RBI makes changes in NBFCs management control more stringent

The Reserve Bank today tightened the norms for acquisition/transfer of control of non-banking financial companies (NBFCs) by making it mandatory to seek prior approval from it.
In a notification, the apex bank said any acquisition/ transfer of control of an NBFC needs its prior approval by modifying the May 26, 2014 directions.
"Henceforth, prior written permission of the Reserve Bank shall be required for any takeover or acquisition of control of an NBFC, which may or may not result in change of management," the RBI said, adding that any change in the shareholding, including progressive increases over time up to 26 per cent of the shareholding or of the paid up capital would have to be notified to the RBI before the deal.

Prior approval will, however, not be required in case of any shareholding going beyond 26 per cent due to share buyback or reduction in capital where it has approval of a competent court, the RBI said, but has to be reported within a month from the deal.
Similarly, any change in the management of the NBFC which would result in change in over 30 per cent of directors, excluding independent directors will also need no prior approval, it said.
The RBI also said a 30-days public notice should be given before effecting the sale/transfer of ownership/ control. Such public notice will have to be given by NBFC and also by the other party or jointly by the parties concerned, after obtaining prior RBI nod.

Meanwhile, the RBI also made the reporting of returns of NBFCs, with asset size below Rs 500 crore more stringent under which all non-deposit taking NBFCs are required to submit an annual return to the RBI.

For this, the apex bank has created two new return formats to capture important financial parameters of the respective category of NBFCs.
The annual returns should be submitted within 30 days of closing of the financial year, that is by 30th April of every year.
However, this being a new regulation, they have been permitted to file the FY15 returns by September 30.