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23 September 2015

RBI Update - Requirement For Obtaining Prior Approval Of RBI In Cases Of Acquisition Or Transfer Of Control Of Non-Banking Financial Companies

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By its circular DNBR (PD) CC. No. 065/03.10.001/2015-16 dated 09 July 2015 ("Circular"), the Reserve Bank of India ("RBI") has revised its earlier directions on the requirement for obtaining prior approval of the RBI...
India Finance and Banking

By its circular DNBR (PD) CC. No. 065/03.10.001/2015-16 dated 09 July 2015 ("Circular"), the Reserve Bank of India ("RBI") has revised its earlier directions on the requirement for obtaining prior approval of the RBI in cases of acquisition/ transfer of control of Non-Banking Financial Companies ("NBFCs").

The relevant provisions of the Circular are as follows:

(1) In accordance with the Circular, prior approval of the RBI is required in the following circumstances:

(i) any takeover or acquisition of the NBFC which may or may not result in change in management;

(ii) any change in the shareholding of an NBFC, which would result in acquisition/transfer of 26% (twenty six percent) or more of the paid-up equity capital of the NBFC;

However, prior RBI approval is not required in case of any shareholding going beyond 26% (twenty six percent) due to buyback of shares/ reduction in capital of the NBFC where approval of the competent court has already been obtained. In such an event the same is required to be reported to the RBI within 1 (one) month from its occurrence.

(iii) any change in the management of the NBFC which would result in change in more than 30% (thirty per cent) of the directors, excluding independent directors.

However, the RBI approval is not required for those directors who get re-elected on retirement by rotation.

(2) In accordance with the Circular, NBFCs shall continue to inform the RBI 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 or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015.

(3) A public notice of at least 30 days providing details of the transferees, reasons for such sale/ transfer, shall be given before effecting the sale of, or transfer of the ownership/ control, by the NBFC and by the concerned other party (jointly or severally), after obtaining the prior permission of the Reserve Bank. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

Pursuant to the Circular, the RBI has issued the Non-Banking Financial Companies (Approval of Acquisition or Transfer or Control) Directions, 2015 vide its notification no. DNBS.(PD) 029/CGM(CDS)-2015 dated 9 July 2015, and repealed the Non- Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014 dated 26 May 2014.

To view the full text of the circular text of the Circular, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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