Advisory Services
Audit
Consulting
ESG Advisory
RBI Registration
SEBI Registration
IRDA Registration
FEMA Advisory
Compliances
IBC Services
VCFO Services
Growing
Developing
ME-1
ME-2
EU-1
EU-2
SE
Others
Select Your Location
The NBFCs (Non-Banking Financial Companies) have come a long way in terms of their operation, size, technology and financial products. The first and foremost requirement for any NBFC to begin operation is obtaining NBFC License from RBI to carry out operations as per Section 45-IA of the RBI Act, 1934. The section also prescribes the minimum Net Owned Funds (NOF) requirement.
Before we move towards the requirement, let’s take a look at the meaning of Net Owned Funds in terms of NBFCs.
Table of Contents
RBI vide its circular dated April 7, 2014, notifies an inclusive definition of Net Owned Funds as follow:
The resultant amount is further reduced by following items:
The minimum capital requirement for the NBFCs incorporated before April 21, 1999, as 25 lakhs. After April 1999, the prescribed limit has been increased to 200 lakhs. However, the prescribed capital shall be attained as per the following timeline:
The companies striving to achieve the above capital requirements should submit a statutory auditor’s certificate certifying compliance to the revised levels at the end of each of the two financial years as given above. Any NBFC failing to achieve the above limits within the postulated time will not be eligible to hold the CoR as NBFCs and the RBI will initiate the process for cancellation of CoR against such NBFCs.
An unrated Asset Finance Company (AFC) complying with all the prudential norms and maintaining capital adequacy ratio of at least 15% and having NOF of 25 Lakhs is allowed to accept or renew public deposits not exceeding one and half times of its NOF or up INR 10 crores, whichever is lower.
On the other hand, a rated NBFC complying with all the prudential requirements are allowed to accept deposits up to 4 times of their NOF.
Read Also: What are the Regulatory Requirements of Non-Banking Financial Company in India?.
In the case of non-deposit taking NBFCs having an asset size between 50 crores and 100 crores, the quarterly return shall be submitted with RBI which shall contain the basic information; such as, the name of the NBFC, the address of the NBFC, profit/loss during the last three years, and the details about the Net Owned Funds (NOF).
Every entity seeking registration as an NBFC-Factor should have and maintain a minimum NOF of INR 5 crores. Existing NBFC-Factor having an NOF of less than 5 crores should seek for a necessary time period from the RBI to increase its minimum NOF.
Every entity desiring registration as NBFC-MFIs will need a minimum NOF of INR 5 crores; however, those NBFC-MFIs, which are located in the North-Eastern Region of the country shall require NOF of INR 2 crores.
In a case of opening a Branch/Subsidiary/Joint Venture/Representative Office/or Undertaking Investment Abroad by NBFC, the following general conditions related to the NOF must be satisfied:
Investments in fixed deposits, as well as receipt of interest income on fixed deposits with banks, shall not be treated as a part of Net Owned Funds (NOF) as these are not covered under the activities mentioned in the definition of “Financial Institution” in section 45I(c) of the RBI Act. However, bank deposits consist of near money and can be used only for short-term parking of idle fund still initiation of NBFI business.
Any investment made by a concerned NBFC in entities of the same group of companies shall be treated similarly, whether the investment is made directly or through an Alternative Investment Fund (AIF) / Venture Capital Fund (VCF) while calculating the NOF amount.
RBI is very particular about the maintenance of the required Net Owned Funds (NOF) by all NBFCs. Any non-compliance in this field by NBFCs will attract strict action on the part of RBI and will eventually lead to revocation of the COR.
Do you wish to apply for NBFC Registration with rbi? Or are you looking for an NBFC Takeover advisory? Would you like to know about NBFC / Fintech consulting or know more about peer to peer lending? Please feel free to contact Enterslice, India’s leading online legal and tax advisory firm.
Recommended Article: Prudential Norms for NBFC Non-Deposit Taking.
Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.
In the recent past, India has seen burgeoning demand for internet and smartphones. The rapid ri...
The Securities and Exchange Board of India (SEBI), the capital markets regulator, has recommend...
The objective of the enactment of the Prevention of Money-laundering Act, 2002, i.e. PMLA (the...
Tax planning is a continuing effort and a management strategy for ensuring the minimization of...
On 18th May 2023, the Securities Exchange Board of India (SEBI) released a Consultation Paper o...
Infrastructure and real estate have been regarded as India's "sunshine sector" since the turn o...
On 22nd May 2023, the Central Board of Direct Taxes (CBDT)[1] issued a new circular under secti...
Anyone can have different sources of income. With globalization and the opening up of economies...
The Reserve Bank of India (RBI) is crucial in regulating NBFC, including branch openings and cl...
In India, Non-Banking Financial Companies are subject to certain restrictions from taking publi...
Are you human?: 8 + 9 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
NBFC Fintech models are digital loan companies. NBFC provides fast and convenient access to funding and leverage in...
12 Jul, 2019
The Reserve Bank of India, also referred to as RBI, is the country's central bank and a regulatory agency in charge...
10 May, 2023
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!