer of ownership or control, whether it involves the sale of shares or not. This notice must be published in both a leading national newspaper and a local newspaper covering the area where the NBFC's registered office is located. The notice must include details about the intended sale or transfer, the identity of the transferee, and the reasons for the change.

Compliance with Other Laws

The RBI's directions regarding NBFC takeovers are in addition to any other applicable laws, regulations, or guidelines currently in force.

Repeal and Saving Clause

The 2014 directions regarding the approval of NBFC acquisitions or transfers of control have been repealed. However, any actions taken or initiated under those directions will continue to be governed by the repealed provisions.

Information Requirements

When submitting an application for RBI approval, detailed information about the corporate promoter and the proposed directors, shareholders, and other relevant parties must be provided. This includes personal details, NBFC business model background, and any past legal issues or investigations.

By adhering to these guidelines, businesses can navigate the complexities of NBFC takeovers while remaining compliant with RBI regulations.