What changed
Previously, only deposit-accepting NBFCs needed RBI approval for control changes. The new 2014 directions extend this requirement to all NBFCs (excluding Primary Dealers). Additionally, any merger/amalgamation that results in shareholding exceeding 10% of paid-up capital now requires prior RBI approval, and NBFCs must seek RBI's nod before approaching courts or tribunals for such mergers.
What it means for you
Banks and lenders dealing with NBFCs must ensure any change in control or significant shareholding is pre-approved by RBI to avoid regulatory action, including cancellation of the NBFC's Certificate of Registration. This tightens oversight on management 'fit and proper' standards, reducing risks for depositors and the financial system. Lenders should verify compliance before financing or partnering with NBFCs undergoing ownership changes.
What you must do
- Review any planned acquisitions, mergers, or share transfers involving NBFCs to ensure prior RBI approval is obtained.
- Update internal compliance checklists to include RBI approval for any transaction resulting in control change or shareholding above 10% of paid-up capital.
- Advise clients or counterparties to submit applications to the relevant RBI Regional Office (Department of Non-Banking Supervision) well in advance.
- Monitor regulatory filings to ensure NBFCs are not violating these directions, as violations can lead to cancellation of their Certificate of Registration.
Who it affects
All NBFCs (excluding Primary Dealers), Acquirers or investors in NBFCs, Banks and financial institutions lending to or partnering with NBFCs, Legal and compliance teams handling NBFC mergers and acquisitions
Does this apply to non-deposit-taking NBFCs?
Yes, the 2014 directions apply to all NBFCs, whether accepting deposits or not, except Primary Dealers.
What happens if we proceed without RBI approval?
Any transfer of shares in violation of the notification can lead to adverse regulatory action, including cancellation of the NBFC's Certificate of Registration.
Where do we submit the application for prior approval?
Applications must be submitted to the Regional Office of the Department of Non-Banking Supervision where the NBFC's registered office is located.