FAQs on Requirement of Prior Approval by NBFC for Change in Management

The Reserve Bank of India (RBI), through its Master Directions for Non-Banking Financial Companies (NBFCs), mandates obtaining prior written permission for any change in management resulting in more than 30% change in the directors, excluding independent directors (IDs).

Key Guidelines by RBI

1. Threshold Calculation for 30% Change in Management

Methodology:
- % change = (New Directors to be appointed / Existing number of directors excluding IDs) x 100

2. Appointment of Independent Directors

Approval Requirement:
- No prior approval is required for the appointment of independent directors.

3. Appointment of Directors Liable to Retire by Rotation

Approval Requirement:
- First-time appointment of directors liable to retire by rotation requires prior approval.
- No approval needed for subsequent re-election post-retirement.

4. Inclusion of Directors Liable to Retire by Rotation

For Threshold Calculation:
- Include directors liable to retire by rotation in the total number while calculating the percentage threshold.

5. Reappointment of Directors

Approval Requirement:
- Reappointment of existing directors does not require prior approval as it doesn’t alter the existing composition.

6. Appointment of Nominee Directors

Approval Requirement:
- Requires prior approval if the appointment results in more than 30% change.

7. Appointment Process for Additional Directors

Approval Stages:
- Prior approval is needed before appointing as ‘additional director’.
- Intimation after regularization must be furnished to RBI.

8. Calculation Including Alternate Directors

Consideration:
- Alternate director not counted separately; no prior approval required, but intimation necessary.

9-10. Practical Scenario: Appointment and Resignation Impact

Scenario Analysis:
- No prior approval for resignations; intimation mandatory.
- Prior approval needed if new appointments surpass the 30% change.
- Effective date of new appointments post-RBI approval or as decided by the Board.

11. Effective Date of Resignation

Determination Factors:
- Effective date stated by the resigning director unless specific conditions or time frames apply.

12. Approval Requirement for Director Resignation

Requirement:
- Only intimation to RBI is necessary; no prior approval.

13. Superannuation of Directors

Requirement:
- Same as resignations, no prior approval required.

14. Process for Obtaining Approval

Process Overview:
- Submit application to the regional RBI office with specific details of the director.
- Submission must be physical.

15. Post-Facto Approval

Possibility:
- RBI may consider on a case-by-case basis. Prior approval is recommended to avoid penalties.

16. Court or Regulator Directed Appointments

Approval Requirement:
- Must seek RBI’s prior approval if it results in management change exceeding 30%.

17. Approval for Multiple Directors

Application Convenience:
- Single application for multiple directors permissible with separate annexures for each.

18. Fit and Proper Criteria

Criteria Involvement:
- A board-approved policy must outline the criteria for screening and evaluating potential directors including qualifications, experience, and integrity.

19. Disqualification as per Companies Act, 2013

Applicability:
- Disqualification under the Act applies equally to NBFCs.

20. Actions by Non-Compliant Directors

Validity of Actions:
- Actions deemed invalid unless subsequently confirmed by post-facto approval.

Key Takeaways

Ensure Compliance: NBFCs must secure prior written permission from RBI for significant managerial changes.
Intimation: Always inform RBI about resignations or other relevant board changes.
Approval Procedures: Follow specified procedures diligently to avoid regulatory penalties.
Transparent Governance: Implement ‘fit and proper’ criteria for new board appointments.

FAQs

Q1: How do I apply for prior approval from RBI?

A1: Submit an application to your regional RBI office with necessary details and annexures.

Q2: Does the resignation of a director need prior approval?

A2: No, but intimation to RBI is required.

Q3: What is the effective date of a director’s resignation?

A3: It is the date stated by the director unless specific terms apply.

For further assistance or detailed guidelines, feel free to reach out to our expert consultants at Estabizz Fintech. We’re here to help you navigate every step of your financial compliance journey.

FAQs on requirement of prior approval by NBFC for change in management

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