RBI corners NBFCs for faulty computation of capital

The Reserve Bank of India (RBI) has said that non-banking financial companies (NBFCs) must deduct investments made in group entities before arriving at net-owned funds or NOF.

 

NOF refers to the aggregate of paid-up equity capital and free reserves after deducting accumulated balance of loss, deferred revenue expenditure and other intangible assets.

 

The apex bank's move is in the wake of finding that certain NBFCs did not consider their investment in group companies while arriving at the NOF figure. 

In a notification issued on Monday, RBI told NBFCs that the contribution to the funds held by VCFs came primarily from NBFCs themselves.

However, the NBFCs argued that their investments in group companies were made by venture capital funds (VCF) sponsored by them.

 

"NBFCs are advised to keep this principle in mind always while calculating their NOF,” RBI said. In order to arrive at NOF, investments (shares, debentures) in subsidiaries, group companies and other financing are also considered.

 

Further, RBI said that VCF or any such alternative investment fund (AIF) means a pool of capital by investors and investments made by such an AIF is done on behalf of the investors.