Due Diligence Checklist for Acquiring an NBFC: The New Guide- RBI Rules

Buying an NBFC is one of the fastest ways to enter India’s lending market. You skip the long wait for a fresh licence. You get a ready Certificate of Registration, a live loan book, and an active customer base.

But there is a catch. An NBFC deal is never just a deal between a buyer and a seller. The Reserve Bank of India (RBI) sits at the centre of it. You need RBI’s written approval before you buy. You also need a deep, careful review of the target. That review is called due diligence.

This guide gives you a full due diligence checklist for acquiring an NBFC. It is built for the rules that apply in 2026. That matters, because the RBI changed the takeover rulebook on 28 November 2025. Many older articles still quote the old 2015 rules. This one does not.

We help buyers, sellers, and investors run these deals the right way. Below, we break down what to check, why it matters, and what can go wrong.

Why the NBFC Sector Is Worth Buying Into

First, let us look at the numbers. They explain why so many firms want to acquire an NBFC.

NBFCs are growing faster than banks. Between FY2020 and FY2025, NBFC credit grew at about 13.9% a year. Bank credit grew at about 11.4% in the same window. So NBFCs kept taking market share.

The growth is not slowing. Credit for the upper and middle layer NBFCs rose 20.7% year-on-year in March 2025. Rating agencies expect NBFC credit to grow 16% to 18% through FY2026. Retail loans drive most of this. Think home loans, vehicle loans, gold loans, and personal loans.

But the sector also carries risk. Stress in NBFC microfinance loans rose to 5.9% in March 2025, up from 3.9% six months earlier. Loan write-offs also jumped. This is exactly why due diligence matters. A strong loan book can hide weak loans. Your job is to find them before you pay.

What Changed in 2025: The New RBI Takeover Rules

This is the most important update in years. If you skip it, you can lose your whole deal.

On 28 November 2025, the RBI issued the Non-Banking Financial Companies – Acquisition of Shareholding or Control Directions, 2025. These new rules replaced the old 2015 directions in full. Every NBFC deal started after that date follows the new framework.

Here is what is new and what you must check:

• A single, clear rulebook. The new directions cover all NBFC layers, from the Base Layer to the Upper Layer.
• Online filing only. You now apply for RBI approval through the PRAVAAH portal. Paper filings are gone.
• A FATF rule. Investors from FATF non-compliant countries cannot hold more than 20% of voting power in an NBFC. This is brand new. We explain it below.
• Stricter disclosure. Every incoming shareholder must file detailed forms about who they are and where their money comes from.

The core logic stays the same. Any real change in who owns, controls, or runs an NBFC needs RBI’s approval first. But the details are tighter now. So your checklist must match the 2025 rules, not the old ones.

The Three Triggers That Need RBI Approval

Before you plan a deal, check if it needs RBI approval. The 2025 rules list three triggers. If your deal hits even one, you must apply first.

Trigger 1: Takeover or change of control. Any takeover of an NBFC needs prior RBI approval. This is true even if the management does not change. Control is not just about share count. A buyer who gets only 25% of shares but can appoint most of the board still gains control. That still needs approval.

Trigger 2: The 26% rule. Any deal that moves 26% or more of the paid-up equity needs approval. This counts small buys added up over time. Buy 10% in January, 8% in April, and 9% in September, and you have crossed 26%. You needed approval before that point.

Trigger 3: The 30% director rule. Any change that replaces more than 30% of the directors in a year needs approval. Independent directors are not counted here. Directors who simply retire and return by rotation are not counted either.

There is also a fourth path to watch. If a holding company that owns the NBFC changes hands, that counts as an indirect change of control. It also needs RBI approval, even if no NBFC shares move.

Here is a simple view:

The FATF Rule: A New Check for Foreign Money

This part is easy to miss, but it can kill a deal. So read it with care.

The FATF (Financial Action Task Force) keeps two lists of risky countries. One is a “call for action” list. The other is an “increased monitoring” list. Any country on either list is treated as FATF non-compliant.

Under the 2025 rules, money from these countries faces a hard cap. Such an investor cannot hold more than 20% of voting power in an NBFC. This cap looks at real influence, not just plain shares.

This hits private equity funds and foreign buyers the most. Many funds route money through a holding company in another country. If that country is on a FATF list, the whole investment is treated as FATF non-compliant.

There is one relief. If an investor was already in the NBFC before the country was listed, the old holding is protected. This is called grandfathering. But it does not cover new money added after the listing.

Checklist action: Trace the full money chain of every foreign buyer. Check each country in that chain against the current FATF lists. Do this early. Fixing a bad structure late is slow and costly.

Part A: Regulatory and RBI Due Diligence

Now we get into the full checklist. Start with the RBI side, because it can stop the deal.

1. Check the Certificate of Registration (CoR). Every NBFC must hold a valid CoR under Section 45-IA of the RBI Act, 1934. Confirm the CoR number, the category, and the date. Check if it is deposit-taking or non-deposit-taking.

2. Confirm the SBR layer. The RBI uses Scale-Based Regulation (SBR). It puts each NBFC in a layer: Base, Middle, Upper, or Top. The layer sets the rules the NBFC must follow. A bigger layer means stricter rules. Know the layer before you buy.

3. Look for RBI actions. Search for any show-cause notice, penalty, or business restriction. Read the last few RBI inspection reports. A clean RBI record is a very good sign.

4. Plan the approval path. Confirm your deal fits the three triggers. Then map the PRAVAAH filing, the documents, and the timeline. Never sign a closing date that ignores the RBI wait.

Part B: Corporate and Legal Due Diligence

Next, review the legal bones of the company.

5. Read the MoA and AoA. Check the company’s Memorandum and Articles. The objects clause must match RBI-approved activities.

6. Study the shareholding. Get the full cap table. List every shareholder and their stake. Check for any pledge or charge on the shares through the ROC and CERSAI.

7. Review board and meeting records. Read the minutes of board and shareholder meetings. Check director details and key staff records.

8. Run a litigation search. Look for every court case, tax dispute, and consumer case. Check for any fraud or enforcement action. Bad litigation can lower the price or block RBI approval.

9. Check key contracts. Review large loan agreements, leases, and vendor deals. Confirm charges are registered under Section 77 of the Companies Act. Check title and security papers for clean ownership.

Part C: Financial and Asset Quality Due Diligence

This is where you protect your money. A loan book is only as good as its loans.

10. Study 3 to 5 years of financials. Get audited accounts for the last three to five years. Read the balance sheet, profit and loss, and cash flow. Look for clean audit reports and steady profits.

11. Check capital health. Confirm the Net Owned Fund (NOF). Most lending NBFCs must reach ₹10 crore NOF by 31 March 2027. New NBFCs need it from day one. Also check the Capital Adequacy Ratio (CRAR). The rule is a minimum of 15%, with core (CET1) capital of at least 9%.

12. Test the NPAs. This is the big one. NBFCs must mark a loan as bad (an NPA) after 90 days of non-payment. Check that they follow this rule. Weak firms hide bad loans to look healthy. Review the loan files yourself.

13. Check provisioning. Confirm the NBFC set aside enough money for bad loans. The rule is at least 10% for sub-standard assets, rising to 100% for loss assets. Low provisioning means hidden losses.

14. Find hidden liabilities. Look for off-balance-sheet items, guarantees, and pending tax demands. Review tax, GST, and TDS records for at least five years. A hidden liability becomes your problem after closing.

Part D: Governance, Risk, and Internal Controls

A well-run NBFC is safer to own. Check how it is managed.

15. Check the committees. Under Sections 177 and 178 of the Companies Act, the NBFC needs an Audit Committee and a Nomination and Remuneration Committee. Confirm both exist and work.

16. Test “fit and proper.” Every director must meet RBI’s “fit and proper” standard. Check for any RBI ban or past failure. Your incoming directors must also pass this test.

17. Review internal controls. Read the internal audit reports and the risk policy. Check the loan approval process and the fraud checks. Weak controls mean weak lending.

Part E: Technology and Operations

The RBI now watches tech risk closely. So must you.

18. Review the IT setup. Check the core lending system, data security, and privacy rules. Confirm the NBFC follows RBI’s IT Governance rules.

19. Check outsourcing. Many NBFCs outsource IT and collections. There must be a board-approved outsourcing policy and proper vendor checks.

20. Check digital lending. If the NBFC lends through apps or partners, review those deals against the RBI digital lending rules. This is a common weak spot for fintech-linked NBFCs.

Part F: People and Tax

Two last areas that often hide costs.

21. Review HR records. Check employment contracts and staff dues. Confirm PF, gratuity, and other labour filings are done. Look for any staff disputes.

22. Review tax fully. Check income tax, GST, and transfer pricing. Look for open assessments and past demands. Confirm the stamp duty and capital gains impact of the deal structure.

The RBI Approval Process: Step by Step

Once your checks are clean, you move to approval. The 2025 rules set a clear path. There is no shortcut and no backdated approval.

• Prepare. Fix any open compliance gap in the NBFC first. Get all shareholder and director papers ready.
• File on PRAVAAH. Submit the application on the RBI’s PRAVAAH portal. An incomplete file is returned, and the clock does not start.
• RBI review. The RBI checks the buyers, the source of funds, and the compliance record. It may ask questions. Answer fast. Slow replies cause most delays.
• Get the approval letter. If satisfied, the RBI issues a No Objection or approval letter. You must hold this before any share moves.
• Give public notice. After approval, publish a public notice at least 30 days before the transfer. Use one national English paper and one local-language paper.
• Close and file. After 30 days, complete the transfer. Update the ROC and MCA records.
• Tell the RBI. Inform the RBI once the deal is done. Flag any change from the approved plan.

How long does it take? Plan for 8 to 12 weeks at least. Complex or foreign-linked deals can take longer. Build this into your deal timeline.

Deals That Do Not Need Prior Approval

Not every change needs RBI’s sign-off. Knowing this saves time.

Shares passed on by inheritance do not need prior approval. But if that inheritance gives someone control, you must still inform the RBI. A holder who already crossed 26% with approval does not need fresh approval for small top-ups, unless they cross 50%. A rise past 26% due to a share buyback is also allowed, but you must tell the RBI within one month.

One warning. You cannot split a deal to dodge the rules. Two buyers acting together are judged as one group. If they cross 26% together, they need approval. The RBI treats clever splits as circumvention.

Red Flags That Should Make You Pause

Some findings are deal-breakers. Watch for these:

• An expired, suspended, or restricted CoR.
• A pending RBI show-cause notice or penalty.
• Bad loans marked as good to hide losses.
• Low provisioning against risky loans.
• Related-party loans and “evergreening” (new loans to hide old bad ones).
• Foreign money routed through a FATF-listed country.
• Missing or late RBI returns.
• Directors who fail the “fit and proper” test.

Any one of these can lower the value or stop the deal. Find them early, not after you pay.

What Happens After You Acquire the NBFC

The work does not end at closing. Compliance carries on.

Tell the RBI that the change of control is done. Update your shareholding records. Rebuild the board and committees as RBI rules require. Keep filing all RBI returns on time. Keep the Fair Practices Code, KYC/AML rules, and grievance system running. Any slip after the deal can bring a penalty under the RBI Act. So plan your first 100 days of compliance before you close.

Conclusion

A due diligence checklist for acquiring an NBFC is not just paperwork. It is how you protect your money and your licence. You check the RBI standing, the loan book, the governance, the tech, and the tax. You confirm the deal fits the three triggers. And you follow the new 2025 rules, not the old ones.

The NBFC sector is growing fast and full of chances. But the RBI watches every ownership change with care. Buyers who do deep, honest due diligence win. They close clean deals, gain RBI approval, and build value from day one. Rushed buyers pay for hidden risks later.

Do the checklist. Follow the process. And bring in an expert early. That is how you buy an NBFC the right way.

Why Work With NBFC Advisory

An NBFC acquisition mixes law, finance, and RBI process, and one weak link a missed check or a wrong filing can cost you the deal or the Certificate of Registration itself, so this is not a risk you should take alone. NBFC Advisory runs the entire process for you: we check the target from top to bottom, map the right deal structure, prepare and file the RBI application on the PRAVAAH portal, and guide you through public notice, closing, and post-deal compliance for one clean, approved, low-risk acquisition. Talk to our NBFC acquisition experts today. Book a free consultation and get a clear, RBI-ready roadmap for your deal.

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