NBFC Takeover Process & RBI Compliance: The Complete Guide

Why Buy an NBFC Instead of Starting One?

Getting a fresh NBFC licence from RBI takes 12 to 18 months. You also need a minimum Net Owned Fund (NOF) of ₹10 crore. That is a long wait.

So most smart investors skip the queue. They buy an existing, RBI-registered NBFC instead.

This is called an NBFC takeover. You get a ready licence, an existing loan book, and an operational team all in one deal.

But it is not a simple share transfer. RBI watches every move. Miss a step and you face heavy penalties or a rejected application.

This guide covers everything from finding a target to staying compliant after the deal is done.

Quick fact: In June 2026, RBI cancelled the Certificate of Registration (CoR) of 135 NBFCs in a single action. Non-compliance has real consequences.

What Is an NBFC Takeover?

An NBFC takeover happens when a buyer gains control over an existing RBI-registered NBFC. The buyer usually acquires more than 50% of the shares. Management shifts from old promoters to new ones.

Why buyers prefer a takeover over fresh registration:

• Faster market entry – no waiting for a new licence
• Existing customer base and loan book
• Compliance history already in place
• Cheaper and quicker in the long run

Two types of takeovers:

Friendly Takeover Both the buyer and the target company’s board agree to the deal. They work together on due diligence and RBI filings. This is the most common type in India.

Hostile Takeover The buyer approaches shareholders directly without board consent. This is rare in the NBFC sector because RBI runs a fit-and-proper check on all new management.

Both types need RBI approval. No exceptions.

When Is RBI Approval Mandatory?

This is where most buyers get caught. RBI’s prior written approval is not optional. It is a hard legal requirement under the Master Direction RBI (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023, last updated July 2025.

RBI approval is required in three situations:

Any takeover or change in control

Even if the management stays the same, you still need prior RBI approval. “Control” means the right to appoint majority directors or influence management decisions directly or indirectly.

Acquiring 26% or more of shares

This includes gradual buying over time. If you slowly cross 26%, you still need prior approval.
Exception: If the 26% is crossed because of a share buyback or court-approved capital reduction no prior approval needed. But you must inform RBI within 1 month.

Changing more than 30% of directors

If new management replaces more than 30% of the board (not counting independent directors), prior RBI approval is required.

Exception: Re-election due to retirement by rotation does not need approval.

Source: RBI Master Direction, October 2023 (updated July 2025) | TaxGuru — RBI Guidelines on Control Changes

6-Step NBFC Takeover Process

Total timeline: 3 to 6 months end-to-end. After RBI in-principle approval: around 50 to 65 working days.

Step 1 — Find and Screen the Target NBFC

• Check the NBFC’s RBI CoR status on the PRAVAAH/COSMOS portal
• Look at Net Owned Fund (NOF) position and NPA levels
• Check for pending regulatory notices or show-cause notices
• Understand its Scale-Based Regulation layer — Base, Middle, or Upper
• Make sure the target fits your business plan — lending segment, geography, customer base

Step 2 — Do Proper Due Diligence

This is the most important step. Many deals go wrong because buyers skip a thorough check.

Financial check: Review the loan book, NPA levels, and provisioning records. Ask for NBS-1 returns for the last 3 years.

Legal check: Look for pending court cases, borrower disputes, and regulatory notices.

Compliance check: Verify that NBS-1, NBS-2, CERSAI, and AML/KYC filings are all up to date.

Management check: Background verification of existing promoters and key staff.

Important: From March 2026, all NBFCs must classify loans overdue beyond 90 days as NPAs just like banks. A hidden NPA problem in the target will land on your books after the takeover.

Step 3 — Sign the MoU and Structure the Deal

• Sign a Memorandum of Understanding with a token payment
• Agree on share valuation, payment schedule, and handover milestones
• Draft the shareholder agreement and share purchase agreement
• For listed NBFCs: SEBI Takeover Code (SAST Regulations, 2011) also applies — you may need to make an open offer to public shareholders

Step 4 — Apply to RBI

Submit a formal application to the Regional Office of RBI where the NBFC is registered. Since 2023, all applications are also filed through the PRAVAAH portal pravaah.rbi.org.in.

Your application must include:

• Full description of the transaction
• KYC documents of all buyers and incoming directors
• 3-year financial projections and business plan
• Fit-and-proper declaration from all proposed directors
• Source of funds declaration — proof of how you are funding the acquisition
• Board resolution from the target NBFC approving the takeover
• Details of any pending litigation involving the buyer
• Draft share purchase agreement

Step 5 — Publish the 30-Day Public Notice

After RBI gives in-principle approval, you must publish a public notice. This cannot be skipped not even for friendly or intra-group deals.

The notice must:

• Be published in at least one national English newspaper and one regional newspaper
• State the intention to transfer ownership or control
• Name the new owners and give reasons for the change
• Stay up for 30 days before the final transfer happens

Step 6 — Final Approval and Share Transfer

• After the 30-day notice period, submit the final application to RBI
• Respond quickly to any RBI queries — delays here extend the timeline
• Once final approval comes, execute the share transfer and reconstitute the board
• Update PRAVAAH/COSMOS portal with new management details

Document Checklist for the RBI Application

The RBI Regulatory Framework — What You Need to Know

The key regulation governing NBFC takeovers and compliance is:

Master Direction – RBI (NBFC – Scale Based Regulation) Directions, 2023

Issued: October 19, 2023 | Last updated: July 17, 2025

This replaces all 2016 NBFC Master Directions.

The Four Regulatory Layers

Base Layer (NBFC-BL)

Small NBFCs with no public funds and no customer interface. Minimum NOF ₹10 crore. NPA recognition at 90 days overdue (from March 2026).

Middle Layer (NBFC-ML)

Includes deposit-taking NBFCs, NBFC-IFC, NBFC-MFI, and larger non-deposit NBFCs. Must maintain 0.40% standard asset provisioning. Board-approved exposure limits. Chief Compliance Officer (CCO) required.

Upper Layer (NBFC-UL)

Top 10 NBFCs by asset size, plus others identified by RBI as systemically significant. Must follow a large exposure framework similar to banks. Must list on a stock exchange within 3 years of being classified as Upper Layer.

Top Layer

Currently empty. Populated only if RBI sees extreme systemic risk from a specific Upper Layer NBFC.

Key Compliance Numbers

Source: JSA Law — SBR Master Direction Analysis | SRIM Associates — SBR Guide

What to Do After the Takeover

Compliance does not stop at RBI approval. New management must act immediately.

1. Inform the RBI Regional Office of any further management changes within 1 month
2. Update the PRAVAAH/COSMOS portal with new directors and shareholding structure
3. File XBRL returns — NBS-1 (quarterly), NBS-2 (half-yearly for deposit NBFCs), SAC (annual), ALM returns (monthly for Middle Layer and above)
4. Review and update the KYC/AML policy under new management
5. Confirm minimum NOF is met under the new capital structure
6. If 10 or more branches: check Core Banking Solution (CBS) deployment status
7. Middle Layer and above: appoint a Chief Compliance Officer (CCO)
8. Upper Layer: check if stock exchange listing obligation applies

Penalty: Missing even one filing can attract penalties of up to ₹10 lakh per day. RBI has recently penalised multiple NBFCs for non-submission of NBS-1 returns and AML non-compliance.

Full compliance calendar: NBFC Compliance Checklist 2026 — NBFC Advisory

Common Risks — And How to Handle Them

Hidden NPAs

The loan book looks clean but a large chunk is overdue. Fix: Ask for NBS-1 filing history for the last 3 years before signing anything.

Regulatory flags on PRAVAAH

The target has open show-cause notices. Fix: Run a portal check before signing the MoU.

Fit-and-proper rejection

RBI rejects a proposed director due to background issues. Fix: Screen all incoming directors against RBI’s disqualification criteria before nominating them.

NOF shortfall post-takeover

Capital erosion discovered after the deal closes. Fix: Make the SPA include a fresh NOF certificate dated within 30 days of closing.

Timeline clash for listed NBFCs

SEBI open offer and RBI approval timelines overlap. Fix: Map both regulatory timelines from Day 1. The SEBI open offer can be made conditional on RBI approval.

Historical penalties landing on new management

RBI penalises the NBFC for pre-deal compliance breaches. Fix: Negotiate a strong indemnity clause in the share purchase agreement for all pre-closing compliance issues.

NBFC Takeover vs. Fresh Registration

Key Regulatory Updates in 2025–2026

November 2025 — New Exemption for Small NBFCs

RBI introduced new directions exempting NBFCs with no public funds and no customer interface from mandatory registration. Eligible NBFCs can surrender their CoR via PRAVAAH by September 30, 2026.

January 2026 — Revised Co-Lending Framework

New rules for NBFC-bank co-lending partnerships now require stricter reporting and exposure norms. If the target has co-lending arrangements, check them carefully during due diligence.

March 2026 — 90-Day NPA Norm Applies to All NBFCs

All NBFCs including Base Layer must now classify accounts overdue beyond 90 days as NPAs. This is now fully aligned with bank norms.

June 2026 — 135 CoRs Cancelled in One Month

RBI cancelled the registrations of 135 NBFCs in a single action. Always check the PRAVAAH portal status of any target NBFC before proceeding.

Need Help With an NBFC Takeover?

At NBFC Advisory, we have guided acquirers through the full RBI approval process — from target identification to post-takeover compliance. Our team handles the documentation, PRAVAAH filings, public notice coordination, and ongoing compliance support.

📞 Book a consultation Call NBFC Advisory: +91 93287 18979

🌐 Visit: nbfcadvisory.com