Requirement for obtaining prior approval of RBI in cases of acquisition/transfer of control of NBFC’s

RBI/2015-16/122
DNBR (PD) CC.No. 065/03.10.001/2015-16

July 09, 2015

All Non-Banking Financial Companies (excluding Primary Dealers)

Dear Sirs,

Requirement for obtaining prior approval of RBI in cases of acquisition/ transfer of control of Non-Banking Financial Companies (NBFCs)

Please refer to DNBS (PD) CC.No.376/03.10.001/2013-14 and Notification No. DNBS(PD) 275/GM(AM)-2014 dated May 26, 2014 on the ˜Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014™. The Reserve Bank has decided to review the above mentioned directions based on the representations received from the industry and the comments received on the Draft Directions issued on March 30, 2015. The revised directions are detailed below.

2. Requirement of prior approval of Reserve Bank

(i) Henceforth, prior written permission of the Reserve Bank shall be required for

1. any takeover or acquisition of control of an NBFC, which may or may not result in change of management;
2. any change in the shareholding of an NBFC, including progressive increases over time, which would 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% 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;
3. any change in the management of the NBFC which would result in change in 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.

(ii) Notwithstanding clause (i), NBFCs shall continue to inform the Reserve Bank regarding any change in their directors/ management as required in Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 and Systemically Important Non-Banking Financial (Non-Deposit Accepting Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015.

3. Application for prior approval

(i) NBFCs shall submit an application, in the company letter head, for obtaining prior approval of the Bank under paragraph 2, along with the following documents:

1. Information about the proposed directors/ shareholders as per the Annex;
2. Sources of funds of the proposed shareholders acquiring the shares in the NBFC;
3. Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;
4. Declaration by the proposed directors/ shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank;
5. Declaration by the proposed directors/ shareholders that there is no criminal case, including for offence under section 138 of the Negotiable Instruments Act, against them; and
6. Bankers™ Report on the proposed directors/ shareholders.

(ii) Applications in this regard 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.

4. Requirement of Prior Public Notice about change in control/ management

i. A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the NBFCs and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Reserve Bank.

ii. The public notice shall indicate the intention to sell or transfer ownership/ control, the particulars of transferee and the reasons for such sale or transfer of ownership/ control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

5. The directions contained above are applicable with immediate effect, i.e., the same will apply on any takeover or acquisition of control, any change in the shareholding or any change in the management occurring after the date of this circular.

6. Any violation of the aforementioned directions would result in adverse regulatory action including cancellation of CoR.

7. Notification No. DNBS.(PD) 029/CGM(CDS)-2015 dated July 09, 2015 is enclosed.

The full notification ca be accessed at the link given below.

Requirement for obtaining prior approval of RBI in cases of acquisition and transfer of control of NBFCs