The Reserve Bank of India (RBI) governs Non-Banking Financial Companies (NBFCs) under Chapter IIIB of the RBI Act, 1934, particularly Section 45-IA, which mandates that no company can commence NBFC operations without obtaining a Certificate of Registration (CoR). This provision ensures that only regulated and financially capable entities engage in financial business. From March 2025, the RBI has increased the minimum Net Owned Fund (NOF) requirement to ₹10 crore, reinforcing financial soundness and enabling NBFCs to meet prudential norms effectively.
Additionally, the RBI Master Direction Non-Banking Financial Company (Reserve Bank) Directions, 2016, along with the Scale-Based Regulatory (SBR) Framework, 2023, outlines specific rules on capital adequacy, liquidity management, and governance standards. These frameworks introduce risk-based supervision, stronger internal controls, and higher disclosure requirements. Collectively, they ensure that NBFCs maintain adequate capital buffers, mitigate systemic risks, and operate responsibly within India’s regulated financial ecosystem.
In this article, CA Manish Mishra talks about Financial Projections and NOF Planning for New NBFCs.
Net Owned Fund (NOF)
The Net Owned Fund (NOF) serves as the core capital base of an NBFC, representing its true financial strength and capacity to conduct lending or investment activities. It reflects the company’s ability to withstand financial shocks and maintain solvency while ensuring that business operations are supported by genuine, unencumbered capital.
As per Rule 5 of the RBI Master Direction NBFC (Reserve Bank) Directions, 2016, the NOF is computed by adding paid-up equity capital and free reserves, and then deducting accumulated losses, deferred expenditure, and intangible assets. Importantly, borrowed funds, preference share capital, and subordinated debt are not included in the NOF unless explicitly permitted by the Reserve Bank of India.
A strong NOF ensures an NBFC’s creditworthiness and compliance with prudential norms. It acts as a regulatory benchmark for determining capital adequacy, credit exposure, and the company’s eligibility classification whether as an Investment and Credit Company, Microfinance NBFC, or Infrastructure Finance Company. This makes NOF planning a crucial element for financial stability and long-term scalability.
Importance of Financial Projections
Role in RBI Evaluation
Financial projections act as the foundation of an NBFC’s business plan and play a decisive role in the RBI’s registration evaluation process. They help the regulator assess whether the proposed NBFC has a sustainable and compliant financial model, ensuring long-term viability. These projections provide a three-to-five-year roadmap demonstrating how the entity plans to achieve profitability, maintain liquidity, and manage solvency while adhering to prudential norms.
Key Components of Financial Projections
An effective financial projection must include:
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Loan Portfolio Growth and Asset Quality – Forecasts for loan disbursements, repayment performance, and provisioning for potential losses.
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Revenue and Expense Forecasts – Estimation of interest income, operational costs, technology investments, and manpower expenses.
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NPA and Provisioning Estimates – Expected levels of Non-Performing Assets and corresponding provisioning norms.
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Financial Statements – Projected Balance Sheet, Profit & Loss Account, and Cash Flow Statement to reflect financial discipline.
Alignment with SBR Framework, 2023
All projections must be consistent with the company’s capital structure, funding plan, and regulatory obligations under the Scale-Based Regulatory (SBR) Framework, 2023. This ensures that the NBFC’s financial blueprint aligns with RBI’s expectations on risk management, capital adequacy, and sustainable growth.
Capital Planning and Adequacy
Capital planning is not a one-time exercise; it is an ongoing process that determines the NBFC’s ability to support future expansion and absorb risks. Under the SBR Directions, 2023, capital adequacy requirements depend on the NBFC’s scale and systemic importance:
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Base Layer NBFCs must maintain a Capital to Risk-Weighted Assets Ratio (CRAR) of at least 15%.
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Middle and Upper Layer NBFCs are subject to Internal Capital Adequacy Assessment Process (ICAAP) and stricter liquidity norms.
A well-designed capital plan must anticipate funding needs for loan growth, factor in stress scenarios, and outline potential equity infusions by promoters to maintain regulatory ratios. This ensures the company’s resilience against credit or liquidity shocks.
Integration with the Business Model
Financial projections must be consistent with the NBFC’s business model and revenue structure.
For example:
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A loan-financing NBFC should project interest spreads, provisioning under Ind AS 109, and delinquency ratios.
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An investment NBFC should factor in market volatility, exposure limits, and compliance with Section 45Q of the RBI Act.
The projections should also include sensitivity and stress analysis to assess how market fluctuations, interest rate changes, or credit defaults may affect profitability. This integrated approach ensures that financial planning aligns with operational and regulatory realities.
Governance and Prudential Controls
The RBI places high emphasis on governance. Every NBFC must integrate financial management with strong internal control systems.
Key requirements include:
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Appointment of a Chief Financial Officer (CFO) and Chief Risk Officer (CRO) for oversight.
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Establishment of a Risk Management Committee (RMC) to monitor capital adequacy and liquidity.
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Adoption of a Fair Practices Code (FPC) and KYC/AML policies in line with the PMLA, 2002 and RBI Master Direction on KYC (2016).
These governance measures ensure that financial projections translate into sustainable and compliant operations.
NOF Verification and Certification
Before issuing the Certificate of Registration, the RBI requires a Chartered Accountant’s Certificate verifying the adequacy of NOF.
This certification must confirm that the capital is:
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Genuinely owned by the company,
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Free from encumbrances, and
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Not sourced from borrowed funds.
Supporting documents such as audited balance sheets, bank statements, and share allotment forms (PAS-3) must be attached.
Misrepresentation or manipulation in NOF computation can lead to penalties under Section 58B of the RBI Act, 1934, and even rejection of the application.
Recent Regulatory Updates
The RBI Master Direction on SBR, 2023 introduced tier-based capital planning, linking NOF thresholds with an NBFC’s systemic importance.
Further, the Draft NBFC Licensing Guidelines, 2025 propose enhanced disclosure norms requiring NBFCs to:
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Declare source of funds and ultimate beneficial ownership (UBO),
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Report foreign investments under FEMA (NDI) Rules, 2019, and
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Obtain government approval for investors from border-sharing nations under Press Note 3 (2020).
These reforms aim to ensure that NBFCs operate with clean capital structures, transparency in ownership, and robust governance frameworks.
Conclusion
Effective financial projections and NOF planning are far more than regulatory formalities they form the financial backbone of a successful NBFC. A meticulously prepared projection demonstrates to the RBI that the company possesses the strategic foresight, adequate capitalization, and liquidity management capabilities necessary for sustainable operations. When aligned with the RBI’s prudential norms, such planning ensures that the NBFC remains resilient under varying economic conditions and maintains consistent regulatory compliance.
Moreover, transparent Net Owned Fund computation, backed by audited verification and realistic financial forecasting, reflects the company’s commitment to sound governance and responsible business conduct. It not only facilitates a smoother RBI approval process but also strengthens stakeholder confidence and operational stability. In India’s evolving non-banking financial landscape, NBFCs that prioritize disciplined financial planning and compliance-oriented governance stand best positioned for long-term, ethical, and scalable growth.
Frequently Asked Questions (FAQs)
Q1. What is the significance of financial projections for NBFC registration?
Ans. Financial projections serve as a roadmap for the NBFC’s growth and sustainability. The Reserve Bank of India (RBI) reviews them to evaluate whether the applicant has a viable business model capable of maintaining liquidity, profitability, and solvency over time.
Q2. What does Net Owned Fund (NOF) mean under the RBI Act, 1934?
Ans. As per Section 45-IA of the RBI Act, NOF refers to the company’s owned capital, including paid-up equity and free reserves, minus accumulated losses, deferred expenses, and intangible assets. It represents the true net worth of the NBFC.
Q3. What is the minimum NOF requirement for NBFCs?
Ans. From March 2025, all new NBFC applicants must maintain a minimum NOF of ₹10 crore, as per the amended RBI guidelines. This ensures adequate capital backing and risk absorption capacity.
Q4. Why does RBI emphasize NOF adequacy during NBFC registration?
Ans. NOF adequacy demonstrates that the promoters have invested genuine, unencumbered capital. It assures the RBI that the NBFC can meet financial obligations, sustain operations, and manage potential credit losses responsibly.
Q5. What components are included in financial projections for NBFCs?
Ans. Financial projections typically include a 3–5 year plan covering:
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Loan portfolio growth and expected interest income,
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Asset quality and NPA provisioning,
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Operating costs and profit margins, and
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Cash flow and balance sheet forecasts.
Q6. How is capital adequacy linked with NOF planning?
Ans. Under the Scale-Based Regulatory (SBR) Framework, 2023, NBFCs must maintain a Capital to Risk-Weighted Assets Ratio (CRAR) of at least 15%. NOF planning ensures that capital buffers remain adequate to meet this prudential norm even under stress conditions.
Q7. What certifications are required for NOF verification?
Ans. Before registration, a Chartered Accountant’s certificate must confirm that the NBFC’s capital is genuinely owned, free from borrowings, and accurately reflected in audited financial statements and bank records.
Q8. How should financial projections align with the NBFC’s business model?
Ans. Projections must mirror the operational strategy whether the NBFC is lending, leasing, or investing. RBI expects sensitivity and stress testing to show the company’s ability to handle market fluctuations or credit risks.
Q9. What happens if NOF or capital disclosures are found inaccurate?
Ans. Any misstatement or misrepresentation in NOF computation may result in rejection of the NBFC application or penalties under Section 58B of the RBI Act, 1934 for false submissions.
Q10. What are the latest regulatory updates on capital and disclosure norms?
Ans. The RBI Master Direction on SBR (2023) and the Draft NBFC Licensing Guidelines (2025) mandate enhanced disclosure of funding sources, beneficial ownership, and foreign investment transparency under FEMA (NDI) Rules, 2019, ensuring greater governance and accountability.
CA Manish Mishra