NBFCs must get RBI nod for acquisition, transfer of control

The Reserve Bank of India on Thursday said that in cases of acquisition/ transfer of control of non-banking finance companies, parties to the transaction will need to give prior public notice and seek its approval.

According to an RBI notification, NBFCs will have to give public notice at least 30 days before effecting the sale or transfer of ownership through sale of shares, or transfer of control with or without sale of shares. Such notice will be given by the NBFC and also by the other party or parties concerned after obtaining RBI permission.

The public notice, according to the RBI, has to indicate the intention to sell or transfer ownership, the particulars of the transferee and the reasons for doing so.

The central bank said henceforth, its prior written permission will be required in three scenarios, including for any takeover or acquisition of control of an NBFC, which may or may not result in change of management;

The second scenario where RBI’s permission will be required is in case of a change in the shareholding of an NBFC, including progressive increases over time, which will result in acquisition/ transfer of shareholding of 26 per cent or more of the paid-up equity capital of the NBFC.

Prior approval would, however, not be required in case of any shareholding going beyond 26 per cent due to buyback of shares/reduction in capital where it has approval of a competent Court. The same is however, required to be reported to the Reserve Bank not later than one month from its occurrence.

The third scenario where RBI’s permission will be required is in case of any change in the management of the NBFC, which would result in change of more than 30 per cent of the directors, excluding independent directors.

Prior approval would not be required for those directors who get re-elected on retirement by rotation.