RBI tweaks M&A norms for NBFCs

The Reserve Bank of India (RBI) has tightened merger rules for non-banking finance companies, requiring them to obtain the RBI’s written permission to acquire or merge with any similar entity, in order to ensure their fit and proper management. Previously, only deposit-taking non-bank finance companies required approval for a takeover or merger. But, this directive, to be known as 'Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014, would be applicable to every non-banking financial company, i.e. deposit taking or a non-deposit taking NBFC. According to the RBI, any merger or amalgamation of an NBFC with another entity or an entity with an NBFC that would give the acquirer or another entity control of the NBFC will need its written approval, before the permissions of court or tribunal for mergers or amalgamations with other companies or NBFCs. However, RBI clarified that its prior approval would not be required in case where NBFC is acquiring less than 10% of another entity. Further, it also brought to the notice of the prospective acquirers of NBFCs that acquisition of shares/ takeover of an NBFC without its prior approval shall result in adverse regulatory action by the Reserve Bank, including, cancellation of Certificate of Registration of the concerned NBFC.