The RBI is now singing a different tune. NBFCs have to take prior approval from RBI for any merger, amalgamation or even if any entity wants to buy 10% or more stake in the NBFC. This will make NBFCs think thrice before striking a deal involving substantial change in their shareholding
The whammies on the non-banking financial companies (NBFCs) sector will likely show their adverse impact on the growth of NBFCs in India. The recent regulatory amendments have left the industry baffled and quite unsure on what the regulators are intending to achieve.
Firstly, the dawn of the Companies Act, 2013 (Act, 2013) which almost killed the bond market for the NBFCs.
Secondly, the confusion over the Debenture Redemption Reserve (DRR) requirements created by the Ministry of Corporate Affairs (MCA), which left the NBFCs jittery with carrying out any debt issuance.
Thirdly, the
press release of the Reserve Bank of India (RBI) with respect to the suspension of the issuance of the Certificate of Registration (CoR) for carrying on the business of NBFI. If these were not enough, the recent amendment said it and did it all.
In this write up we intend to cover the impact of the latest addition to the hall of shame (that the NBFCs might want to create!)
What do the new directions say?
The RBI has directed all the NBFCs to obtain a prior written permission to carry out the following:
(i) Any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise;
(ii) Any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC;
(iii) Any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC.
(iv) Approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.
The RBI is very loud and clear on its language saying “all NBFCs”, which means all the NBFCs irrespective of whether it is deposit taking or non-deposit taking will have to comply with the requirements, whereas the
earlier directions of 2009 with similar heading covered only the deposit-taking NBFCs. Moreover, the earlier directions covered only change in control but the scope of these directions is wider and would require the NBFCs to obtain prior written permission not just for amalgamations, mergers or takeovers but also for those investments which would transfer significant rights to rights to the investors.
The directions also say that these to be followed in addition to all other existing laws. So, if the NBFC is listed on any stock exchange, it will have to comply with the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 and needless to say the requirements under the Companies Act, 2013 will have to be complied with by all the NBFCs. So there is also an escalation of compliance cost for obtaining investments by the NBFCs.
Intent of the RBI
While the RBI said in the notification that these directions would help them to ensure that the management of the NBFCs are of “fit and proper” character, but the with the nature of restriction brought in by the directions, only one question arises – Are those holding the NBFCs are more fit and more proper than those who wanting to acquire?
The press release, earlier this year, coupled with this recent one, do not pronounce this year to be very auspicious year for the NBFCs growth as the regulators seems to be working on cross purposes themselves. RBI neither wants us to create one, nor does it want to us to buy one leaving no room for growth horizon. If this ruthless law making continues, the day is not far where NBFC sector will witness rallies in growth trajectory.
It is very sensible to take the approval of RBI and most of us working practically would agree how NBFC structures are being exploited by various people.
its highly appreciable if RBI follows strict rules and those rules should be properly implemented and there should be strict controlling authrority and auditors who have appointed should be good credibility not like the previous NBFC scam where the depositors fund were looted by NBFC firm in collobration with RBi and former FM and its was he the master mind in its closure where by many middlemangement employees who have been having their lively hood had lost their job and their curse all put together that our previous FM refused to stand in the election this shows his credibility if we have such FM then our country would go to dogs but the present FM shri jatiley is for his honesty integrity and accountability we are sure that such catstrohe would not happen but the controlling institution should be watch dog of depositers