The Reserve Bank of India (RBI,) tightened merger rules for non-bank finance companies (NBFCs) to ensure fit and proper character of the management of NBFC.
The RBI on 26 May 2014 notified the Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014. The directions will come into force with immediate effect.
The direction includes the prior written permission of the Reserve Bank of India shall be required for any takeover or acquisition or control of an NBFC, whether by acquisition of shares or otherwise.
Previously, only deposit-taking NBFCs required approval of RBI for a takeover or merger.
Besides, any merger or amalgamation of an NBFC with another entity or any merger or amalgamation of an entity with an NBFC which will result in acquisition or transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC will also need approval of RBI.
The written approval of RBI will be required before approaching the court or tribunal seeking order for mergers or amalgamations with other companies or NBFCs.
About Non-Banking Financial Companies
• Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 NBFCs perform similar activities of banks like deposits and make lends.
• But NBFC cannot accept demand deposits, cannot issue cheques drawn on itself, deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
• NBFC does not include any institution whose principal business is that of agriculture activity, industrial activity.
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