Talk to an expert

Tell us what you need and we will call you back the same day.

🇮🇳 +91
    100% Secure No Spam Quick Response

    CA CertificationProcedure

    How to Calculate Net Owned Fund (NOF) for an NBFC

    Net owned fund is worked out in two steps. First you build the company's owned funds from the balance sheet. Then you take off the part of its exposure to group and subsidiary companies that goes above a limit the Reserve Bank of India sets by reference to the company's paid-up equity capital and free reserves. This guide walks through both steps, works one example, and shows where the figure ends up.

    Written by Subham JhunjhunwalaReviewed by CA Sundram Gupta
    • First published
    • Updated
    • Last reviewed

    The working, in two steps

    Figures as on one balance sheet date, kept on separate lines.

    1. 1Owned funds
      AddPaid-up equity capital, free reserves
      Take offAccumulated losses, deferred revenue expenditure, intangible assets
    2. 2Group exposure above the allowance
      Take offInvestments in, and loans to, group and subsidiary companies, but only the part above a set percentage of paid-up equity capital and free reserves
    ResultNet owned fund
    The allowance in step two is measured on paid-up equity capital and free reserves, not on what is left after step one's deductions.
    One example, worked below.Start with the method
    A chartered accountant working through figures on a calculator and laptop at her desk

    Owned funds minus group exposure above the line

    Net owned fund is the regulatory measure of an NBFC's own capital that the RBI tests.

    The method has two steps:

    1. Step oneOwned fundsStart from paid-up equity capital and free reserves, and take off accumulated losses, deferred revenue expenditure and intangible assets.
    2. Step twoNet owned fundReduce owned funds by the company's investments in, and loans to, group and subsidiary companies, but only by the part that goes above a set percentage of paid-up equity capital and free reserves.
    The line in the RBI's 2025 DirectionsThe Reserve Bank of India (Non-Banking Financial Companies - Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 (paragraph 45) put it this way: investments in, loans to and other exposures to subsidiaries, companies in the same group and other NBFCs, in excess of 10 per cent of the aggregate of paid-up equity capital and free reserves, are deducted to arrive at net owned fund.

    Both steps use figures as on one date. The allowance in step two is measured on paid-up equity capital and free reserves, not on the owned funds left after step one's deductions, so keep the two measures on separate lines of the working. An error in the capital or free reserves line moves both.

    Line oneOwned fundsWhat is left after step one's three deductions.
    Line twoPaid-up equity capital and free reservesThe base the step-two allowance is measured on. An error here moves both lines.

    The figure matters because the RBI Act makes it a condition of the business, not just of the paperwork. Under section 45-IA, an NBFC needs a certificate of registration from the RBI and must hold the minimum net owned fund the RBI prescribes. For investment and credit companies, microfinance institutions and factors, new applicants need ₹10 crore from the start. Existing investment and credit companies are moving to the same ₹10 crore on a glide path: ₹5 crore by 31 March 2025 and ₹10 crore by 31 March 2027. Existing microfinance institutions and factors have the same ₹10 crore target.

    New applicants₹10 croreFrom the start, for investment and credit companies, microfinance institutions and factors.
    Existing investment and credit companies₹5 crore by 31 March 2025₹10 crore by 31 March 2027The glide path to the same ₹10 crore.
    Existing microfinance institutions and factors₹10 croreThe same target.
    Other categoriesNBFC-P2P, NBFC-AA and NBFCs holding a Type I certificate of registration need ₹2 crore; NBFC-IFC and IDF-NBFCs need ₹300 crore.

    Building the owned funds base from the balance sheet

    Step one adds the company's own capital and takes off three items that do not represent real, available funds.

    Add

    • Paid-up equity capital.
    • Free reserves, meaning reserves that are available for distribution as dividend.
    • The balance in the securities premium account, which the RBI's 2025 capital adequacy directions count in owned funds.

    Deduct

    • The accumulated balance of losses.
    • Deferred revenue expenditure still carried forward.
    • Intangible assets.

    The RBI's prudential directions for NBFCs widen the list of additions for regulatory purposes.

    The 2025 capital adequacy directionsThe Reserve Bank of India (Non-Banking Financial Companies - Prudential Norms on Capital Adequacy) Directions, 2025 also count preference shares that are compulsorily convertible into equity, and capital reserves representing surplus from the sale proceeds of assets (not reserves created by revaluation).
    Free reserves is the term doing the heavy lifting

    A reserve counts only if it is available for distribution as dividend. Unrealised gains, notional gains and revaluation gains recognised in equity do not qualify. So the question for each reserve is whether it is distributable, and which reserves may be distributed decides how much of the balance sheet reaches the base.

    The Companies Act sectionsThe securities premium account is governed by section 52 of the Companies Act, 2013.
    The order matters

    The three deductions come off inside step one, before the group test. They lower owned funds, but the step-two allowance is measured on paid-up equity capital and free reserves, not on this result.

    Which wording this article followsThis article follows the RBI's 2025 Directions, which measure the allowance on paid-up equity capital and free reserves.

    How much of a fresh capital raise actually reaches this base is a separate question with its own answer.

    Deductions the RBI requires for group and subsidiary exposure

    Step two looks at money the company has placed with related parties. It is designed to stop the same capital being counted twice as it circulates within a group.

    The current page describes two kinds of exposure, added together and tested once:

    Investments in sharesOf subsidiaries, of companies in the same group and, on the current page's reading, of other NBFCs.
    Debentures, bonds, loans and advancesIncluding hire-purchase and lease finance, made to subsidiaries and companies in the same group, and deposits placed with them.
    Added togetherThe combined total
    Compared withThe allowanceA percentage of paid-up equity capital and free reserves.
    Taken offOnly the excess
    A company whose entire group exposure sits inside the allowance loses nothing.
    What is countedThe RBI's 2025 Directions count investments in, loans to and other exposures to subsidiaries, companies in the same group and other NBFCs, so shares in an unrelated NBFC are included. The allowance is 10 per cent of paid-up equity capital and free reserves.

    Settle the perimeter before you draw up the schedule. Which companies count as "subsidiaries" and "companies in the same group" is a definition question, and the RBI's own directions carry a definition of group companies. A counterparty moved in or out of the perimeter changes the deduction without any transaction taking place.

    Intangibles and deferred revenue expenditure knocked off

    Both sit inside step one. Taking an intangible asset out lowers owned funds, and so net owned fund, by its book value. It does not change the step-two allowance, which is measured on paid-up equity capital and free reserves.

    Intangible assetsThe classification used in the audited accounts governs what countsIntangible assets under development often sit on their own line, so a working built only from the "intangible assets" line can miss them.
    Deferred revenue expenditureSpending already incurred that the company chose to carry forward and write off over later yearsWhatever balance is still carried comes off. Preliminary expenses and unamortised issue costs are the usual examples still found in older accounts.
    What does not enter

    Guarantees given for a group company, undrawn commitments and contingent liabilities enter neither step, because both steps work from amounts carried on the balance sheet. The notes to the accounts still matter: the related-party disclosure there is what a reviewer reads to test whether each investment and loan was tagged to the right counterparty.

    A worked NOF computation for a small NBFC

    The figures below are invented for the arithmetic only. They are an illustration, not a benchmark.

    Take a lending company with one subsidiary and one investment outside its group.

    Step one: owned funds

    Paid-up equity capital
    ₹30 crore
    Securities premium
    ₹12 crore
    Free reserves
    ₹6 crore
    Less: accumulated losses
    (₹3 crore)
    Less: intangible assets
    (₹2 crore)
    Less: deferred revenue expenditure
    (₹50 lakh)
    Owned funds
    ₹42.5 crore

    The three deductions total ₹5.5 crore.

    Step two: group exposure

    • Shares in the wholly owned subsidiary₹3 crore
    • Inter-corporate deposit with a group company₹2.5 crore
    • Lease finance to the subsidiary₹75 lakh
    • Shares in an unrelated NBFC ₹1.5 crore

    The test

    Allowance
    ₹3.6 crore (10 per cent of ₹36 crore)
    Exposure counted
    ₹7.75 crore
    Excess deducted
    ₹4.15 crore
    Net owned fund
    ₹38.35 crore

    Two lessons hold.

    Lesson oneLease finance was caughtEven though it is not a loan in the everyday sense.
    Lesson twoThe result depended on taggingThe investment and loan schedules were tagged by counterparty before any arithmetic was done.

    Where the computed figure is reported

    The figure travels to the RBI through the company's supervisory returns. Where the return or a lender asks for it, a certificate from a practising chartered accountant or the auditor stands behind the figure.

    A working file sits behind the return. The useful papers are:

    1. A reserve-by-reserve splitShowing which balances are distributable.
    2. The securities premium movementFor the year.
    3. The investment scheduleTagged by counterparty relationship.
    4. The loans and deposits ledgerFiltered to subsidiaries and group companies.
    The tagging is the paper that matters

    Step two turns on who the counterparty is rather than on what the instrument is. Net owned fund is also the starting point for the capital a supervisor risk weights in the capital adequacy computation.

    Consistency across years is the last thing to hold. Record the basis on which the group perimeter was drawn and repeat it. Where the same accounts also have to answer the measure company law asks for, keep the two computations as separate schedules.

    Before the return is filed

    Need the net owned fund figure certified? Talk to a CA about the computation, the group perimeter and the certificate the RBI or your lender has asked for.

    Call +91 945 945 6700, Monday to Saturday, 9 AM to 6 PM.

    Run your balance sheet through the NOF calculator

    The calculator needs only a few inputs. Owned funds go in as one figure or as their component lines, and group exposure goes in as a single total. Anyone who already knows the method can check the output in a minute, which is the point of learning the method first.

    The output worth reading is the allowance

    Entering the figures line by line shows the limit as a number rather than a rule, and shows how much of the group exposure fell inside it. A company sitting close to the limit can see what a new intra-group advance would cost before it is made.

    A computed figure is not yet a certified one. The return, the auditor and any lender all work from a statement that names a date and a basis. Where that figure is certified is a separate step from how it was arrived at.

    Read next

    Where to go from here

    How much of a capital raise reaches the base, how the RBI's figure differs from the one company law asks for, which net worth figures are actually prescribed, and the same kind of certificate read by a bank issuing a guarantee.

    Sources

    Where the rules are published

    1. Reserve Bank of India, FAQ on NBFC registration and minimum net owned fund (section 1).
    2. Reserve Bank of India (Non-Banking Financial Companies - Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025, paragraph 45, made under section 45-IA of the Reserve Bank of India Act, 1934.

    The worked example applies the RBI's base: the allowance is 10 per cent of paid-up equity capital and free reserves.

    Ask a Chartered Accountant

    Talk to a Chartered Accountant

    Have a question about your own certificate? Tell us who asked for it and what it is for, and a Chartered Accountant from our team will call you back.

    Request a call back

    A chartered accountant calls you back.

    🇮🇳 +91

      Our team will get back to you shortly. No spam.

      100% Secure No Spam Quick Response