A Share Purchase Agreement (SPA) for an NBFC acquisition is a detailed legal contract that governs the transfer of shares from the existing shareholders to the proposed buyer. Since an NBFC is regulated by the Reserve Bank of India (RBI), the transaction involves more than merely agreeing on the purchase price and transferring shares. The SPA generally sets out the number of shares being acquired, purchase consideration, payment terms, conditions precedent, representations and warranties, indemnities, regulatory approvals, closing obligations and post-closing responsibilities of both parties.

In an NBFC acquisition, the SPA must also be aligned with the applicable RBI takeover and control requirements. Where prior RBI approval is required, the agreement should clearly provide that ownership or control will not be transferred before such approval is obtained. This makes the SPA an important regulatory as well as commercial document, ensuring that the acquisition is completed only after due diligence, statutory approvals, public notice requirements and other compliance obligations have been properly fulfilled.

In this article, CA Manish Mishra talks about Share Purchase Agreement for an NBFC Acquisition.

What is a Share Purchase Agreement?

A Share Purchase Agreement is a legally binding agreement under which one or more existing shareholders agree to sell shares of a company to a buyer on agreed terms and conditions. Instead of purchasing individual assets of the company, the buyer acquires ownership of shares in the company itself. In an NBFC acquisition, this distinction is particularly important. The lending portfolio, contracts, employees, assets, liabilities and operational history generally continue to remain with the same company because the legal entity itself does not change merely because its shareholders change. The buyer effectively acquires ownership of an existing regulated corporate entity along with the benefits and risks attached to that entity.

Consequently, liabilities arising before the acquisition do not automatically disappear after the sale of shares. Historical tax disputes, borrower complaints, regulatory non-compliances, employee claims, defective loan documentation, KYC deficiencies, litigation and contingent liabilities may continue to affect the NBFC after the buyer acquires it. This is why an SPA for an NBFC acquisition ordinarily contains extensive representations, warranties and indemnity provisions.

Why is an SPA Important in an NBFC Acquisition?

The SPA establishes the rights and responsibilities of the seller and purchaser throughout the acquisition process. Without a carefully drafted agreement, uncertainty can arise regarding the valuation of the NBFC, responsibility for historical liabilities, regulatory approval, treatment of outstanding loans, payment of consideration and the circumstances in which either party can withdraw from the transaction. For the buyer, the SPA provides contractual protection against undisclosed liabilities and inaccurate information provided by the seller. For the seller, it establishes the purchase price, payment terms, limitations on liability and obligations of the purchaser.

In an NBFC transaction, the agreement also creates a clear distinction between signing and closing. The parties may enter into an SPA that is conditional upon RBI approval and other conditions precedent, but the ownership or control requiring regulatory approval should not be transferred before the required permission is obtained. The RBI's current directions expressly require prior written permission for specified changes in ownership and control.

RBI Regulation of NBFC Acquisitions

The regulatory governing acquisition of NBFCs was reorganised through the Reserve Bank of India (Non-Banking Financial Companies – Acquisition of Shareholding or Control) Directions, 2025, issued on 28 November 2025. The Directions apply to specified RBI-regulated NBFC categories across the regulatory layers, including NBFC-ICCs, NBFC-MFIs, NBFC-Factors, NBFC-IFCs, IDF-NBFCs, HFCs, CICs, NBFC-P2Ps and NBFC-Account Aggregators, subject to the applicability provisions contained in the Directions.

As a result, the parties preparing an SPA should identify the exact regulatory classification of the target NBFC before finalising the transaction structure. An acquisition involving an NBFC-ICC may have different operational considerations from an acquisition involving an NBFC-MFI, HFC, Account Aggregator or P2P lending platform.

When is Prior RBI Approval Required for an NBFC Acquisition?

Under the RBI’s 2025 Acquisition of Shareholding or Control Directions, prior written approval from the Reserve Bank of India is required where a transaction results in a takeover or acquisition of control of an NBFC. This requirement can apply even if the buyer is acquiring less than 26% of the shares, because control may also arise through voting rights, board appointment rights, management powers or other contractual arrangements. Therefore, the parties must examine both the percentage of shareholding and the rights being granted to the purchaser.

RBI approval is also required where the acquisition or transfer results in 26% or more of the paid-up equity capital of the NBFC being acquired or transferred, including progressive increases over time. Accordingly, acquisitions of 51%, 75% or 100% will generally fall within the prior-approval framework. Even where the proposed acquisition is below 26%, the SPA should not assume that approval is unnecessary unless the control position has also been carefully reviewed.

Special Consideration for Certain Housing Finance Companies

The RBI Directions contain a specific additional provision relating to an HFC that accepts or holds public deposits. A change in shareholding that results in acquisition or transfer of 10% or more of its paid-up equity capital by or to a foreign investor can trigger prior approval requirements in the circumstances prescribed by the Directions.

Therefore, where the target entity is an HFC rather than a conventional NBFC-ICC, the parties should separately evaluate the regulatory requirements applicable to that category before signing the transaction documents.

Structure of an SPA for NBFC Acquisition

An SPA for an NBFC acquisition is normally divided into several clauses dealing with commercial, legal and regulatory matters. Each clause has an important role in allocating risk between the parties.

Parties to the Agreement

The agreement should clearly identify the sellers, purchaser and, where appropriate, the target NBFC itself. The sellers are generally the existing shareholders transferring their shares. If there are several shareholders, the agreement should specify how many shares each seller owns and how many shares each seller proposes to transfer.

The purchaser may be an individual, Indian company, LLP, investment vehicle or foreign investor, subject to applicable regulatory restrictions. Where acquisition is made through a special purpose vehicle, the SPA should identify the SPV and, where commercially appropriate, include obligations or guarantees from its promoter or holding entity. The target NBFC may also become a confirming party to the agreement where it is required to undertake regulatory applications, provide records, complete corporate actions or fulfil conditions precedent.

Background and Recitals

The recitals provide the context of the acquisition. They may describe the business of the target NBFC, its RBI Certificate of Registration, existing shareholders and the buyer's intention to purchase the agreed shares.

Although recitals are not normally the principal operative provisions of the agreement, they help establish the commercial background and purpose of the transaction. In a regulated acquisition, the recitals may also clarify that completion is subject to receipt of RBI approval and other applicable regulatory permissions.

Details of Shares Being Acquired

The SPA should specify the exact number, class and percentage of shares being transferred. For example, if the purchaser is buying 100% of the target NBFC, the agreement should identify the total issued and paid-up equity capital and state that the sellers are transferring all their shares to the purchaser.

Where only part of the shareholding is being acquired, the agreement should clearly specify the pre-acquisition and post-acquisition shareholding patterns. This is particularly important in an NBFC transaction because the percentage of shareholding acquired may determine whether RBI prior approval is required. The current RBI threshold generally applies where a change in shareholding results in acquisition or transfer of 26% or more of paid-up equity capital, while acquisition of control is separately regulated.

Purchase Consideration

The SPA should clearly specify the price being paid for the shares and the method used for determining the purchase consideration. The parties may agree to a fixed price, price per share, net-asset-value-based valuation, book-value adjustment or another negotiated valuation methodology.

An NBFC buyer should not determine valuation solely by looking at the amount of paid-up capital. The quality of the loan portfolio, recoverability of receivables, level of non-performing assets, provisioning, contingent liabilities, borrowing obligations, regulatory status and net worth may materially affect the actual economic value of the company. The SPA should also state whether the consideration is payable entirely at closing or whether a portion will remain in escrow or be deferred.

Payment Mechanism

The payment clause specifies how and when the purchaser will pay the consideration. Where regulatory approval is required, it may be inappropriate for the entire consideration to be released unconditionally before the conditions precedent have been completed. The SPA may therefore provide for payment at closing or use an escrow structure.

A portion of the consideration may also be retained for an agreed period to protect the purchaser against claims arising from undisclosed liabilities or breach of warranties. The commercial terms of such retention should be carefully negotiated.

• Conditions Precedent in an NBFC SPA: One of the most important sections of an NBFC Share Purchase Agreement is the Conditions Precedent clause. Conditions precedent are requirements that must be satisfied before the acquisition is completed and the shares are finally transferred.

• RBI Approval as a Condition Precedent: Where RBI prior approval is applicable, obtaining that approval should ordinarily be treated as a fundamental condition precedent to closing. The agreement should clearly provide that the purchaser will not acquire ownership or control of the NBFC until the necessary regulatory approval has been obtained. The clause should also specify which party will prepare the RBI application, who will provide the documents, how the parties will respond to RBI queries and what will happen if approval is refused or is granted subject to conditions that are unacceptable to either party.

• RBI Application Through PRAVAAH: Under the 2025 Directions, the NBFC is required to submit the prior-approval application through the RBI's PRAVAAH portal on the company's letterhead together with prescribed information and supporting documents. The regulatory application requires information about the proposed shareholders, the source of funds being used to acquire the NBFC, prescribed declarations and a bankers' report relating to the proposed shareholders. The SPA should therefore obligate the proposed purchaser and sellers to promptly provide all documentation and information required for the application.

• Source of Funds: The source of funds used by the purchaser is an important regulatory consideration. The RBI's 2025 Directions specifically require details regarding the sources of funds of proposed shareholders acquiring shares in the NBFC as part of the prior-approval application. The purchaser should therefore be prepared to demonstrate how the acquisition will be funded. Depending upon the buyer, supporting documents may include financial statements, income records, bank statements, investment records, corporate documents and explanations regarding the source of acquisition funds. The SPA may include a representation from the purchaser confirming that the consideration is being paid from lawful and disclosed sources.

• Declarations of Proposed Shareholders: The RBI application also requires specified declarations from proposed shareholders. These include declarations regarding association with unincorporated bodies accepting public deposits, association with companies whose RBI Certificate of Registration applications have been rejected, and criminal cases, including proceedings referred to in the RBI Directions. Accordingly, due diligence should not be limited to the target company. The eligibility and background of the proposed shareholders can also become relevant to the regulatory approval process.

• Bankers' Report: The RBI requires a bankers' report on the proposed shareholders as part of the prior-approval application. The transaction timetable should therefore allow sufficient time for the proposed purchasers to coordinate with their bankers and obtain the necessary report.

Public Notice Before Completion of NBFC Acquisition

Obtaining RBI approval does not necessarily mean that the shares can be transferred immediately. Under the RBI's 2025 Directions, a public notice must be given at least 30 days before effecting the transfer of ownership by sale of shares or the transfer of control, whether or not accompanied by a sale of shares. The notice must be published in at least one leading national newspaper and one leading local vernacular newspaper covering the place of the registered office of the NBFC.

Importantly, the public notice is to be issued after obtaining RBI's prior permission. It may be issued by the NBFC and the transferee or jointly by the concerned parties. The notice is required to indicate the intention to sell or transfer ownership or control, particulars of the transferee and the reasons for the proposed transaction. The SPA should therefore build this 30-day period into the acquisition timetable. Closing should not be scheduled immediately after receipt of RBI approval if the public-notice period remains to be completed.

Due Diligence Before Signing the SPA

Before acquiring an NBFC, the purchaser should conduct extensive legal, financial, regulatory and operational due diligence. Due diligence is especially important in a share acquisition because the buyer takes ownership of the existing company with its historical liabilities.

RBI Registration and Regulatory Status

The purchaser should verify that the target holds a valid Certificate of Registration and determine the exact category under which it is registered. RBI's current framework classifies NBFCs by activity and under its Scale Based Regulation framework. The RBI states that NBFCs are placed within Base, Middle, Upper and Top Layers depending on factors such as size, activity and perceived risk. Understanding the target's classification is essential because its compliance obligations may differ based upon the type and layer of the NBFC.

Net Owned Fund and Capital Position

The purchaser should examine whether the NBFC satisfies the minimum regulatory capital and net owned fund requirements applicable to its category. RBI's current general guidance states that a company seeking NBFC registration ordinarily requires minimum Net Owned Fund of ₹10 crore, with specified transition provisions for existing NBFCs to attain the applicable requirement by 31 March 2027. Category-specific requirements and exemptions should still be separately verified. The buyer should determine whether any capital infusion will be required after acquisition.

Loan Portfolio Review

For a lending NBFC, the loan book is generally one of its most important assets and also one of its largest potential sources of risk. The purchaser should examine the size of the portfolio, borrower concentration, secured and unsecured exposures, repayment behaviour, overdue accounts, non-performing assets, restructuring, provisioning and recoverability. A large loan portfolio may appear attractive from an asset perspective, but poor documentation or high delinquency can materially reduce its value.

Loan Documentation

A sample or risk-based review of loan documentation should be carried out. The purchaser should check whether loan agreements, sanction letters, security documents, guarantees, KYC documents and repayment mandates have been properly executed. Where secured loans are involved, the enforceability and perfection of security interests should also be examined.

KYC and AML Compliance

NBFCs are subject to extensive KYC and anti-money-laundering requirements. RBI identifies KYC, AML, governance, prudential requirements and conduct-of-business requirements as important components of the regulatory framework applicable to NBFCs. The purchaser should investigate whether customer identification records are complete, suspicious transaction reporting obligations have been complied with and internal KYC policies are properly implemented. Historical KYC deficiencies can remain relevant even after the change in ownership.

RBI Returns and Filings

The buyer should verify whether the NBFC has regularly submitted all applicable regulatory returns and whether any returns remain overdue. Copies of correspondence with RBI, inspection observations, supervisory communications and compliance reports should also be examined. Any unresolved regulatory observation should be specifically addressed in the SPA.

Litigation and Complaints

The due-diligence exercise should cover civil proceedings, criminal proceedings, consumer disputes, arbitration, employee disputes, recovery litigation and borrower complaints. The purchaser should also examine complaints received through internal grievance mechanisms and regulatory platforms where relevant. Outstanding litigation should either be resolved before closing or adequately covered through representations and indemnities.

Tax Due Diligence

The purchaser should review income-tax returns, GST records where applicable, TDS compliance, tax assessments, notices, demands and pending litigation. Because the company continues to exist after the share sale, historical tax liabilities remain liabilities of the same corporate entity even though ownership changes. This makes tax indemnities particularly important in a share acquisition.

Representations and Warranties in an NBFC SPA

Representations and warranties are statements made by one party to another regarding facts relevant to the transaction. In an NBFC acquisition, seller warranties usually form one of the most extensively negotiated portions of the SPA.

Ownership of Shares

The sellers should represent that they are the lawful owners of the shares being transferred and that the shares are fully paid, validly issued and free from undisclosed liens, pledges or encumbrances. If any shares are pledged to a bank or lender, the necessary release should generally be obtained before completion.

Corporate Authority

The sellers and purchaser should confirm that they have the legal capacity and corporate authority required to enter into and perform the agreement. Where one of the parties is a company, necessary board or shareholder approvals should be obtained where applicable.

Regulatory Compliance

The sellers may be required to warrant that the NBFC has complied with applicable RBI Directions, filing obligations and conditions attached to its Certificate of Registration, except for matters fairly disclosed to the purchaser. A blanket warranty should not replace due diligence, but it gives the buyer a contractual remedy if material undisclosed regulatory violations are subsequently discovered.

Financial Statements

The SPA may contain warranties that financial statements have been properly prepared and fairly reflect the financial condition of the company, subject to agreed accounting qualifications. The buyer may also require confirmation that no material liability exists other than those disclosed in the accounts or disclosure letter.

Loan Portfolio

Where the target is a lending NBFC, specific warranties may cover the loan portfolio. These may deal with the validity of loan documentation, ownership of receivables, absence of undisclosed assignments, classification of stressed assets, provisioning and security documents. Such warranties should be drafted according to the specific nature of the target's business rather than copied mechanically from a standard corporate SPA.

Litigation

The sellers may warrant that all material litigation, investigations and regulatory proceedings have been disclosed. Any existing proceedings should be specifically listed in a disclosure schedule.

Taxes

Tax warranties may confirm that tax returns have been filed, taxes due have been paid and all material tax disputes have been disclosed. The buyer may additionally negotiate a separate tax indemnity for liabilities relating to periods before closing.

Indemnity in an NBFC Share Purchase Agreement

An indemnity clause allocates financial responsibility where specified losses arise after completion. For an NBFC acquisition, indemnity protection can be particularly important because the purchaser acquires a company with an existing regulatory and operational history.

For example, if the RBI imposes a penalty after closing for a regulatory violation committed before the acquisition, the buyer may seek reimbursement from the sellers if the SPA provides an appropriate indemnity. Similarly, indemnification may be negotiated for undisclosed tax liabilities, litigation, employee claims, fraudulent loans, KYC deficiencies, incorrect financial information or breach of seller warranties.

• Indemnity Cap: Sellers often seek to limit their aggregate indemnity liability to an agreed percentage of the transaction value. Certain fundamental warranties, such as ownership of shares or fraud, may be negotiated separately from the general liability cap.

• De Minimis and Basket: The parties may agree that very small claims will not individually result in indemnification. They may also establish an aggregate threshold that must be crossed before claims become payable. These provisions prevent the indemnity mechanism from being used for insignificant operational matters.

• Survival Period: The SPA should specify how long the representations and indemnities remain enforceable after completion. Different periods may apply to commercial warranties, tax claims, regulatory claims and fundamental warranties.

Conduct of Business Between Signing and Closing

There can be a significant period between signing the SPA and completion because RBI approval and the subsequent public notice process may take time. The purchaser will therefore usually want assurances that the NBFC will continue operating in the ordinary course during this period. The SPA may restrict the sellers and target from taking specified material actions without the purchaser's consent, such as changing share capital, issuing new securities, disposing of major assets, entering unusual related-party transactions, materially changing business operations or undertaking extraordinary borrowing.

However, these protections must be structured carefully. The purchaser should not exercise premature control over the regulated entity before the legally required approval has been obtained. The clause should therefore protect the value of the business without effectively transferring management or control to the buyer before closing.

Material Adverse Change Clause

A Material Adverse Change or MAC clause protects the purchaser where a significant negative event occurs between signing and closing. For an NBFC, such events could include a serious deterioration of the loan portfolio, suspension or cancellation of regulatory permission, major fraud, significant regulatory enforcement action or another event materially affecting the business. The definition should be negotiated carefully because an overly broad MAC clause may create uncertainty regarding completion.

Closing of the NBFC Acquisition

Closing or completion is the stage at which the acquisition is legally implemented. By this stage, the conditions precedent should have been completed, required RBI approval obtained and the mandatory public-notice period satisfied where applicable. The buyer generally pays the agreed consideration in accordance with the SPA, and the sellers transfer the shares. Corporate actions are then completed to recognise the purchaser as shareholder.

Share Transfer Compliance Under the Companies Act

In addition to RBI regulation, share transfers must comply with the Companies Act, 2013, the applicable rules, the Articles of Association of the target company and applicable securities or depository requirements. Section 56 of the Companies Act governs transfer and transmission of securities and restricts a company from registering a transfer unless the statutory transfer requirements are satisfied.

The parties should therefore review the Articles of Association for any rights of first refusal, transfer restrictions, pre-emptive rights or other requirements. Where shares are required to be maintained or transferred in dematerialised form under applicable company-law provisions, the completion process must be structured accordingly.

Board Reconstitution After Acquisition

The purchaser acquiring control of an NBFC often proposes to appoint new directors and obtain resignations from existing nominees of the sellers. These changes should be carefully coordinated with the regulatory approval and closing process. The SPA may identify the directors who will resign at completion, the proposed nominees of the purchaser and responsibility for completing the necessary corporate and regulatory filings. Changes in management should not be implemented in a manner that results in acquisition of control before obtaining the required approval.

Foreign Buyer Acquiring an NBFC

Where the purchaser is a non-resident or foreign-owned entity, the transaction must also be reviewed under India's foreign investment and foreign exchange. Foreign investment in financial services is subject to the applicable FDI policy, FEMA framework and conditions prescribed by the relevant financial sector regulator. RBI has historically permitted foreign investment in regulated financial-service activities under the applicable automatic-route framework subject to regulatory conditions, but the exact position applicable to the transaction should be checked at the time of acquisition.

The RBI's NBFC acquisition directions additionally impose restrictions concerning investments from jurisdictions identified as FATF non-compliant jurisdictions. Fresh investors from or through such jurisdictions are restricted from directly or indirectly acquiring significant influence, and the Directions prescribe a threshold below 20% of voting power, including potential voting power, in the circumstances covered by those provisions. Cross-border acquisitions should therefore be reviewed not only under the NBFC takeover framework but also under FEMA, FDI pricing, reporting, beneficial ownership and other applicable rules.

Post-Closing Obligations

Completion of the share transfer does not end the transaction process. The parties may need to complete corporate filings, update statutory registers, make regulatory intimations, revise authorised signatories, update bank mandates and implement changes in management. The purchaser should also undertake a post-acquisition compliance review of the NBFC.

Any compliance deficiencies identified during due diligence should be addressed through a time-bound remediation plan. The buyer should also ensure that the NBFC continues meeting the prudential, governance, KYC, conduct-of-business and reporting requirements applicable to its regulatory category. RBI's regulatory framework imposes different requirements depending on the category and Scale Based Regulation layer of an NBFC.

Typical Sequence of an NBFC Acquisition

A properly planned NBFC acquisition usually begins with identification of the target and execution of preliminary confidentiality or term-sheet documentation. The purchaser then conducts legal, financial, tax and regulatory due diligence and negotiates the valuation. Once the parties are comfortable with the transaction, the SPA may be executed subject to regulatory conditions. The NBFC then prepares and submits the RBI prior-approval application through PRAVAAH where approval is required. The parties provide additional information or clarifications sought by RBI during the application process.

After RBI permission is obtained, the prescribed public notice is published. At least 30 days are allowed before the ownership or control transfer is effected. Once all other conditions precedent have also been satisfied, the parties proceed to closing and complete the share transfer, consideration payment and corporate actions. The acquisition is then followed by post-closing corporate and regulatory compliances.

Common Mistakes in an NBFC Share Purchase Agreement

Treating an NBFC Like an Ordinary Company

One of the biggest mistakes is using an ordinary private-company SPA without adapting it to RBI requirements. An NBFC acquisition involves regulatory approval, suitability of proposed shareholders and continuing regulatory obligations that may not arise in an ordinary company acquisition.

Transferring Control Before RBI Approval

The transaction documents should not permit the purchaser to effectively acquire control before regulatory approval where prior approval is required. RBI expressly requires prior written permission for any takeover or acquisition of control of an NBFC covered by the Directions.

Ignoring the 26% Threshold

The RBI approval rule is not limited to acquisition of 51% or 100% of shares. An acquisition or transfer of 26% or more of the paid-up equity capital, including progressive increases over time, can trigger prior approval.

Forgetting the Public Notice Period

Parties sometimes assume that closing can take place immediately after RBI approval. However, where the public-notice requirement applies, the prescribed notice must be published at least 30 days before effecting the ownership or control transfer and is to be issued after RBI permission.

Conducting Only Financial Due Diligence

A profitable NBFC may still have substantial regulatory risk. Due diligence should therefore examine RBI compliance, loan documentation, KYC, asset classification, provisioning, litigation, tax and corporate records in addition to financial performance.

Weak Indemnity Protection

If the seller's liability for pre-acquisition misconduct is not properly addressed, the purchaser may ultimately bear the economic cost of historical problems. The indemnity section should therefore be carefully negotiated rather than treated as a standard boilerplate clause.

Difference Between Signing and Closing of an NBFC SPA

The distinction between signing and closing is particularly important in an NBFC transaction. Signing means that the parties execute the SPA and become contractually bound to proceed with the acquisition subject to its terms. Closing means that the actual transaction is completed, consideration is paid and shares are transferred in accordance with the agreement.

Where RBI approval is required, the SPA may be signed subject to that approval, but closing should occur only after the regulatory conditions and applicable public notice requirements are fulfilled. This structure allows the buyer and seller to document their commercial agreement while respecting the requirement that the regulated transfer itself should not occur prematurely.

Importance of Professional Drafting of an NBFC SPA

A Share Purchase Agreement used for acquisition of an NBFC should not simply be copied from a standard corporate acquisition template. The agreement needs to reflect the regulatory category of the NBFC, structure of the transaction, level of shareholding being acquired, source of purchaser funds, RBI approval requirements, public notice process, due diligence findings and allocation of historical liabilities.

A professionally drafted SPA also coordinates the commercial deal with the regulatory timetable so that consideration is not released and control is not transferred before the necessary approvals are in place. For significant transactions, coordination between corporate lawyers, Chartered Accountants, Company Secretaries, tax advisers and NBFC regulatory professionals can help ensure that legal, financial and RBI compliance issues are considered together.

Conclusion

A Share Purchase Agreement for an NBFC Acquisition is the primary legal document that defines the terms on which the existing shareholders transfer their shares to the buyer. It records the purchase price, payment terms, conditions precedent, representations and warranties, indemnities, closing requirements and allocation of liabilities between the parties. Since an NBFC is regulated by the Reserve Bank of India, the transaction must also comply with RBI requirements. Under the RBI (Non-Banking Financial Companies – Acquisition of Shareholding or Control) Directions, 2025, prior RBI approval may be required where there is a takeover, acquisition of control or transfer of 26% or more of the paid-up equity capital.

The RBI approval process is generally completed through the PRAVAAH portal along with details of proposed shareholders, source of funds, declarations and bankers’ reports. After approval, the required public notice must generally be issued at least 30 days before completion. Therefore, proper due diligence, regulatory approval, warranties, indemnities and careful closing arrangements are essential for a legally secure NBFC acquisition.

Frequently Asked Questions

Q1. What is an SPA in an NBFC acquisition?

Ans. A Share Purchase Agreement is the principal contract between the existing shareholders of an NBFC and the proposed purchaser. It records the number of shares being sold, purchase price, regulatory conditions, warranties, indemnities and completion obligations. In an NBFC acquisition, it should also properly address the RBI approval and public-notice process.

Q2. Is RBI approval required to purchase an NBFC?

Ans. Prior RBI approval is required for any takeover or acquisition of control of an NBFC covered by the 2025 Directions. Approval is also required where a change in shareholding, including progressive increases, results in acquisition or transfer of 26% or more of the NBFC's paid-up equity capital.

Q3. Is RBI approval required if only 25% of shares are purchased?

Ans. The percentage threshold alone should not determine the answer. Even where the acquisition remains below 26%, RBI approval may still be required if the transaction results in acquisition of control. The rights being granted under the SPA, Articles of Association and related agreements should therefore also be examined.

Q4. Can an SPA be signed before RBI approval?

Ans. The parties may structure an agreement so that completion is expressly conditional on obtaining required RBI permission. However, the transaction should not result in the actual acquisition or transfer of control requiring prior permission before that permission has been obtained.

Q5. Where is an application for NBFC acquisition approval filed?

Ans. Under the RBI's 2025 Directions, the NBFC submits the prior-approval application through the PRAVAAH portal together with prescribed supporting information and documents.

Q6. What information is required for the RBI application?

Ans. The RBI Directions require information regarding proposed shareholders, source of funds, specified declarations concerning the proposed shareholders and a bankers' report, among other prescribed details.

Q7. Is a newspaper advertisement necessary after RBI approval?

Ans. Where the public-notice provisions apply, notice must be published at least 30 days before the transfer of ownership or control. It must be published in at least one leading national newspaper and one leading local vernacular newspaper covering the registered-office location.

Q8. Why is due diligence important before buying an NBFC?

Ans. A share purchaser acquires ownership of the existing company, including exposure to its historical business and liabilities. Due diligence can identify regulatory deficiencies, problematic loans, litigation, tax disputes, KYC issues and other liabilities before the purchase price and contractual protections are finalised.

Q9. What are the most important clauses in an NBFC SPA?

Ans. Important provisions normally include purchase consideration, payment mechanism, conditions precedent, RBI approval, public-notice compliance, business conduct between signing and closing, representations and warranties, indemnities, termination rights, closing deliverables and post-closing obligations.

Q10. Can a foreign investor acquire an Indian NBFC?

Ans. A foreign investor may invest in Indian financial-service entities subject to the applicable FEMA, FDI and sectoral regulatory requirements. In addition, the RBI's NBFC acquisition directions contain specific restrictions concerning investments from FATF non-compliant jurisdictions. The eligibility and approval position should therefore be verified for the particular purchaser and NBFC category before completing the transaction.