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It is very common for any Non-Banking Financial Company (NBFC) to change its management or to experience such change on account of resignation, death, retirement, or takeovers. Therefore, the Reserve Bank of India considered it necessary, in the public interest, to regulate the credit system for the advantage of the financial structure of the country. In this article, we will discuss how to change the Management of NBFCs but before that let’s understand the term NBFCs.
Table of Contents
Non-Banking Financial Company is a company that provides financial services and banking services. They are governed by the norms laid down by the reserve bank. They provide banking services to its customers such as loans, credit facilities, investing and stocking in money market etc.
Don’t forget to take note of the following points before application is made:
The Reserve Bank specifies the following conditions, in which the prior approval of the bank is required:
These Conditions are Subject to Following Exceptions:
Moreover, the RBI also states that, notwithstanding, anything written in the points above, all the Non-Banking Financial Companies (NBFCs) shall continue to inform the Reserve Bank regarding any change in their directors/ management as required under the following laws:
After affecting any such change, it is required to apply for NBFC License to the Reserve Bank of India by submitting an application on the letterhead of the Company, along with the following listed documents:
All the applications for obtaining the prior approval 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.
In the situation of any sale, transfer of ownership, or control, or any such change in management as enumerated above, a prior public notice of at least 30 days shall be given. Such notice shall be given by the concerned NBFC as well as the other party in the transaction or jointly by both the parties after being allowed by the Reserve Bank in this regard.
Any such public notice shall be published in one leading English language newspaper and in one leading local vernacular newspaper. The notice must also contain the intention of such a change in management or acquisition of the control.
The RBI has prescribed various Annexure in its notifications entailing the information about the directors/ promoters/shareholders of the company. The NBFCs are required to fill in the requisite details and then only apply to the Reserve Bank for approval. Any incomplete application will not be entertained by the bank and the approval will be delayed.
In case an NBFC change management without seeking prior approval then it would result in adverse regulatory action including CoR cancellation. RBI can also levy penalty on such NBFC.
The Reserve Bank of India, being the regulator of the financial system in the country including the NBFCs, strives to attain maximum transparency and efficiency in the workings of the financial market. The NBFCs are the rising stars in the area of financial and credit lending parties. Therefore, RBI assures that their workings are uninterrupted even if it involves change in management of NBFCs. At the same time, it should also be noted that any privilege given to such entities shall not be misused.
Read our article:
Corporate Governance in NBFCs and its Role in Tackling Corporate Frauds
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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