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    CA Certification glossary · NBFC capital

    Net Owned Fund (NOF): Meaning for an NBFC

    noun · abbreviated "NOF"; the plural "net owned funds" is the same measure
    Definition

    Net owned fund (NOF) is the measure of its own capital that a non-banking financial company must hold to be registered with the Reserve Bank of India and to carry on business. Section 45-IA of the Reserve Bank of India Act 1934 makes a net owned fund of at least the amount the Bank specifies a condition of commencing or carrying on the business of a non-banking financial institution, alongside a certificate of registration.

    The Act defines the figure in two steps: the paid-up equity capital and free reserves shown in the latest balance sheet, less accumulated losses, deferred revenue expenditure and other intangible assets; then a further reduction for the company's shareholdings in subsidiaries, companies in the same group and other NBFCs, and its lending to and deposits with subsidiaries and group companies, to the extent these exceed ten per cent of the first figure. It is a regulatory capital floor for NBFCs, not the net worth a company reports under company law.

    • Written by Subham Jhunjhunwala
    • Reviewed by CA Sundram Gupta
    • Reviewed on · Updated

    See related terms

    The term in one glance

    NNetafter the Act's deductions
    OOwnedthe company's own capital, not borrowed
    FFundone figure, read off the latest balance sheet
    Statute
    Section 45-IA, Reserve Bank of India Act 1934Read with the RBI's NBFC registration and scale based regulation directions, 2025
    Applies to
    Non-banking financial companiesEvery NBFC that holds, or applies for, a certificate of registration
    Set by
    The Reserve Bank, by notificationDifferent amounts for different categories of NBFC
    Used for
    A condition of registration and of staying in businessNot a valuation, not a lending limit on its own

    Meaning

    01What net owned fund means

    Net owned fund is the Reserve Bank's answer to a plain question about a lender: how much of the capital on its balance sheet is genuinely its own, able to absorb losses, and not tied up in the companies around it? A non-banking financial company raises money from the public and from banks, so the Bank requires it to hold a stated amount of such capital before it is registered and for as long as it stays in business. Section 45-IA of the Reserve Bank of India Act 1934 makes that a condition alongside the certificate of registration, and leaves the Bank to specify the amount by notification, with different amounts for different categories of NBFC.

    The word that does the work is "net". The Act starts from the company's paid-up equity capital and free reserves, as disclosed in its latest balance sheet, and takes off accumulated losses, deferred revenue expenditure and other intangible assets. It then looks at the company's own group: shares it holds in subsidiaries, in companies in the same group and in other NBFCs, and the debentures, bonds, loans, advances and deposits it has placed with subsidiaries and group companies. To the extent that exposure exceeds ten per cent of the first figure, it is deducted too. What is left is capital that can be judged on its own, rather than capital that has been passed around a group and counted more than once.

    The definition, as the Act states it

    Explanation to section 45-IA

    The owned base

    "the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance-sheet of the company after deducting therefrom (i) accumulated balance of loss; (ii) deferred revenue expenditure; and (iii) other intangible assets"

    In plain terms: what the shareholders have put in and left in, after the items a balance sheet carries but no one could realise in a loss.

    The group reduction

    "further reduced by the amounts representing (1) investments of such company in shares of (i) its subsidiaries; (ii) companies in the same group; (iii) all other non-banking financial companies; and (2) the book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with, (i) subsidiaries of such company; and (ii) companies in the same group, to the extent such amount exceeds ten per cent of (a) above"

    In plain terms: add up the company's shares in subsidiaries, group companies and other NBFCs, and its loans, advances and deposits with subsidiaries and group companies. Only the part of that total above 10 per cent of the paid-up equity capital and free reserves is deducted; the Reserve Bank's 2025 directions measure the line on that base. Holdings below the line are not deducted.

    Net owned fund is (a) reduced by the excess in (b). The Act names what goes in and what comes off. It does not say how to assemble those figures from a set of accounts; that is the work of the calculation guide this glossary points to in section 03.
    For a promoter applying to register an NBFC

    The figure the application has to show, computed on the Act's definition from the latest balance sheet, at or above the amount the Bank specifies for the category applied for.

    For the board of an NBFC already registered

    A level to stay above, not a one-time entry test. The section speaks of commencing or carrying on business, and the Reserve Bank's 2025 directions say an NBFC that does not reach the level set for it within the time allowed is not eligible to hold its certificate of registration.

    For a lender, investor or counterparty reading the accounts

    Not the same as net worth or total equity. A healthy-looking balance sheet can sit on a thin net owned fund when much of its capital has been placed in group companies.

    Not the same figure

    02Net owned fund and net worth are not the same figure

    Net worth and net owned fund start from the same place, capital and reserves, and are then defined by two different statutes for two different purposes. Net worth, under section 2(57) of the Companies Act 2013, is the measure every company reports: paid-up share capital, reserves created out of profits, the securities premium account and the balance of the profit and loss account, less accumulated losses, deferred expenditure and miscellaneous expenditure not written off, with reserves from revaluation, write-back of depreciation and amalgamation kept out. Net owned fund, under section 45-IA of the Reserve Bank of India Act 1934, is the measure the Reserve Bank applies to NBFCs alone, and it goes one step further: it strips out the company's exposure to its own group above the ten per cent line. So the two figures differ for the same company on the same date, and a certificate of one is not a certificate of the other.

    Company law's measure

    Net worth

    Statute
    Companies Act 2013, section 2(57)
    Applies to
    Every company, whatever its business
    Group holdings
    Counted as assets; the section lists no deduction for investing in group companies
    The Reserve Bank's measure

    Net owned fund

    Statute
    Reserve Bank of India Act 1934, section 45-IA, read with the RBI's NBFC registration and scale based regulation directions, 2025
    Applies to
    Non-banking financial companies only
    Group holdings
    Shares in, and lending to, subsidiaries, group companies and other NBFCs, to the extent the total exceeds 10 per cent of the paid-up equity capital and free reserves
    In one line: net worth is company law's measure of a company's own capital; net owned fund is the Reserve Bank's measure for an NBFC, which also removes what the company has placed in its own group beyond the ten per cent line.

    What comes next

    03Where the calculation and the certificate live

    This entry stops at the definition. Two things follow from it, and each has its own page. The first is the computation: how to build the owned base from a set of accounts, which reserves count as free reserves, how the group exposure is measured against the ten per cent line and in what order the deductions run. That is set out step by step, with a worked computation, in how to calculate net owned fund. The second is the certificate: the Reserve Bank's current minimum amounts by category of NBFC, and a chartered accountant's certificate on the computed figure where the Reserve Bank asks for one, belong with the net owned fund certificate service, linked at the foot of this entry.

    1. You are here

      Define

      What the term means, what the Act counts and what it strips out, and how the figure differs from net worth.

      This entry
    2. Then

      Calculate

      Build the owned base from the accounts, measure the group exposure against the ten per cent line, and follow a worked computation.

      Read the calculation guide
    3. When the Reserve Bank asks

      Certify

      The current minimum amounts by category of NBFC, and a chartered accountant's certificate on the computed figure.

      Go to the certificate line

    Also see

    04Related terms

    One item that goes into the owned base, and two capital measures the Reserve Bank reads beside the net owned fund.

    Counted in clause (a)

    Free Reserves

    The reserves that count in the owned base beside paid-up equity capital. Which reserves qualify, and which are kept out, is that entry's subject.

    Read the definition
    Starts from owned fund

    Tier I Capital

    The Reserve Bank's core-capital measure for an NBFC's capital adequacy.

    Read the definition
    A ratio, not an amount

    Capital to Risk-weighted Assets Ratio (CRAR)

    The ratio of an NBFC's capital to its risk-weighted exposure. Net owned fund is a floor amount; CRAR asks whether the capital is enough for the book.

    Read the definition

    Browse all glossary terms

    Written by Subham Jhunjhunwala · Reviewed by CA Sundram Gupta

    Reviewed on: Last updated: Applies to: non-banking financial companies registered, or applying for registration, with the Reserve Bank of India

    Sources: the Reserve Bank of India Act 1934, section 45-IA and its Explanation (RBI, text of the Act); the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 (RBI); the RBI's FAQ on non-banking financial companies (RBI); the Companies Act 2013, section 2(57) (MCA). This entry explains the term in general and is not advice on a particular company's position; the Reserve Bank's current requirement for a category of NBFC is read from its directions as they stand on the date in question.

    Need help with net owned fund? See our net owned fund certificate for an NBFC.The Reserve Bank's current minimum amounts by category, and a chartered accountant's certificate on the computed figure.