NBFC Acquisition/ Takeover | NBFC Management Change RBI Approval


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NBFC Acquisition

The Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2015 (hereinafter referred to as ‘Directions’) was revised by RBI on July 9, 2015 stating that every non-banking financial company whether accepting deposits or not will be covered within the scope of the above directions. The directions are more stringent as compared to the notification issued by the RBI in May 26,2014.

Documents /points To Be Covered In NBFC Business Plan:

  • iconInformation and documents with respect to proposed Promoters and Directors
  • iconDue Diligence Report of the Companies
  • iconSource of Funds for acquisition
  • iconFinancial Statements for last Three Years
  • iconStatutory documents of the Company
  • iconSuch other details as may be required.

Procedure For NBFC Acquisition/ Takeover:

Requirement for obtaining prior approval of RBI:

  • iconPrior written permission of the Reserve Bank shall be required for
  • iconAny takeover or acquisition of control of an NBFC, which may or may not result in change of management;
  • iconAny change in the shareholding of an NBFC, including progressive increase over time, which would result in acquisition/transfer of shareholding of 26 percent 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 not required to be reported to the Reserve Bank not later than one month from its occurrence;
  • iconAny change in the management of the NBFC which would result in change in more than 30 % of the directors, excluding independent directors. Prior approval would not be required for those directors who get re-elected on retirement by rotation.
  • iconNotwithstanding 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 ,1988, Non-Systematically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 and Systematically Important Non-Banking Financial (Non-Deposit Accepting Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015.

Application for Prior Approval

  • iconNBFCs shall submit an application, on the company’s letter head, for obtaining prior approval of the Bank under paragraph 2, along with the following documents:
  • iconInformation about the proposed directors/shareholders as per the Annex;
  • iconSources of funds of the proposed shareholders acquiring the shares in the NBFC;
  • iconDeclaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;
  • iconDeclaration 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;
  • iconDeclaration by the proposed directors/ shareholders that there is no criminal case, including for offence under Section 138 of the Negotiable Instruments Act against them;
  • iconBanker’s Report on the proposed directors/shareholders
  • iconApplications 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.

Requirement of Prior Public Notice about change in control/management

  • iconA 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.
  • iconThe 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.
  • iconThe 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.
  • iconAny violation of the aforementioned directions would result in adverse regulatory action including cancellation of CoR.
  • iconNotification No. DNBR.(PD) 029/CGM(CDS)-2015 dated July 09,2015 can be viewed at the RBI Website.

The entire procedure of NBFC Takeover is covered in the following steps

Sr. No.





The foremost step is the signing of the Memorandum of Understanding (MOU) with the proposed company. The MOU signifies that both the companies have agreed to the takeover. The directors of both- the acquirer company and the target company, sign the MOU. The requirements and the responsibilities of both the companies are mentioned in the MOU specifically. At the time of signing the MOU, the acquirer company gives the token money to the target company.



Once the MOU has been signed, both the companies shall convene Board Meeting to discuss the following matter:

·         Reply to any query of RBI that may be raised in relation to the approval application

·         Fixing the date, time and place for convening the Extra Ordinary General Meeting (EGM)

·         Passing the resolution of EGM



Once approval has been obtained from the RBI, a public notice shall be made in two newspapers within 30 days in order to invite any objection of the public with respect to the takeover



At the expiration of the 31st day of publishing the notice in the newspaper, both the companies shall sign the share transfer agreement. At the time of signing, the balance consideration shall be paid by the acquirer company to the target company.



Prior to transferring the business to the acquirer company, the target company shall obtain NOC from its creditors.



Once NOC has been obtained from the creditors and no creditor has raised any objection in regard to the takeover, the assets of the target company will be transferred to the acquirer company, as approved by the RBI. The transfer, however, should not be in contravention to any clause of the company.



The evaluation of the entity post-takeover shall be done in accordance with the rules provided by the RBI. Post evaluation, a certificate starting the method for valuation shall be obtained from a Chartered Accountant



Once the valuation is done and approval has been taken, the NBFC shall submit an application on the letterhead of the company to the Regional Office. Post takeover, any changes in the management should be continuously intimated to the RBI.


The contents of the application made to the Regional Office of the RBI shall be as follows:


·         Acquirer company’s sources of funds

·         Information regarding proposed shareholders and directors

·         Declaration by all the proposed directors and shareholders in regards to their non-association with any entity that accepts deposits

·         Statement by all the proposed directors and shareholders that no criminal proceedings have been initiated against them in the past or are pending in any court of law.



Subsequent to the above-mentioned procedure, all the assets as shown in the balance sheet of the target company shall be liquidated and the liabilities would be paid off. The acquirer company will then receive the balance in the bank account in the name of the target company. The balance will be as calculated on the basis of net worth, as on the date of the takeover.

Features Of NBFC Acquisition

  • iconIncrease in profitability
  • iconBoosting the revenue
  • iconWider market reach
  • iconProduct/ Service diversification
  • iconBusiness growth
  • iconCost Reduction