The Reserve Bank of India has issued notification no. RBI/2015-16/122 dated July 09, 2015 stating that henceforth, prior written permission of the Reserve Bank shall be required for the following:
- any takeover or acquisition of control of an NBFC, which may or may not result in changeof management;
- any change in the shareholding of an NBFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26% 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;
- any 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.
Irrespective of the above change, NBFCs shall continue to inform the Reserve Bank regarding any change in their directors/ management as required under the framework of laws presently applicable to NBFCs.
Furthermore, a public notice of at least 30 days shall be given by the NBFC 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.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.
Though the intent of the RBI is to exercise effective control over NBFC, it may at times pose undue hardship to the NBFCs. It is not clear whether an application is to be preferred to the RBI in cases where the events may occur due to reasons beyond the control of the promoters. For example, if 51% shares of an NBFC is being acquired by a bank/ financial institution under a strategic debt restructuring scheme which scheme is regulated by the RBI itself, will it still require the prior consent of the RBI?