Acquiring a Non-Banking Financial Company (NBFC) is not the end of the process but the start of a crucial stage post-acquisition compliance and ownership transition. Once the Reserve Bank of India (RBI) approves the change in control, the new management must focus on implementing several legal, financial, and governance-related obligations to ensure a smooth transition. These steps safeguard the NBFC’s regulatory standing and maintain trust with stakeholders, investors, and regulators.

Post-acquisition compliance involves aligning the company’s operations with the provisions of key laws such as the RBI Act, 1934, the Companies Act, 2013, the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, and relevant SEBI Regulations for listed entities. It includes notifying the RBI, updating statutory records, reconstituting the Board, revising policies, and ensuring ongoing adherence to prudential norms. The process ensures that the NBFC continues to function efficiently within India’s strict regulatory and supervisory framework.

In this article, CA Manish Mishra talks about Post-Acquisition Compliance: Transitioning Ownership in an NBFC.

RBI Notification and Reporting under the RBI Act, 1934 

Compliance with the Scale-Based Regulatory (SBR) Framework

The Scale-Based Regulatory (SBR) Framework, introduced by the Reserve Bank of India (RBI) through the Master Direction NBFC (Scale-Based Regulation) Directions, 2023, represents a structured approach to supervising NBFCs based on their size, complexity, and systemic importance. After an acquisition, ensuring compliance with this framework becomes a critical post-acquisition responsibility, as the change in ownership may alter the NBFC’s scale and risk exposure.

Classification and Applicability

Under the SBR framework, the RBI has classified NBFCs into four regulatory layers:

• Base Layer (BL): Small NBFCs with minimal systemic risk.

• Middle Layer (ML): Larger NBFCs with moderate systemic importance.

• Upper Layer (UL): Systemically significant NBFCs comparable to large banks.

• Top Layer (TL): Reserved for highly complex NBFCs identified for enhanced supervision.

The classification is based on asset size, risk exposure, and interconnectivity with the broader financial system. This tiered structure ensures proportionate regulation light for smaller entities and progressively stricter for larger or riskier NBFCs.

Post-Acquisition Reclassification

After an acquisition, if the asset base or leverage of the NBFC increases, or if it becomes part of a larger financial conglomerate, the RBI may reclassify it into a higher regulatory layer.
For example, if a small NBFC (Base Layer) is acquired by a large financial group and its balance sheet expands, it may be moved into the Middle Layer. This reclassification leads to stricter compliance norms, such as:

• Adoption of enhanced corporate governance standards and disclosure requirements.

• Constitution of Risk Management Committees (RMC) and Audit Committees.

• Implementation of statutory auditor rotation and stronger audit oversight.

Such transitions require the NBFC to immediately update its internal governance, policy framework, and reporting systems to align with higher-level regulatory expectations.

Governance and Prudential Standards

Chapter XII of the RBI Master Direction, 2023, outlines comprehensive governance and prudential standards applicable to NBFCs post-acquisition. The key obligations include:

• Establishing a robust compliance framework headed by an independent compliance officer who reports directly to the Board.

• Strengthening IT governance, outsourcing risk policies, and internal control mechanisms to ensure operational resilience.

• Ensuring timely submission of all RBI returns, audit reports, and disclosures as per prescribed timelines.

Compliance with these SBR requirements not only aligns the NBFC with RBI’s regulatory vision but also enhances transparency, investor confidence, and long-term financial stability under the new ownership structure.

Corporate Law Compliance under the Companies Act, 2013

Following an NBFC acquisition, compliance with the Companies Act, 2013 becomes a crucial part of the post-acquisition process. The new management must ensure that all statutory records, board decisions, and financial structures are aligned with legal requirements. These steps help validate the change in ownership and protect the company from corporate law violations.

Board and Shareholder Approvals

After the acquisition, the newly constituted Board of Directors must hold its first board meeting in accordance with Section 173(1) of the Companies Act, 2013. During this meeting, the Board should formally:

• Record the takeover and transfer of control,

• Approve any changes in capital structure or management, and

• Pass necessary resolutions for future compliance filings.

These resolutions must be accurately documented in the minutes of the meeting, as they serve as the legal record of the company’s transition in control and decision-making authority.

Filing of Statutory Forms

Post-acquisition, the NBFC must update its corporate filings with the Registrar of Companies (ROC) to reflect the new ownership and management. The key statutory forms include:

• DIR-12 – For appointment or resignation of directors following ownership transition.

• MGT-14 – For filing Board or shareholder resolutions regarding significant decisions such as takeover, borrowings, or amendments.

• INC-22 – For updating changes in the registered office address, if applicable.

• SH-7 – For alteration of share capital, whether due to new allotments or restructuring.

These filings ensure that the company’s Master Data on the MCA portal accurately reflects the new governance and ownership structure, maintaining compliance transparency.

Compliance with Borrowing and Investment Limits

After the acquisition, the NBFC must review and align its financial limits concerning borrowings, loans, and investments.

• Under Section 180(1)(a), approval from shareholders is required if the company disposes of any substantial asset.

• Under Section 180(1)(c), shareholder approval is needed when borrowings exceed the company’s paid-up share capital and free reserves.

• Section 186 governs inter-corporate loans and investments, ensuring they remain within the prescribed limits and are backed by Board or shareholder consent where required.

Compliance with these provisions ensures that the NBFC operates prudently, within legal borrowing and investment thresholds, and avoids penalties or invalidation of transactions post-acquisition.

Reconstitution of the Board and Committees

Updating Internal Policies and Systems

After an NBFC acquisition, the new management must ensure that all internal policies, operational systems, and control mechanisms are updated to align with the Reserve Bank of India’s (RBI) prudential norms. This process known as policy realignment helps maintain regulatory compliance, minimize operational risks, and reflect the new ownership’s governance philosophy.

Policy Realignment

A change in ownership or management requires an NBFC to review, revise, and re-adopt key internal policies to ensure that they comply with current RBI regulations and best practices in corporate governance. The primary policies that must be realigned include:

• Fair Practices Code (FPC): This code ensures transparency and fairness in dealing with borrowers. It mandates clear communication of loan terms, fair recovery practices, and grievance redressal mechanisms.

• KYC/AML Policy (Know Your Customer / Anti-Money Laundering): As per the Prevention of Money Laundering Act, 2002 (PMLA) and RBI Master Direction on KYC, NBFCs must verify customer identity, maintain transaction records, and monitor suspicious transactions to prevent financial crimes.

• Credit and Recovery Policy: It defines the principles for loan sanctioning, monitoring, and recovery to maintain asset quality in line with RBI’s prudential norms on income recognition, asset classification, and provisioning.

• Risk Management and Internal Audit Policy: A post-acquisition review must strengthen risk identification, assessment, and mitigation frameworks, along with establishing a robust internal audit system for financial and operational oversight.

• Outsourcing Policy and Whistleblower Policy: These ensure accountability when NBFCs outsource key operations and protect employees who report misconduct, aligning with RBI’s Guidelines on Managing Risks in Outsourcing of Financial Services.

All these policies must be approved by the reconstituted Board of Directors and communicated to all employees and stakeholders to ensure organization-wide compliance.

IT and Data Governance

In today’s digital era, data governance and cyber resilience are as critical as financial governance. The RBI Circular DOR.AML.REC.57/14.01.001/2021-22 mandates that NBFCs implement strong IT systems and cybersecurity frameworks, especially after ownership transitions that may involve system migration.

Key compliance expectations include:

• Strengthening IT Infrastructure: Ensuring that all IT systems, servers, and databases are updated, secure, and compatible with the new entity’s technology framework.

• Secure Data Migration: During ownership transition, sensitive financial and customer data must be migrated securely to prevent data leaks, corruption, or unauthorized access.

• Cybersecurity Framework: Establishing firewalls, multi-factor authentication, encryption protocols, and regular vulnerability testing.

• IT Audit Mechanisms: Conducting periodic IT audits to detect risks, monitor compliance with data protection laws, and ensure operational resilience.

Through these measures, NBFCs can safeguard data integrity, customer privacy, and business continuity, all of which are essential under the RBI’s risk-based supervision model.

FEMA and FDI Reporting for Foreign Investors

When a Non-Banking Financial Company (NBFC) is acquired or invested in by foreign investors, the transaction must strictly comply with the Foreign Exchange Management Act, 1999 (FEMA) and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. These regulations govern how foreign direct investments (FDI) can be made, reported, and monitored to ensure transparency and alignment with India’s financial and security interests.

Applicable Regulations

If the acquirer or shareholder in an NBFC is a non-resident entity or individual, the transaction automatically comes under the purview of FEMA, 1999.
Under the FEMA (Non-Debt Instruments) Rules, 2019, foreign investment in NBFCs is permitted up to 100% under the automatic route, provided:

• The NBFC is engaged in activities regulated by the Reserve Bank of India (RBI).

• The investment adheres to KYC norms, minimum capitalization requirements, and sectoral guidelines.

• The company continues to meet post-investment reporting and compliance obligations under FEMA and RBI directions.

In cases where the acquisition leads to a change in control or transfer of shares between resident and non-resident shareholders, specific reporting forms and timelines are prescribed to ensure regulatory transparency.

Mandatory Filings

Every NBFC transaction involving foreign ownership or investment must be reported through the Foreign Investment Reporting and Management System (FIRMS) portal, managed by the RBI. The two key filings are:

• Form FC-TRS (Foreign Currency-Transfer of Shares): Required when there is a transfer of shares between a resident and a non-resident or vice versa. This filing captures details of the transfer, consideration paid, and the parties involved.

• Form FC-GPR (Foreign Currency-Gross Provisional Return): Applicable when the NBFC issues new shares to a non-resident investor for example, during a capital infusion or rights issue.

Both forms must be filed within 30 days of the transaction date to avoid penalties under Regulation 13.1 of FEMA, 2019. The filings must include the share valuation certificate (as per FEMA pricing guidelines), share transfer agreements, and KYC documents of the foreign investor.

Failure to make these submissions on time can result in penalties under Section 13 of FEMA, 1999, and may also delay further regulatory approvals.

Press Note 3 (2020) Restrictions

In April 2020, the Department for Promotion of Industry and Internal Trade (DPIIT) issued Press Note 3 (2020) to regulate foreign investments from countries sharing land borders with India, such as China, Nepal, Pakistan, Bangladesh, Myanmar, Bhutan, and Afghanistan.

Under this framework:

• Any direct or indirect investment from these countries requires prior approval from the Government of India, regardless of the investment route or percentage.

• Subsequent transfer of ownership or control to entities from these countries also mandates Government approval.

• The rule applies even if the investing entity is based in a third country but has beneficial ownership linked to a restricted nation.

This restriction aims to protect national security and prevent opportunistic takeovers of Indian companies, including NBFCs, by entities from border-sharing countries.

SEBI and Listing Compliance (for Listed NBFCs)

For listed Non-Banking Financial Companies (NBFCs), post-acquisition compliance extends beyond the Reserve Bank of India (RBI) and Ministry of Corporate Affairs (MCA) regulations. The Securities and Exchange Board of India (SEBI) mandates detailed disclosures, corporate governance adherence, and investor protection mechanisms through the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST). These frameworks ensure transparency, fair dealing, and timely reporting of significant changes in control or ownership.

Disclosure Obligations under LODR

Under the SEBI (LODR) Regulations, 2015, every listed NBFC is required to make prompt and accurate disclosures to the stock exchange to keep shareholders and the market informed about material events. The major obligations include:

• Change in Control or Promoter Shareholding (Regulation 30): Any acquisition that leads to a change in the company’s control, promoter group, or ownership structure must be immediately disclosed to the stock exchanges where the securities are listed. This ensures that investors are aware of changes affecting management and business direction.

• Appointments or Resignations of Directors/KMPs (Schedule III, Part A): The appointment, resignation, or removal of any director or key managerial personnel (KMP) must be disclosed within 24 hours of the event.

• Quarterly Shareholding Pattern (Regulation 31): Every listed NBFC must submit its shareholding pattern to the stock exchange on a quarterly basis, reflecting the latest promoter and public shareholding after the acquisition.

These disclosures maintain transparency and protect investor confidence by ensuring that the market has up-to-date information about the company’s ownership and management.

Related Party Transactions (RPTs)

As per Regulation 23 of the SEBI (LODR) Regulations, 2015, every listed company must ensure that related party transactions (RPTs) are conducted transparently and on an arm’s-length basis.

Post-acquisition, any transactions between the NBFC and its new promoters, group companies, or affiliates must be reviewed and approved by the Audit Committee. In certain cases, prior approval from shareholders is also required if the transaction value exceeds the thresholds prescribed under LODR.

This measure ensures that all financial dealings with related entities are properly vetted and do not compromise minority shareholder interests or the company’s governance integrity.

Open Offer Compliance

If the acquisition of shares in a listed NBFC triggers the thresholds prescribed under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations), the acquirer must comply with open offer requirements.

• Under Regulation 3(1) of SAST, acquiring 25% or more of the voting rights or gaining control over the company triggers a mandatory open offer.

• The acquirer must make an offer to purchase at least 26% of the company’s shares from public shareholders at a determined price.

• After completing the open offer, the acquirer is required to finalize payments to the shareholders and submit post-offer reports to SEBI and the stock exchanges within the prescribed timeline.

Non-compliance with open offer regulations can lead to penalties, suspension of trading, or disqualification from future market participation under Section 15H of the SEBI Act, 1992.

Taxation, Audit, and Financial Reporting

After the acquisition of a Non-Banking Financial Company (NBFC), compliance in the areas of accounting, audit, and taxation becomes critical. The transition must be reflected accurately in the company’s books of accounts, and all reporting and registrations must align with the new ownership. Proper documentation and audit practices not only fulfill legal obligations but also ensure the company’s financial transparency and regulatory trust.

Accounting and Disclosure Standards

Following an acquisition or merger, NBFCs must record the change in ownership according to the Indian Accounting Standard (Ind AS) 103 – Business Combinations. This standard prescribes the method for recognizing acquired assets, liabilities, goodwill, and purchase consideration in consolidated financial statements. It ensures that the new ownership is reflected in both standalone and consolidated accounts.

Additionally, disclosures must comply with Schedule III of the Companies Act, 2013, which requires NBFCs to report changes in capital structure, ownership, and control in their financial statements. The post-acquisition period should also reflect adjustments to balance sheet items, profit and loss accounts, and notes to accounts in line with the new ownership framework.

Reappointment of Auditors

Under Section 139 of the Companies Act, 2013, every company must appoint or reappoint its statutory auditor at the Annual General Meeting (AGM). However, post-acquisition, the auditor’s eligibility must be reassessed to ensure independence and compliance with RBI’s circular DoS.CO.ARG/SEC.01/08.91.001/2021-22, which governs auditor rotation for NBFCs.

• Base and Middle Layer NBFCs must rotate auditors after completion of the maximum tenure of three years.

• For Upper Layer NBFCs, stricter rules apply regarding auditor independence and peer review.

If ownership changes result in a new controlling entity, the acquirer may propose a new auditor, subject to Board and shareholder approval, ensuring there is no conflict of interest between the auditor and the new management.

Tax and GST Updates

The new management must update the NBFC’s Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), and Goods and Services Tax Identification Number (GSTIN) to reflect the new ownership details. These changes must be communicated to the Income Tax Department, GST authorities, and banks to maintain consistency across tax filings and compliance records.

Additionally, the NBFC must ensure proper filing of:

• TDS returns under Sections 192–194 of the Income Tax Act, 1961, for salary and contractor payments.

• GST returns (GSTR-1 and GSTR-3B) for taxable supplies and input credits.

Any pending tax disputes, credits, or carry-forward losses from the pre-acquisition period should be reviewed during due diligence and properly accounted for in the post-acquisition financial statements.

Non-Compliance and Penal Provisions

Compliance with post-acquisition legal and regulatory obligations is not optional it is a mandatory condition for maintaining the NBFC’s registration and operational credibility. Any lapse or delay in meeting these obligations may attract strict penal and corrective actions from the Reserve Bank of India (RBI) and other regulatory authorities. The penalties are designed to enforce discipline and ensure that NBFCs adhere to governance, disclosure, and reporting standards after a change in ownership or control.

RBI Penalties

Under Section 58B of the Reserve Bank of India Act, 1934, if an NBFC fails to comply with the terms of RBI’s approval, reporting requirements, or any regulatory directive, the company and its officers can face monetary penalties or imprisonment.

• The penalties may include fines for each instance of default or continuous non-compliance.

• In serious cases, where misreporting or concealment is detected, imprisonment may extend up to three years.

• Additionally, the RBI has the power to cancel the NBFC’s Certificate of Registration (CoR) under Section 45-IA(6) if violations persist.

Such stringent penalties highlight the importance of timely submission of post-acquisition documents, accurate disclosures, and full adherence to prudential norms.

The RBI, exercising its supervisory powers under Section 45L of the RBI Act, 1934, can issue binding directions to an NBFC that fails to meet compliance obligations or poses a risk to financial stability.

These directions may include:

• Restricting lending or deposit-taking activities until compliance gaps are resolved.

• Imposing special audits or inspections to assess governance and risk management systems.

• Suspending specific financial operations, such as new loan disbursals or asset acquisitions, until rectifications are made.

These regulatory measures are corrective rather than punitive and are designed to restore compliance integrity within the NBFC’s management and operational framework.

Other Legal Consequences

In addition to RBI’s oversight, non-compliance in ownership disclosure or beneficial ownership reporting can trigger action under other laws, particularly:

• The Prevention of Money Laundering Act (PMLA), 2002, if the misreporting conceals the identity of real investors or facilitates money laundering.

• The Companies (Significant Beneficial Ownership) Rules, 2018, which require disclosure of individuals holding 25% or more beneficial ownership or significant influence in the company.

Failure to disclose accurate beneficial ownership information may result in fines, disqualification of directors, or even prosecution of officers in default.

Recent Regulatory Developments

The Reserve Bank of India (RBI) has been progressively refining the regulatory environment for Non-Banking Financial Companies (NBFCs) to strengthen governance, capital adequacy, and transparency. These reforms demonstrate the RBI’s goal of aligning NBFC supervision with that of the banking sector, thereby minimizing systemic vulnerabilities and ensuring a resilient financial ecosystem.

RBI Master Direction, 2023

The Master Direction on Scale-Based Regulation (SBR), 2023 consolidated various earlier circulars, notifications, and prudential guidelines into one unified compliance framework. This comprehensive regulation categorized NBFCs into four tiers Base, Middle, Upper, and Top Layers based on their size, activity, and risk profile.

The Direction emphasizes:

• Enhanced corporate governance standards, including Board independence and fit-and-proper assessments.

• Stricter capital adequacy norms, requiring larger NBFCs to maintain capital buffers comparable to those of banks.

• Robust risk management frameworks, particularly for liquidity, exposure, and operational risks.
  By doing so, the Master Direction moved the NBFC regulatory system closer to a bank-like supervisory model, ensuring better control over entities with systemic importance.

RBI Draft Directions, 2025

In 2025, RBI introduced the Draft Directions on Voluntary Amalgamations of NBFCs, marking a new chapter in corporate restructuring regulation. These proposed rules make it mandatory to obtain a prior No-Objection Certificate (NOC) from RBI before proceeding with any merger or amalgamation involving NBFCs.

The objectives of this regulatory measure are:

• To ensure that all mergers and consolidations are financially sound and in the public interest.

• To verify that the resulting entity maintains the required Net Owned Fund (NOF), liquidity, and fit-and-proper management standards.

• To prevent misuse of amalgamations for regulatory arbitrage or avoidance of compliance responsibilities.

This proactive stance promotes transparency, stability, and accountability in NBFC restructuring and ensures that consolidations do not pose systemic risks to the financial sector.

Enhanced Cross-Border Oversight

In recent years, RBI has strengthened its scrutiny of cross-border ownership and foreign investments in NBFCs, particularly from jurisdictions that are non-compliant with the Financial Action Task Force (FATF) standards. This measure ensures that foreign capital entering India’s financial system originates from legitimate, transparent sources.

Simultaneously, RBI has improved coordination with other regulators, especially the Securities and Exchange Board of India (SEBI), to avoid regulatory overlap in monitoring listed NBFCs and financial conglomerates. This harmonized approach facilitates seamless compliance, reduces duplication of effort, and enhances the overall efficiency of regulatory supervision.

Conclusion

Transitioning ownership in a Non-Banking Financial Company (NBFC) goes beyond a mere transfer of shares it involves an extensive and continuous compliance process that integrates multiple regulatory frameworks. Once an acquisition is completed, the NBFC must promptly notify the Reserve Bank of India (RBI), reconstitute its Board of Directors, and update internal policies in line with the Scale-Based Regulatory (SBR) Framework. In addition, compliance under the Companies Act, 2013, Foreign Exchange Management Act (FEMA), and SEBI regulations for listed entities must be meticulously followed to maintain transparency and governance integrity.

A well-structured post-acquisition compliance plan protects the NBFC from penalties, regulatory scrutiny, and operational disruption. It also helps preserve investor confidence and ensures financial discipline under the new management. As RBI’s regulatory landscape continues to evolve, especially through the SBR Framework, adherence to these legal and governance formalities has become the cornerstone of a sustainable, transparent, and compliant NBFC acquisition strategy in India’s dynamic financial system. 

Frequently Asked Questions (FAQs)