NBFCs will have to notify M&As well in advance

Industry:    April, 2016

NBFCs will have to notify M&As well in advance

In what is seen as further tightening of the norms for non-banking finance companies (NBFC), RBI has said that in case of change of management and control of an NBFC a public notice should be given by both parties — the acquirer as well as the acquiree.

Currently only one party needs to make the announcement, and this is normally done by the acquirer. According to the norms, whenever there is change of management and control of NBFCs, “a prior public notice should be given 30 days before effecting the sale, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares or by way of amalgamation/merger of an NBFC with another NBFC or a non-financial company by the NBFC and also by the transferer, or the transferee.”

According to bankers, RBI may have tightened the norms as many overseas players are looking at picking up stakes in this sector. However, as per the terms of license with RBI, a change in ownership may not be allowed. The new norms would help RBI fix the responsibility on both the parties.

In recent times, RBI has been slowly tightening the norms on the NBFC sector. A month ago, it said that all NBFCs will have to submit a certificate from their statutory auditors every year. The move would effect corporates who were looking at re-starting their dormant NBFCs due to the interest from foreign banks and financial institutions in the sector.

Both these moves of RBI may scuttle some of the possible take-overs by foreign players in the sector. RBI had not yet given permission to HSBC, Deutsche Bank, HDFC Bank and others to start their NBFCs. However, it recently gave a permission to AIG to start a wholly-owned subsidiary.

Mahesh Thakkar, president, Finance Industry Development Council, said: “The move aims at protecting the interests of depositors and prior intimation of changes in control and management will ensure credibility of management and improve awareness among the public. In case of any negative information known to the public about either parties, it could be brought to the attention of the central bank.”