What is an NBFC’s net owned fund?
Net owned fund is the paid-up equity capital and free reserves in the latest balance sheet, after accumulated losses, deferred revenue expenditure, and other intangible assets, and after a further cut for investments in group companies and other NBFCs only to the extent those amounts exceed 10 percent of that owned fund. A new Investment and Credit Company must show ₹10 crore.
What is counted?
Start with the latest balance sheet. Add paid-up equity capital and free reserves. Free reserves include the securities premium and a credit balance in the profit and loss account. They do not include a revaluation reserve, and they do not include preference share capital.
From that total, deduct the accumulated balance of loss, deferred revenue expenditure, and other intangible assets. What remains is the owned fund. Then deduct investments in shares of the company’s subsidiaries, of companies in the same group, and of other non-banking financial companies, together with the book value of debentures, bonds, outstanding loans and advances, including hire-purchase and lease finance, made to subsidiaries and group companies, and deposits with them. Only the part of that basket which exceeds 10 percent of the owned fund is deducted. Deducting the whole basket overstates the reduction.
What minimum applies to a new company?
A fresh certificate for an Investment and Credit Company requires Net Owned Funds of ₹10 crore. The older ₹2 crore figure is not the requirement for a new certificate. The company cannot lend before the certificate. Some other categories have their own floor. This page does not set those other floors. How the certificate is obtained is on the NBFC page.
Which figures are left out?
A revaluation reserve, an intangible asset, and an accumulated loss do not increase the fund. Preference capital does not stand in for equity. A loan to a group company is not ignored, but it is not deducted in full: only the excess over 10 percent of the owned fund comes off. The same company is still not a bank. The differences are on the comparison page.
Frequently asked questions
Four questions cover the ₹10 crore floor, preference capital, a revaluation reserve, and the 10 percent investment cut.
Is ₹2 crore still enough for a new certificate?
No. A fresh certificate for an Investment and Credit Company requires Net Owned Funds of ₹10 crore. The older ₹2 crore figure is not that threshold.
Is preference share capital included?
No. The owned fund starts with paid-up equity capital and free reserves. Preference capital is not equity capital.
Is a revaluation reserve included?
No. A revaluation reserve is not a free reserve, so it is not part of the owned fund.
Are all group investments deducted?
No. Investments in shares of subsidiaries, companies in the same group, and other NBFCs, together with loans, deposits, and similar amounts to subsidiaries and group companies, are deducted only to the extent they exceed 10 percent of the owned fund.
Sources
Net owned fund is defined in the explanation to section 45-IA of the Reserve Bank of India Act, 1934. The ₹10 crore floor is the current requirement for a new Investment and Credit Company.