RBI Approval for Change in Management of Non-Banking Financial Companies (NBFC)

Non-Banking Financial Companies (NBFCs), as the name suggests, are the companies established under the Companies Act. NBFCs are intermediaries engaged in the business of finances, accepting deposits, delivering credit and hence play an important role in channelizing the scarce financial resources towards the creation of wealth. They supplement the organized banking sector by meeting the increasing financial requirements of the corporate sector, delivering credit to the unorganized sector and small local borrowers.

NBFCs are not allowed to offer a full range of banking services. Instead, they provide a smaller bundle of financial services targeted towards specific groups. To provide credit to such groups, NBFCs need to raise capital at frequent intervals. Hence, raising capital is fundamental to the sector’s growth.

Due to their investment needs and companies’ growth, there might be changes in the control and management of NBFCs like transfer of shareholding, change in directorship. To regulate this RBI came with master direction on the ‘Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014’ vide circular No. DNBR (PD) CC. No. 065/03.10.001/2015-16 dated 09th July 2015.

Requirement for obtaining prior approval of RBI in cases of acquisition/ transfer of control of Non-Banking Financial Companies (NBFCs):

Instances when requirement of prior approval from RBI is required

Any takeover or acquisition of control of an NBFC, which may or may not result in a change of management.


Any change in the shareholding of an NBFC, including progressive increases over time, would result in acquisition/ transfer of shareholding of 26 per cent or more of the paid-up equity capital of the NBFC. 



The progressive increase means aggregate shareholding acquired by the person.


The same can be explained by below mentioned example, say a person A acquires 20% of the paid-up equity share capital of the NBFC at the first instance and thereafter acquires only 7% of the paid- up capital.


So, in this case at the time of first acquisition there is no need for approval from RBI but at the time of second instance the aggregate shareholding of A exceeds 26% of the paid-up share capital hence prior approval of the RBI is necessary.



Prior approval would, however, not be required in the case of any shareholding going beyond 26% due to buyback of shares/ reduction in capital where it has approval of a competent Court.



1. Any change in the management of the NBFC which would result in a change of more than 30 per cent of the directors, excluding independent directors.



Suppose there are 5 directors in an NBFC and 2 of them retire by rotation. In the given case, two of the five directors are retiring by rotation, resulting in a change in 40% of the directors of the NBFC. Thus, the same would require prior approval of the RBI.



Prior approval would not be required for those directors who get re-elected on retirement by rotation.

Application for prior approval:

NBFC shall submit a following application on the company letterhead for obtaining prior approval of the RBI along with following documents:

Name of the documents

Information about the proposed directors/ shareholders & corporate promoter. 

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 

Declaration from Appointee Directors in pursuance of Notification No. DNBR (PD) CC NO. 065/03.10.001/2015-16 Dated July 09, 2015 with reference to Application for Prior Approval.

Declaration by existing Director to continue as director.

Undertaking from incoming Shareholders affirming to subscribe Equity and ensure maintenance of NOF as per prescribed level.

Brief writeup on reasons for the change in management & control

In case the directors/promoters/shareholders are associated with or without substantial interest (indicate %of holding in each company firm) in other companies, clearly indicate the activity of the companies and details of their regulators if any.

KYC copy of each Director / Promoter / Shareholder

Certificate from the respective Bank or NBFC/s where the Directors have gained Bank/ NBFC experience.  This is a compulsory requirement.

Detailed CV of each proposed Director / Shareholder / Promoter

CIBIL Data of all the proposed director / promoter / shareholder

The proposed Shareholding structure of ENRON and details about the proposed Directors  

Details of the bank balances/bank accounts/complete postal address of the branch/bank, loan/credit facilities etc. availed for Director / promoter / shareholders

Bankers’ Report on the proposed directors/ shareholders.


Applications in this regard may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located.

Requirement of Prior Public Notice about change in control/management:

  • A 30-day prior public notice has to be given 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 which would mean prior public notice is to be served for the following –
    • any takeover or acquisition of control of an NBFC, which may or may not result in a change of management.
    • any change in the shareholding of an NBFC, including progressive increases over time, which would result in acquisition/transfer of shareholding of 26 percent or more of the paid-up equity capital of the NBFC.

Such public notice shall be given by the NBFCs and by the other party or jointly by the parties concerned, after obtaining the prior permission of the Reserve Bank.

It is also to be noted that the NBFCs need not serve prior public notice for the change in management resulting in a change in more than 30% of directors.

  • The following details shall form a part of the public notice:
  1. Transferor’s intention to transfer the ownership/ control;
  2. Particulars of transferee; and
  3. Reasons for such transfer

Note: The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

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