In the Non-Banking Financial Sector, The Reserve Bank of India has increased regulatory oversight. In case of acquisition or transfer of control of NBFCs, RBI has mandated the requirement of prior written approval. Directions have been already issued regarding prior written approval in case of NBFC takeover by The RBI.

Under the following conditions, prior written approval of RBI shall be required:

· In case of takeover or acquisition of control of an NBFC, by the acquisition of shares or otherwise;
· In case of merger/amalgamation of NBFC with another entity or vice versa that would give the acquirer/other entity control of the NBFC;
· In case of merger/amalgamation resulting in an acquisition or transfer of shareholding in excess of 10% paid up capital of NBFC;
· For orders of mergers or amalgamations with other companies or NBFCs, approaching the court or tribunal.


The government of India has liberalized its FDI policy. With the liberalization of the overseas investment, regime government has allowed 100% foreign direct investment (FDI) in ‘other financial services’ carried out by non-banking finance companies (NBFCs).

 Foreign exchange provisions are regulated under the Foreign Exchange Management Act, 2000 and NBFCs operations are regulated by the Reserve Bank of India within the framework of the RBI Regulation Act 1934.

In the NBFC sector, 100% FDI is allowed subject to the minimum capitalization norms issued by the Government. Under this, foreign investment can be obtained not only in liquid currency but also by way of exchange of shares, conversion of loans to share, exchange of some skill sets etc.

As per the FDI Policy, foreign investment is permitted under the automatic route in NBFC. Under automatic route, before making the proposed investment there is no requirement of Foreign Investment Promotion Board or RBI approval. Under automatic route up to 100%, foreign investment is allowed without the prior approval of foreign investment promotion board.

According to RBI, foreign investment in an Indian company, engaged in the activity of investing in the capital of other Indian company will require prior Government/FIPB approval, regardless of the amount or extent of foreign investment.

Foreign investment in Non-Banking Finance Companies (NBFCs), carrying on activities approved for FDI, will be subject to the conditions specified in FEMA notification as amended from time to time.

Liberalizing Foreign Investment

In the NBFC sector, directions of the RBI is an important area for harmonization of provisions of the regulations for foreign direct investment (FDI) in an NBFC. Budget speech of the finance minister announced the government’s intention to permit FDI in all financial activities which are regulated by an Indian regulator under the automatic route.

For example, once the Securities and Exchange Board of India (SEBI) approve the commodity broking license, the company will not require any further approval from the Foreign Investment Promotion Board (FIPB) for foreign investment.