How to Take Over an NBFC: Due Diligence, RBI Approvals & Compliance


NBFC takeover

Non-Banking Financial Companies (NBFCs) have become a major component of India’s financial ecosystem. As regulatory scrutiny tightens and market opportunities expand, many investors and corporates are eyeing NBFC takeovers as a way to enter or scale in the financial services space.

However, NBFC takeover in India involves far more than just a share transfer. It requires regulatory approvals, legal compliance, financial due diligence, and careful structuring to ensure the transaction aligns with Reserve Bank of India (RBI) norms.

This article provides a comprehensive guide on how to acquire an NBFC, covering all aspects from due diligence to RBI approval and post-acquisition compliance.

Why Take Over an NBFC?

Taking over an existing NBFC can be a strategic move for businesses looking to:

  • Enter India’s lending or financial services sector

  • Expand credit portfolios or microfinance operations

  • Access existing licenses, client bases, and distribution networks

  • Avoid the lengthy and complex process of new NBFC registration

  • Scale operations through mergers and consolidations

However, this route comes with its own regulatory responsibilities and should be approached with a clear understanding of the RBI’s framework.

Types of NBFC Takeovers

NBFC takeovers in India can be broadly categorized into:

  1. Friendly Takeover:
    A mutually agreed-upon acquisition where both parties collaborate to complete the transaction.

  2. Hostile Takeover:
    Rare in the NBFC sector, but refers to an acquisition without the consent of the existing management.

  3. Acquisition of Shares/Control:
    Buying more than 26% of the paid-up equity capital, or acquiring control through management, board changes, or shareholder agreements.

Also Read: How to Register NBFC with RBI?

Key RBI Guidelines for NBFC Takeover

As per the Master Directions – Non-Banking Financial Company (Non-Deposit Accepting or Holding) Directions, 2016, the following triggers mandate prior approval from the Reserve Bank of India:

  • Acquisition or transfer of control, whether by management or shareholding

  • Acquisition of more than 26% of the paid-up equity capital

  • Change in shareholding resulting in 26% or more of the paid-up capital over a financial year

  • Change in direction/control through board appointments or shareholder agreements

Step-by-Step Guide to Take Over an NBFC in India

Let’s break down the NBFC takeover process into clear and actionable steps:

Step 1: Conduct Preliminary Due Diligence

Before any offer or agreement is made, conduct extensive due diligence to assess the NBFC's:

  • Financial position and asset quality

  • Regulatory compliance and past audit observations

  • Loan books and risk exposure

  • Legal liabilities or ongoing litigation

  • KYC, AML, and RBI reporting standards

  • Tax history and pending assessments

  • Employee obligations and HR liabilities

Due diligence can uncover hidden issues that may affect the valuation or make the acquisition non-viable. Involving financial, legal, and compliance professionals at this stage is highly recommended.

Step 2: Draft a Share Purchase Agreement (SPA)

Once due diligence is complete and both parties agree to proceed, a Share Purchase Agreement is drafted. It outlines:

  • Terms and conditions of the share transfer

  • Number of shares to be sold

  • Consideration and payment structure

  • Representations and warranties

  • Conditions precedent (e.g., RBI approval)

  • Indemnities and dispute resolution

The SPA remains conditional until RBI grants its approval for the takeover.

Step 3: Apply for RBI Approval

If the acquisition meets the control or ownership threshold, prior written approval from the RBI is mandatory.

Documents to be submitted include:

  • Cover letter stating purpose and details of takeover

  • Board resolution of both buyer and seller approving the transaction

  • Shareholding pattern before and after acquisition

  • Information on the proposed directors and shareholders (KYC, PAN, DIN, etc.)

  • Financial statements and net worth of the acquirer

  • Declaration from new promoters/shareholders:

    • They are not associated with any defaulters or willful defaulters

    • They have not been convicted of any financial offences

  • Proposed organization structure post-acquisition

  • Draft Share Purchase Agreement

Applications are submitted to the RBI Regional Office under whose jurisdiction the NBFC is registered.

Also Read: Who can Register for Alternative Investment Fund License?

Step 4: Wait for RBI Approval

The RBI conducts a fit and proper test on the acquirers/promoters before granting approval. It examines:

  • Financial integrity and net worth

  • Track record in financial or other sectors

  • Regulatory and criminal history

  • Background checks and market reputation

The RBI may take 2–4 months to review the application, though timelines can vary depending on the complexity of the transaction.

No share transfer or control change should occur before obtaining formal RBI approval.

Step 5: Execute Share Transfer and Post-Approval Filings

Once RBI approval is received:

  1. The share purchase agreement can be executed

  2. Payment consideration is made and shares are transferred

  3. The board of directors is reconstituted (if applicable)

  4. Updated Memorandum & Articles of Association (if required)

Post-takeover filings include:

  • Filing Form PAS-3 and DIR-12 with MCA

  • Updating statutory registers

  • Informing the ROC and RBI of changes

  • Submitting a compliance certificate to RBI post-transaction

Step 6: Ensure Post-Takeover Compliance

After the takeover, ongoing compliance is critical to avoid regulatory penalties. This includes:

  • Filing annual returns and financials with the Ministry of Corporate Affairs (MCA)

  • Submitting statutory returns to the RBI, such as:

    • NBS-9, NBS-1 (for applicable NBFCs)

    • Statutory Auditors Certificate

  • Ensuring continued adherence to KYC, AML, and fair lending practices

  • Maintaining the minimum Net Owned Fund (NOF) requirement

  • Complying with credit concentration norms, asset classification, and provisioning standards

If the acquirer intends to change the nature of business, such as converting a loan company into a microfinance NBFC or infrastructure finance company, separate permissions or reclassification may be required.

Common Pitfalls to Avoid

  • Skipping RBI approval: Even if it's a friendly acquisition, failure to seek RBI approval before taking control is a violation.

  • Underestimating due diligence: Surface-level checks may miss deep liabilities that affect the business value.

  • Non-compliance post-takeover: Many acquisitions face RBI scrutiny post-deal due to weak compliance systems.

  • Unqualified promoters: If the acquirer fails the fit and proper criteria, RBI will reject the application.

Final Thoughts

Taking over an NBFC in India can be a highly strategic move, especially in a market with rising demand for credit, fintech innovation, and financial inclusion. However, the process is deeply regulated and requires precision at every stage — from initial due diligence to RBI approval and post-acquisition compliance.

Foreign and domestic investors alike must ensure that all regulatory norms are met, all filings are done on time, and the management is aligned with RBI’s expectations for financial institutions.

For a smooth and compliant NBFC takeover, it's essential to work with experienced legal, financial, and compliance professionals who understand the RBI’s evolving framework.

Location: Delhi, India

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