Takeover of NBFC.
RBI has simplified the process of taking over an NBFC, and a takeover deal can now be completed in just 45 to 60 working days. This means that one NBFC can purchase another registered NBFC or company and gain control over it.
Banking is not the only source of financial services. There are many other companies that provide targeted financial services to particular groups without being licensed to offer the full range of banking services. These companies, known as non-banking financial companies (NBFCs), play an important role in providing credit to underserved groups. In order to continue serving these groups, NBFCs need to raise capital on a regular basis. Therefore, raising capital is essential for the growth of this sector. Change in management of NBFCs is not unusual, and can happen for reasons such as resignation, death, retirement, or takeover. A strategic review of the proposal, due diligence of the target company, and MoU between the target company and acquirer are all important considerations in such a change. Additionally, approval from RBI and MCA Compliance are both necessary for a successful change in management.
In order to make any changes to the management, the Reserve Bank must first specify the conditions for which approval from the bank is required and same is as below
Management changes at non-banking financial companies (NBFCs) are not uncommon, due to resignations, deaths, retirements or takeovers. Consequently, when management at an NBFC does change, a strategic review of the proposal, due diligence of the target company, and memorandum of understanding (MoU) between the target company and acquirer are required. Additionally, a plan for interim debt during the change in management process must be put in place, and approval from both the Reserve Bank of India (RBI) and Ministry of Corporate Affairs (MCA) compliance is necessary.
- Any acquisition or takeover of NBFCs, resulting in a change of management of company.
- More than 30 % change of directors, excluding independent directors already appointed in NBFC.
- Any change in the share owning pattern resulting in transfer/ acquisition of 26% or more of the paid-equity shares capital.
These are the condition but these are with subject to the following exceptions:
When a change in shareholding takes place, due to an order by a government authority, it is mandatory for a company to inform the Reserve Bank of India within 30 days.
Public Notice is required in case of Change in Management.
When a sale, transfer of ownership, merger or any Change in management of NBFCs occurs, a public notice must be given at least 30 days in advance. The Notice shall be published in 2 newspapers—one in English and the other in a regional language where the registered office is located. It should clearly state the intention behind such a change in management.
The proposed directors/shareholders of the company must provide, in the accompanying annexures, all appropriate information that Reserve Bank of India requires. Any incomplete information will be rejected and the approval process may be delayed.
The Reserve Bank of India aims to increase transparency and efficiency in the Indian financial system. The RBI has the power to approve any takeover or change in management of a Non-Banking Financial Company (NBFC), which may or may not result in a change of management. By ensuring that NBFCs work smoothly, the RBI plays a key role in India’s financial market.