Owned funds and Net Owned Funds (NOF) are important concepts in the regulation of Non-Banking Financial Companies (NBFCs) in India. They are used to determine the financial strength and capacity of NBFCs to undertake their lending and investment activities.
Owned Funds refer to the capital of an NBFC that is owned by its shareholders. The Owned Funds include the paid-up equity capital, free reserves, and other approved instruments such as perpetual debt instruments, preference shares, and share application money. The Owned Funds represent the long-term and permanent sources of capital for the NBFC.
Net Owned Funds (NOF) is a key financial parameter used to measure the financial soundness and stability of an NBFC. NOF is calculated by deducting the intangible assets, investments in shares of other NBFCs, and the book value of debentures, bonds, and outstanding loans advanced against the security of shares or debentures from the Owned Funds.
The RBI has prescribed minimum NOF requirements for different categories of NBFCs, based on their principal business activities. The NOF requirements are intended to ensure that NBFCs maintain adequate financial resources to meet their obligations and manage risks effectively.
As per the RBI guidelines, the minimum NOF requirements for different categories of NBFCs are as follows:
- Asset Finance Company (AFC): Rs. 2 crore
- Investment Company (IC): Rs. 2 crore
- Loan Company (LC): Rs. 25 lakh
- Infrastructure Finance Company (IFC): Rs. 300 crore
- Systemically Important Core Investment Company (CIC-ND-SI): Rs. 50 crore
- Microfinance Institution (MFI): Rs. 5 crore
- Non-Banking Financial Company – Factors (NBFC-Factors): Rs. 5 crore
- Non-Banking Financial Company – Infrastructure Debt Fund (NBFC-IDF): Rs. 300 crore
In conclusion, Owned Funds and Net Owned Funds (NOF) are important concepts in the regulation of NBFCs in India. The RBI prescribes minimum NOF requirements for different categories of NBFCs, based on their principal business activities, to ensure that they maintain adequate financial resources to meet their obligations and manage risks effectively. NBFCs must maintain a healthy NOF to continue their lending and investment activities and to comply with the regulatory requirements.