I am posting after almost 6 months - in the meantime, I have moved law firms and have a new set of responsibilities. My NBFC focus at work has decreased a little but I continue to monitor the sector.
Amongst interesting developments, there is the RBI 'moratorium' on registering new NBFCs instituted through the First Bi-monthly Monetary Policy Statement, 2014-15. This was in view of the fact that the law relating to NBFCs is due for a complete overhaul which remains pending.
The RBI has now issued a notification relating to mergers and acquisitions involving NBFCs. This now makes mergers and acquisitions relating to NBFCs (whether deposit accepting or not) subject to prior approval of the RBI. The policy rationale behind this approach is to ensure that the acquirer / resulting entity following the merger/ acquisition is a “fit and proper person” that has the necessary qualifications to carry on the business of the NBFCs, and such that a transaction is not prejudicial to public interest or the interest of depositors. Interestingly, the RBI notification defines “control” as having the same meaning assigned to it in the SEBI Takeover Regulations. Therefore, any type of control over management and policy decisions of the company, whether through acquisition of shares or through other means such as shareholder agreements could fall within the purview of the RBI approval requirement. Hence, even acquisitions of minority stakes in NBFCs may be subject to scrutiny if they are accompanied by significant rights granted to acquirers/ investors through protective provisions such as board nominations, quorum rights, veto rights and the like that may be contained in shareholders’ (or similar) agreements or in the articles of association of companies. In other words, the approval requirement may be triggered not just for outright acquisitions or takeovers but also investments that are accompanied by significant protective rights to the investors.