Follow Us :

The Non Banking Financial Companies (NBFC) is a Company incorporated under the provisions of the Companies Act that provide financial services and banking facilities without meeting the legal definition of Bank. They are governed by the prudential norms laid down by the Reserve Bank of India (RBI) and provide various banking services like loans, credit facilities, TFCs, retirement planning, investing and stocking in money market, etc.

Every now and then, there might be change in management of NBFCs due to a lot of reasons like transfer of shareholding, change in Directorships because of some strategic planning for growth and operations of the Company or merger/acquisitions, etc. In this article, we shall study particularly about the change in management of a non deposit taking NBFC.

Change in management i.e. acquisition/control of Non Banking Financial Companies (NBFCs) is governed vide RBI notification dated 9th July, 2015 baring no. DNBR (PD) CC.No. 065/03.10.001/2015-16. Prior to this, no such norms for regulating change in management of a non deposit taking NBFC were in place and accordingly the Reserve Bank of India came up with this, having considered it necessary in the public interest, and being satisfied that for the purpose of enabling it to regulate the credit system to the advantage of the country, it is necessary to give the directions herein discussed.

1. Triggering Point Where Prior Approval For Change In Management Is Mandatorily Required

Any small change in the shareholding of NBFC would not trigger the requirement to take approval and accordingly, it is important to study the criteria that the RBI has laid down where it would be necessary for the NBFCs to take prior written permission for any change in its management.

  • any takeover or acquisition of control of an NBFC, which may or may not result in change of management;

In this category, strategic schemes like merger, amalgamations, takeover, etc. falls and the prior approval would be required even in case there is any change of management or not.

For instance, A Private Limited (NBFC) intends to get merged with B Private Limited. The Directors and shareholders of both A Private Limited and B Private Limited are same. In this case there is no change of management but still prior written approval would necessary and B Private Limited is taking control of A Private Limited.

  • 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.

In this case, prior approval would be required from RBI in case there is any transfer of shares of the Company beyond 26%. In case the change is below the threshold limit of 26% then no such approval is required. However, any change beyond the threshold limit due to buy back/reduction in capital would not require approval. The intimation of the same is required to be given to RBI within one month of its occurrence.

  • Any change that would result in change of more than 30% of the Directors, excluding independent directors.

For instance, if there are two Directors in an NBFC and the Company intends to appoint two more than Directors on its Board then prior written approval would be required from RBI.

Further, it is pertinent to note that change of Directors of more than 30% of the Directors shall be applicable on both appointment and resignation of Directors.

2. Pre-Requisites Of Change In Management

It is very important to take note of the following points before moving our application for change in management to the RBI:

  • Due Diligence of the Target Company

It is very important to check all the compliances of the Target Company before moving our application to RBI. The compliances with respect to Income Tax Act, TDS, GST, RBI shall be checked at least for a period of eight preceding eight financial years. However, compliances with respect to change in Directors and shareholding of the Target Company shall be checked since incorporation of the Company or from the date of obtaining Certificate of Registration from RBI.

  • Checking the Background of Proposed Directors and Shareholders

It is very important to check the background of the proposed Directors and shareholders as this a very important and basic parameter for RBI to grant approval for change in management. The proposed management shall have a good banker’s report, CIBIL and clean compliant record. Further, one of the Directors from the proposed management should be from financial background as well.

  • Signing of Memorandum of Understanding between the Target Company and the proposed management.
  • Planning as to whether the proposed management wants to acquire shares below 26% without approval and then take prior approval for rest 75% or directly apply for 100% transfer of shares of the Target Company.

3. Documentation For Prior Approval Of Change In Management

  • Information about the proposed management as per the format provided by RBI. In this, basic information is required to be filled in.
  • Sources of funds of the proposed shareholders acquiring the shares in the NBFC;
  • Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;
  • Declaration by the proposed directors/ shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank;
  • Declaration by the proposed directors/ shareholders that there is no criminal case, including for offence under section 138 of the Negotiable Instruments Act, against them; and
  • Bankers’ Report on the proposed directors/ shareholders.

The aforementioned documents along with the KYC of the proposed management shall be submitted in hard to the Regional Office of the Department of Non Banking Supervision in whose jurisdiction the registered office is situated.

4. Requirement Of Prior Public Notice About Change In Control/ Management

Once the target Company has received approval for change of its management, a public notice of not less than 30 days, before effecting actual change, shall be given by the NBFCs and existing management of their intention to sell/transfer the shares/ownership in newspapers.

5. Frequently Asked Questions (Faqs)

Q 1. Suppose a person acquires shares of 4% in the first financial year and 23% in the next financial year, then will there be requirement of obtaining prior approval?

Ans: It is important to note that the intention of the law is to regulate the changes of credit granting institutions and owing to the language of the law as well; it will be required to take prior approval of RBI before acquiring the second trench of 23% or else maximum acquisition of 21% shall only be done.

Q 2. In case there are any four Directors in an NBFC and any one of them resigns or appoints, then is it necessary to take approval?

Ans: No, only written intimation about such changes to the RBI needs to be done.

Q 3. What are the prospective cases in which approval will not be required for change of Board of an NBFC?


  • In case there is appointment/resignation of KMP.
  • In case there is appointment/resignation of independent Director.
  • In case there is death of more than 30% existing Directors of the Company as death cannot be predicted.
  • In case the existing Directors gets elected on retirement by rotation.

Q 4. What if there is increase of more than the threshold limit i.e. 26% vide right issue share allotment to the existing shareholders?

Ans: Technically, prior approval should not be required in this case as there is no “change” as such however owning to the language of the law, the Company shall apply for prior approval for such change.

Q 5. What if an NBFC change management without seeking any prior approval?

Ans: Any violation of the aforementioned directions would result in adverse regulatory action including cancellation of CoR. In such cases, the RBI may levy penalty on NBFCs as well.

{The author  i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and can be reached at (M) 9999952595 and (E)}


Author Bio

KAJAL GOYAL AND ASSOCIATES, is a Company Secretary proprietorship firm, offering its expertise and one stop solutions for all Corporate compliance requirements to the clients with a strong emphasis on ethics and ‘being on toes’. Capable delivering services related to Companies Act, FEMA, Re View Full Profile

My Published Posts

Application for reserving name of a Company: RUN & SPICE+ Guide Form FC-GPR Filing in case of Bonus Issue Transfer or Assignment of Trademark Change In Capital Contribution of LLP Company Law Due Dates for FY 2022-23 View More Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.


    1. Ronak Gupta says:


      As per the RBI directions, any change in the shareholding which results into transfer of shareholding of 26 per cent or more of the paid up equity capital, would be required prior approval of RBI, irrespective whether it is gift or not.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
June 2024