NBFC regulations
Jaydeep Kurup
(Querist) 27 August 2008
This query is : Resolved
Please pardon in case this is a wrong forum for this query. But i think our members are versatile enough to tackle any area.
An NBFC is required to maintain a min Net Owned Fund (NOF) of 200 lacs.
My query is what should an investment company (NBFC) do in case its NOF as at the end of the year falls below the stipulated limit due to a fall in the market prices of shares owned by it.
Does the RBI registration automatically get cancelled ?
Is it requried to mandatorily raise the equity ?
Manish Singh
(Expert) 27 August 2008
This is the formula for calculation of NOF provided by RBI ;
Net Owned Funds in respect of NBFCs : Net owned Fund will consist of paid up equity capital, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of assets but not reserves created by revaluation of assets. From the aggregate of items will be deducted accumulated loss balance and book value of intangible assets, if any, to arrive at owned funds. Investments in shares of other NBFCs and in shares, debentures of subsidiaries and group companies in excess of ten percent of the owned fund mentioned above will be deducted to arrive at the Net Owned Fund. The NOF should be computed on the basis of last audited Balance Sheet and any capital raised after the Balance Sheet date should not be accounted for while computing NOF.
And according to this formula I dont think we can count the nof on the basis of market price of shares instead it should be at par value.
If the NOF is less than 200 lac, then either we shall have to raise thesame to the level otherwise at the end of the financial year, it shall be cancelled.
Jaydeep Kurup
(Querist) 28 August 2008
The fall in the market value of the shares creates a loss to the company which reduces its free reserves and thus decreases its net owned fund.Please note that this is an invst company.
Further any company resitering itself as an NBFC before 1999 can have a NOF of 25 lacs.
The company can make an application to RBI for grant of time.
