1. What is meant by ‘change in management’ of an NBFC?
A change in management generally refers to a significant shift in the composition of the board or leadership of an NBFC. If this results in change of more than 30% of directors (excluding independent directors), it is treated as a change in management requiring approval.
2. When is RBI approval required for change in management?
The RBI requires prior written approval for any change in management that leads to a change in more than 30% of the board of directors (excluding independent directors).
3. Is approval required only for takeovers or also for internal changes?
Approval is required not only for takeovers or acquisitions but also when the management change itself (e.g., appointment/resignation leading to >30% change in directors) crosses the regulatory threshold.
4. Are there any exceptions to the requirement for prior RBI approval?
Yes. If directors are re-elected to the board on retirement by rotation, this change does not require prior approval. However, the RBI must still be informed of director changes in all cases.
5. What documents are generally needed for applying to RBI for approval?
While exact document requirements are defined in RBI guidelines and may change, typical inclusions are:
- Details of proposed directors/shareholders
- Sources of funds of acquirers
- Declarations on legal/criminal background
- Bankers’ reports for respective directors/shareholders
6. Does shareholding change also trigger this approval requirement?
Yes. RBI approval is also required for any change in shareholding that results in acquisition or transfer of 26% or more of the paid-up equity capital of the NBFC.
7. How should the public be informed about such changes?
In cases of share transfer or change in control, NBFCs must issue a public notice at least 30 days before the effective change, after obtaining RBI’s prior permission.
8. Does RBI approval guarantee continued NBFC operations?
RBI approval for management change ensures regulatory compliance; however, the NBFC must continue fulfilling all other regulatory requirements, including fit-and-proper criteria for directors, even after approval.
Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.
