Minimum Capital Requirements for NBFC

NBFCs are governed by the RBI Act and they must mandatorily follow all the guidelines of RBI. As provided in the Act, before commencing the business as NBFC, it is necessary to obtain a Certificate of Registration (CoR) from RBI and fulfill the criteria of minimum capital requirement.

What are Net Owned Funds (NOF)?

The computation of the "Net Owned Fund" can be done as: 

(a) Aggregate the paid-up equity capital and free reserves as per the latest balance sheet of the company after deducting therefrom the accumulated balance of loss; deferred revenue expenditure; and other intangible assets; and

(b) Deduct the following –

  • Investments of such companies in shares of its subsidiaries; companies in the same group; all other non-banking financial companies; and
  • Book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with, subsidiaries of such company; and companies in the same group,to the extent, such amount is more than 10% of (a) above.

Note: The NOF is to be calculated on the basis of the last audited Balance Sheet. The amount of capital raised after the date of the Balance Sheet should not be included in the computation of NOF.

What is the minimum NOF requirement as per RBI?

The minimum requirements of NOF for the different categories of NBFC are as follows:

  • NBFCs (other than specified below) - Rs. 2 crore
  • Other types of NBFCs:
  • Micro Finance Institution- Rs. 5 crore
  • Microfinance Institution in NE Region - Rs.2 crore
  • NBFC- Factor- Rs. 5 crore
  • Housing Finance Company - Rs. 20 crore
  • Mortgage Guarantee Company- Rs. 100 crore
  • Infrastructure Debt Fund - Rs. 300 crore
  • Infrastructure Finance Company- Rs. 300 crore

How are NBFCs contributing to the Economic Structure?

NBFCs have achieved tremendous growth with their continuous efforts to improve the way they can reach the public. NBFCs are now an important part of the economic structure and contribute equally to the growth of the economy.

NBFCs providing financial assistance to the infrastructure sector, MSME, and other sectors which do not have access to traditional sources of obtaining funds is a factor in increasing the growth of NBFCs. The increasing technological advancement is yet another factor that is leading the NBFCs towards better market reach.

When the funds reach varied sectors of the society, the entrepreneurs get a boost to grow their ideas and expand their business operations which then leads to the hiring of more employees. So, the idea of providing financial aid to different sectors of the society is leading to the generation of better employment opportunities, growth of GDP, and overall development of the standard of living in the country.

The details of the Net Owned Fund are to be mentioned in Statutory Auditors’ Certificate (SAC) to be submitted by every NBFC on an annual basis to RBI. It is also pertinent to note that RBI may cancel the Certificate of Registration granted to a Non-Banking Financial Company if such a company fails to comply with the guidelines of RBI.

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