Change in Management of NBFC

Change in Management of NBFC

The changes that happen in the usual course of business in NBFC need to be done as per guidelines provided by the Reserve Bank of India due to Sale or Takeover of NBFC company.
For change in management of NBFC needs to take prior approval of Reserve Bank of India. Any change in the shareholding of an NBFC, including progressive increases over time in shareholding or of the paid-up capital up to 26% needs to be notified to the RBI in advance.

Prior approval is not required in case of an increase in shareholding beyond 26% due to-

1. buyback of shares or
2. reduction in the capital where approval of a competent court has already been granted. However, the change needs to be notified to RBI within one month of the event.

Any change in the management of the NBFC resulting in a change in the board of directors (Management) up to 30%, does not need any prior approval of RBI (excluding independent directors).
Also, if there is any sale/transfer of ownership or change in control in NBFC the company needs to give 30 days prior public notice after obtaining prior approval of RBI. Also, needs to give 30 days prior public notice in newspaper.

Procedure to be followed for making changes in management of NBFC

• Any change in the management of NBFC due to sale, takeover needs to take prior Approval of Reserve Bank of India.
• To obtain approval from the Reserve Bank of India, the NBFC needs to file an application to RBI in the prescribed format as specified by RBI.
• The application shall be made on the letterhead along with the following documents:
  • Application (not older than 15 days) seeking prior approval on the company’s letterhead and signed by existing director (authorized as per board resolution).
  • Documentary evidence w.r.t. experience of Proposed Director.
  • A Declaration by the proposed directors/ shareholders that there is no criminal record, including for offenses under section 138 (Dishonor of cheque for insufficiency, etc., of funds in the account) of the Negotiable Instruments Act, against them;
  • A Declaration by the proposed directors/ shareholders that they are not associated with any company, whose application for Certificate of Registration (COR) has been rejected by the Reserve Bank of India;
  • A banker’s report on the proposed director or shareholder;
  • Board Resolution approving the proposed changes and authorizing an existing director to submit the application to RBI.
  • CIBIL data/information pertaining to the Proposed Director/Shareholders.
  • Copy of DIN allotment letter in case of each Director.
  • Proposed business plan (by the acquirer) for the next three years, specifying (i).Projected financial statemens target market segment (iii) Thrust of business
• This Application is submitted to the RD of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located.
• After receiving approval from RBI a public notice which is to be given by NBFC 30 days before affecting the sale, takeover of shares shall be given after obtaining the prior permission of the Reserve Bank. This public notice is also to be given by the other party or jointly by the parties concerned.
• This public notice shall indicate intention along with reason to change in management or sale of ownership.

Change in Regulation for NBFC Base layer:

NBFCs in Base Layer shall subject to regulations as are currently applicable to Non-Deposit taking NBFC: