Capital is one of the most important eligibility requirements for obtaining Non-Banking Financial Company registration in India. A company cannot secure an NBFC Certificate of Registration merely by incorporating a private or public limited company and including lending activities in its Memorandum of Association. It must also maintain the minimum Net Owned Fund prescribed by the Reserve Bank of India for the relevant category of NBFC. For a new general NBFC applicant, the current minimum Net Owned Fund requirement is ₹10 crore.

The amount must be available from the date of application and maintained after applying all deductions prescribed for calculating Net Owned Fund. Existing NBFCs covered by the transitional framework have until March 31, 2027 to increase their Net Owned Fund to ₹10 crore. The capital requirement differs for specialised NBFCs such as Housing Finance Companies, Infrastructure Finance Companies, Account Aggregators and Peer-to-Peer Lending Platforms. Promoters must therefore identify the correct regulatory category before introducing capital or submitting an application.

In this article, CA Manish Mishra talks about Minimum Capital Required for NBFC Registration in India.

What Is an NBFC?

A Non-Banking Financial Company is a company incorporated under the Companies Act that carries on financial activities such as providing loans and advances, acquiring shares or securities, asset financing, leasing, hire purchase or another financial activity as its principal business. Under Section 45-IA of the Reserve Bank of India Act, 1934, a company that is required to be registered as an NBFC cannot commence or carry on non-banking financial business without obtaining a Certificate of Registration and maintaining the applicable Net Owned Fund.

The RBI generally applies the Principal Business Criteria, commonly called the 50-50 test, to determine whether a company is predominantly engaged in financial activity. The company is ordinarily treated as an NBFC when financial assets constitute more than 50% of its total assets and income from financial assets constitutes more than 50% of its gross income.

What Is the Minimum Capital for NBFC Registration?

General NBFC Registration

A new company applying for ordinary NBFC registration must maintain a minimum Net Owned Fund of ₹10 crore from the date of application. The requirement commonly applies to an Investment and Credit Company carrying on general lending, asset finance, investment or credit activities, unless the proposed business falls under a specialised NBFC category for which a different capital threshold has been prescribed.

The ₹10 crore requirement applies to Net Owned Fund and not merely to authorised share capital, paid-up capital or the amount deposited temporarily in the company’s bank account.

Capital Requirement for New Applicants

Every new applicant seeking NBFC registration is required to maintain the prescribed Net Owned Fund from the beginning. A new company cannot apply with a lower amount and promise to introduce the balance after obtaining the RBI approval. The RBI states that NBFCs seeking registration must have Net Owned Fund of ₹10 crore ab initio, meaning from the date on which they seek registration.

Capital Requirement for Existing NBFCs

Existing NBFCs that were registered under the earlier lower capital requirement have been given a transitional period to increase their Net Owned Fund. Such NBFCs must reach the ₹10 crore level by March 31, 2027, where the revised general Net Owned Fund requirement applies to them. Existing companies should therefore assess their capital position, accumulated losses, intangible assets and group exposures well before the deadline.

Category-Wise Minimum Capital Required for NBFCs

Different types of NBFCs carry different levels of financial and systemic risk. The RBI has therefore prescribed separate minimum Net Owned Fund requirements for certain specialised categories.

NBFC category	Minimum Net Owned Fund
General NBFC or NBFC-ICC	₹10 crore
NBFC-Micro Finance Institution for a new application	₹10 crore
NBFC-Factor for a new application	₹10 crore
Registered Core Investment Company, where applicable	₹10 crore, along with CIC-specific capital norms
Housing Finance Company	₹20 crore
NBFC-Infrastructure Finance Company	₹300 crore
Infrastructure Debt Fund-NBFC	₹300 crore
Mortgage Guarantee Company	₹100 crore
NBFC-Account Aggregator	₹2 crore
NBFC-Peer-to-Peer Lending Platform	₹2 crore
Standalone Primary Dealer carrying on core activities	₹150 crore
Standalone Primary Dealer carrying on core and non-core activities	₹250 crore

The RBI’s general registration FAQ identifies ₹10 crore as the ordinary NBFC entry requirement and specifically lists the higher or lower thresholds applicable to IFCs, IDF-NBFCs, Mortgage Guarantee Companies, HFCs, Account Aggregators, P2P Platforms and Standalone Primary Dealers.

Capital Required for an Investment and Credit Company

An Investment and Credit Company is the general NBFC category used for companies whose principal business consists of asset finance, providing loans or advances, or acquiring securities, and which do not fall within another specialised category. A new NBFC-ICC applicant must ordinarily maintain Net Owned Fund of at least ₹10 crore. The applicant may propose to provide personal loans, business loans, vehicle finance, equipment finance or other permissible credit products, subject to its business plan and RBI approval.

The promoters should maintain additional financial resources over and above the regulatory minimum. The ₹10 crore amount represents the entry-level Net Owned Fund and should not be treated as the entire budget required to establish and operate the NBFC. The company will separately need funds for technology, employees, compliance systems, legal documentation, office infrastructure, credit assessment, collections, audits and business operations.

Capital Required for an NBFC-MFI

An NBFC-Micro Finance Institution is a non-deposit-taking NBFC that deploys at least 75% of its total assets towards qualifying microfinance loans. A microfinance loan is generally a collateral-free loan provided to a household whose annual household income does not exceed the limit prescribed by the RBI.

For a new NBFC-MFI application, the current general entry-level Net Owned Fund requirement of ₹10 crore must ordinarily be satisfied. Existing NBFC-MFIs that were covered by the earlier lower thresholds are subject to the RBI’s phased capital glide path leading to ₹10 crore. Capital planning is particularly important for an MFI because the company must maintain sufficient resources not only for registration but also for loan-book growth, expected credit losses, operational expenses and capital adequacy.

Capital Required for an NBFC-Factor

An NBFC-Factor principally carries on factoring business, which generally involves financing or acquiring receivables arising from the sale of goods or provision of services. As NBFC-Factor is not listed among the specialised categories with a separate lower entry threshold in the current RBI registration FAQ, a new applicant should ordinarily plan for the general minimum Net Owned Fund of ₹10 crore.

The company must also satisfy the asset and income conditions prescribed for factoring business. Therefore, maintaining ₹10 crore does not by itself qualify the company as an NBFC-Factor.

Capital Required for a Housing Finance Company

A company proposing to conduct housing finance as its principal business must apply under the Housing Finance Company category. The minimum Net Owned Fund required for an HFC is ₹20 crore. The company must also satisfy the prescribed asset-deployment conditions relating to housing finance and housing finance provided to individuals.

An HFC applicant must therefore plan a larger capital base than an ordinary lending NBFC. The applicant should also account for the long tenure of housing loans, liquidity requirements, asset-liability management and concentration risks associated with housing finance.

Capital Required for an Infrastructure Finance Company

An Infrastructure Finance Company is an NBFC that deploys at least 75% of its total assets towards infrastructure lending. The minimum Net Owned Fund required for an NBFC-IFC is ₹300 crore. This higher threshold reflects the large ticket sizes, extended loan tenures and concentration risks involved in infrastructure financing. In addition to the ₹300 crore requirement, an IFC is subject to category-specific conditions concerning its infrastructure asset composition, credit rating and capital adequacy.

Capital Required for an Infrastructure Debt Fund-NBFC

An Infrastructure Debt Fund-NBFC is permitted to undertake specified infrastructure debt financing and refinancing activities. The minimum Net Owned Fund required for an IDF-NBFC is ₹300 crore. The applicant must also comply with the specific conditions governing eligible infrastructure assets, funding arrangements, risk exposure and capital adequacy. Capital of ₹300 crore alone does not automatically make a company eligible for IDF-NBFC registration.

Capital Required for a Mortgage Guarantee Company

A Mortgage Guarantee Company provides guarantees in relation to eligible housing loans and mortgage transactions. The minimum Net Owned Fund required for a Mortgage Guarantee Company is ₹100 crore. The company must maintain this amount at the commencement of business and comply with the separate prudential, reserve and capital-adequacy requirements applicable to mortgage guarantee activities.

Capital Required for an NBFC-Account Aggregator

An NBFC-Account Aggregator provides consent-based collection, organisation and sharing of a customer’s financial information. The minimum Net Owned Fund required for an NBFC-AA is ₹2 crore. An Account Aggregator does not function as a conventional lender. It must comply with a specialised RBI framework covering customer consent, financial information, data security, governance and technology.

Capital Required for an NBFC-P2P Platform

An NBFC-Peer-to-Peer Lending Platform operates an online platform that connects eligible lenders and borrowers. The minimum Net Owned Fund required for an NBFC-P2P is ₹2 crore. The platform cannot use the ₹2 crore as a lending fund in the same manner as a balance-sheet lender. An NBFC-P2P operates as an intermediary and is subject to separate restrictions relating to participant exposure, fund flows, escrow accounts and platform operations.

Capital Required for a Standalone Primary Dealer

A Standalone Primary Dealer dealing in government securities must satisfy a substantially higher minimum capital requirement. An SPD undertaking only core activities must maintain Net Owned Fund of ₹150 crore. An SPD proposing to undertake both core and permitted non-core activities must maintain Net Owned Fund of ₹250 crore.

What Is Net Owned Fund?

Net Owned Fund is the regulatory measure of the company’s own financial strength for NBFC registration. It is not the same as the company’s authorised capital, total assets, net worth under ordinary accounting principles or cash balance. The legal concept is derived from Section 45-IA of the RBI Act. Broadly, it begins with the company’s qualifying owned funds and then requires deductions for losses, intangible assets and specified investments or exposures.

Components Generally Included in Owned Fund

• Paid-Up Equity Capital: Paid-up equity capital represents the amount actually paid by shareholders against the equity shares issued by the company. Authorised share capital cannot be counted merely because it appears in the Memorandum of Association. Shares must be issued, subscribed and paid for before the amount can form part of the capital calculation.

• Free Reserves: Qualifying free reserves created from genuine profits may form part of Owned Fund. Reserves created only through revaluation of assets are not treated in the same manner as realised free reserves. The eligibility of every reserve should be confirmed by the company’s statutory auditor.

• Share Premium and Eligible Capital Reserves: The balance in the share premium account and eligible capital reserves representing realised gains may be considered in the regulatory calculation, subject to the applicable directions and auditor certification. Revaluation reserves and unrealised gains should not be assumed to qualify automatically.

Deductions from Owned Fund

Accumulated Losses

Accumulated business losses reduce the company’s actual financial strength and are therefore deducted while determining Owned Fund. A company may have paid-up capital of ₹10 crore but still fail the minimum requirement where it has accumulated losses.

Intangible Assets

The book value of intangible assets must generally be deducted. Such assets may include goodwill, trademarks, preliminary expenditure, deferred revenue expenditure and other intangible balances that do not represent readily available financial support for the NBFC’s operations.

Investments in Group Companies and Other NBFCs

Specified investments in subsidiaries, companies in the same group and other NBFCs may be deducted while calculating Net Owned Fund. The purpose of the deduction is to prevent the same capital from being counted repeatedly across related financial entities.

Loans and Advances to Group Entities

Specified loans, advances, deposits and other exposures involving subsidiaries and group companies may also reduce the Net Owned Fund where they exceed the limits permitted under the applicable calculation. The final calculation should be prepared and certified by a professional familiar with Section 45-IA and the current RBI directions.

Simplified Net Owned Fund Formula

A simplified representation of the calculation is:

Owned Fund

Paid-up equity capital

• Qualifying free reserves

• Other eligible capital components

  − Accumulated losses

  − Deferred revenue expenditure

  − Intangible assets

Net Owned Fund

Owned Fund: Prescribed investments and exposures involving subsidiaries, group companies and other NBFCs

This formula is only a simplified explanation. The exact treatment of every capital component, reserve, investment and group exposure must be determined under the RBI Act and applicable directions.

Authorised Capital, Paid-Up Capital and Net Owned Fund

• Authorised Share Capital: Authorised share capital is the maximum amount of share capital that the company is permitted to issue under its constitutional documents. A company having authorised capital of ₹10 crore does not necessarily have ₹10 crore available as regulatory capital.

• Paid-Up Share Capital: Paid-up share capital is the amount actually received by the company against shares issued to its shareholders. Although paid-up equity capital is an important component of Owned Fund, it is not the final regulatory figure.

• Net Owned Fund: Net Owned Fund is calculated after making the applicable deductions from qualifying owned capital. For example, a company may have paid-up capital of ₹10 crore but accumulated losses of ₹30 lakh and intangible assets of ₹20 lakh. Its Net Owned Fund may therefore be below ₹10 crore.

Is the Minimum Capital a Government Fee?

The ₹10 crore Net Owned Fund requirement is not an RBI application fee, government charge or non-refundable licence fee. The amount represents the company’s own regulatory capital. It remains part of the company’s financial structure but must continue to satisfy the applicable RBI conditions.

The company may use its financial resources for legitimate operations after receiving registration, but it must ensure that losses, deductions or capital erosion do not reduce its Net Owned Fund below the required level.

Can Borrowed Money Be Used as NBFC Capital?

Promoters should be able to establish that the capital introduced into the NBFC applicant comes from lawful, genuine and traceable sources. A contribution structured through unexplained transfers, circular movement of money or temporary accommodation may raise concerns about the adequacy and genuineness of the company’s capital.

The RBI examines whether the applicant has an adequate capital structure, suitable management and the ability to conduct business in a manner consistent with public interest. Promoters should therefore maintain supporting records such as bank statements, income-tax returns, audited financial statements, sale documents, investment-redemption records and share-subscription documents.

Should the Promoters Introduce Exactly ₹10 Crore?

Introducing exactly ₹10 crore may create practical risk because Net Owned Fund is calculated after deductions. If the company incurs preliminary expenses, operational losses or creates intangible assets before the application is examined, its Net Owned Fund may fall below ₹10 crore.

Promoters commonly need to consider:

• Initial Operating Expenses: The company may incur expenses relating to incorporation, employees, office premises, technology, professional services and regulatory documentation. Such expenses may reduce reserves or create accumulated losses.

• Intangible and Deferred Expenditure: Software development, goodwill, preliminary expenditure and other intangible balances may be excluded from the Net Owned Fund calculation.

• Group Investments: Investments or advances made to subsidiaries or group companies may result in further deductions.

• Time Taken for RBI Examination: An NBFC application may remain under examination while the company continues to incur administrative and professional expenses. For these reasons, the capital structure should contain an appropriate buffer over the minimum requirement.

Documents Required to Prove the Capital Position

• Auditor’s Net Owned Fund Certificate: The company should obtain a certificate from its statutory auditor or practising Chartered Accountant confirming the amount and calculation of Net Owned Fund. The certificate should clearly identify the capital components included and deductions made.

• Audited Financial Statements: An existing company should provide its latest audited Balance Sheet, Profit and Loss Account, schedules and audit report. A newly incorporated company may need to prepare an audited or appropriately certified opening Balance Sheet after completing the capital infusion.

• Bank Statements: Bank statements should show the receipt of share capital and the continued availability and use of the funds.

• Share Allotment Records: The company must maintain Board resolutions, shareholder approvals, share-subscription documents, allotment records and applicable MCA filings relating to the capital infusion.

• Source-of-Funds Evidence: Promoters may need to provide personal or corporate bank statements, income-tax returns, audited accounts, net-worth certificates and other supporting documents proving the source of their contribution.

• Details of Group Exposures: The applicant should disclose investments, loans, advances and deposits involving subsidiaries, associates and other group entities so that the correct deductions can be determined.

Capital Infusion Process for an NBFC Applicant

Step 1: Determine the NBFC Category

The promoters must first identify whether the business will operate as an NBFC-ICC, HFC, IFC, Account Aggregator, P2P Platform or another specialised category. The selected category determines the minimum capital requirement.

Step 2: Fix the Authorised Capital

The authorised share capital should be sufficient to permit the proposed equity issuance. Where the existing authorised capital is insufficient, the company must increase it by following the procedure under the Companies Act.

Step 3: Bring Capital into the Company

The promoters or investors should transfer the subscription amount through proper banking channels. The source of each contribution should be clearly documented.

Step 4: Allot the Shares

The Board should complete the allotment of shares and issue the relevant share certificates. The company must make the applicable filings with the Registrar of Companies within the prescribed period.

Step 5: Prepare the Financial Statements

After capital infusion, the company should prepare an opening or updated Balance Sheet reflecting the issued capital and use of funds.

Step 6: Calculate Net Owned Fund

The statutory auditor or professional adviser should calculate Net Owned Fund after accounting for losses, intangible assets and group exposures.

Step 7: Obtain the Auditor’s Certificate

A formal certificate should be obtained confirming that the company maintains the minimum Net Owned Fund applicable to the proposed NBFC category.

Step 8: Submit the RBI Application

The company must submit its NBFC registration application through the RBI’s PRAVAAH portal along with the prescribed documents.

Difference Between Minimum Net Owned Fund and Capital Adequacy

Minimum Net Owned Fund and capital adequacy are related but separate regulatory concepts.

Minimum Net Owned Fund

Minimum Net Owned Fund is the entry-level and continuing capital threshold that the company must satisfy for registration. For a new general NBFC applicant, this amount is ₹10 crore.

Capital Adequacy Ratio

Capital adequacy measures regulatory capital as a percentage of the NBFC’s risk-weighted assets and adjusted off-balance-sheet exposures. Depending on the NBFC’s category and regulatory layer, it may have to maintain a prescribed Capital to Risk-Weighted Assets Ratio in addition to the minimum Net Owned Fund. Certain NBFC categories and layers are subject to a 15% capital ratio and specified Tier-I capital requirements. A company may therefore satisfy the ₹10 crore Net Owned Fund requirement but still need additional capital as its loan book and risk-weighted assets grow.

Capital Requirement after Obtaining NBFC Registration

The minimum capital requirement is not limited to the date of application. The registered NBFC must continue maintaining the prescribed Net Owned Fund and comply with the capital requirements applicable to its category and regulatory layer.

Its capital position may be affected by:

• Operating Losses: Continued losses reduce reserves and may erode the Net Owned Fund.

• Loan Defaults and Provisions: Credit losses and regulatory provisions reduce profitability and capital.

• Intangible Assets: Capitalised technology costs, goodwill and other intangible assets may be deducted from Owned Fund.

• Group Exposures: Investments and advances involving related entities may reduce Net Owned Fund.

• Rapid Loan-Book Growth: A rapidly expanding loan book may increase the company’s risk-weighted assets and capital-adequacy requirement.

The Board should therefore review capital on an ongoing basis and not merely at the time of registration.

Can an NBFC Accept Public Deposits after Maintaining ₹10 Crore?

Maintaining Net Owned Fund of ₹10 crore does not automatically permit an NBFC to accept public deposits. Only an NBFC holding a specific deposit-accepting Certificate of Registration and meeting the applicable regulatory requirements may accept public deposits.

The ordinary Certificate of Registration granted to a new non-deposit-taking NBFC does not authorise deposit acceptance. The company should not collect fixed deposits or represent that it is authorised to accept public deposits merely because it has satisfied the minimum capital requirement.

Is NBFC Registration Guaranteed after Introducing the Capital?

No. Maintaining the minimum Net Owned Fund is only one of the conditions for NBFC registration.

The RBI may also examine:

• Promoter Suitability: The integrity, financial standing, credit history and regulatory background of the promoters and directors may be reviewed.

• Source of Capital: The applicant must establish that its capital has come from genuine and lawful sources.

• Management Experience: The Board and senior management should demonstrate suitable experience in finance, banking, credit, risk, compliance or technology.

• Business Plan: The proposed products, customer segments, lending model, financial projections and funding structure should be commercially viable.

• Governance and Controls: The applicant should have policies covering credit, KYC, AML, risk management, recovery, customer grievances, outsourcing and information security. Section 45-IA authorises the RBI to consider the applicant’s capital structure, management, earning prospects, depositor interests and public interest before granting registration.

Common Capital-Related Mistakes in NBFC Applications

• Treating Authorised Capital as Net Owned Fund: Authorised capital cannot be treated as available regulatory capital until the shares are actually issued and paid for.

• Introducing Exactly ₹10 Crore: A company that introduces exactly ₹10 crore may fall below the requirement after deducting losses, intangible assets or other ineligible balances.

• Using Unexplained Funds: Capital received through unexplained transfers or unsupported transactions may lead to regulatory queries.

• Ignoring Accumulated Losses: Promoters sometimes acquire an existing company with substantial paid-up capital but fail to consider its accumulated losses. The losses may significantly reduce its Net Owned Fund.

• Capitalising Excessive Preliminary Expenses: Large software, incorporation or preliminary expenditure balances may be treated as intangible or deferred expenses and deducted.

• Making Loans to Group Companies: Loans, deposits or investments involving group entities may reduce the amount recognised as Net Owned Fund.

• Assuming Capital Can Be Withdrawn after Application: The company must maintain its capital position throughout the application process and after obtaining registration.

• Ignoring Capital Adequacy: The entry-level Net Owned Fund may not be sufficient to support an aggressively growing loan portfolio.

Conclusion

The minimum capital required for a new general NBFC registration in India is ordinarily ₹10 crore as Net Owned Fund. This amount must be maintained from the date of application and calculated after deducting accumulated losses, deferred expenditure, intangible assets and specified investments or exposures involving group entities. Different capital requirements apply to specialised NBFCs. Housing Finance Companies require ₹20 crore, Infrastructure Finance Companies and Infrastructure Debt Fund-NBFCs require ₹300 crore, Mortgage Guarantee Companies require ₹100 crore, while Account Aggregators and P2P Platforms require ₹2 crore.

Standalone Primary Dealers are subject to capital requirements of ₹150 crore or ₹250 crore depending on their activities. Promoters should not confuse authorised capital or paid-up capital with Net Owned Fund. They should maintain an appropriate capital buffer, establish a transparent source of funds and obtain a properly prepared auditor’s certificate before filing the application through the RBI’s PRAVAAH portal. Since capital is only one part of the registration assessment, the company must also establish suitable management, a viable business model, appropriate governance and effective regulatory controls.

Frequently Asked Questions

Q1. What is the minimum capital required for a general NBFC?

Ans. A new general NBFC applicant must ordinarily maintain a minimum Net Owned Fund of ₹10 crore from the date of application.

Q2. Is the requirement ₹10 crore paid-up capital or Net Owned Fund?

Ans. The requirement is ₹10 crore Net Owned Fund. Paid-up equity capital is an important component, but the final amount is determined after making prescribed deductions.

Q3. Can a company apply with ₹2 crore capital?

Ans. A new general NBFC applicant cannot ordinarily apply with ₹2 crore. The ₹2 crore threshold applies to specialised categories such as NBFC-Account Aggregators and NBFC-P2P Platforms.

Q4. What is the minimum capital required for an HFC?

Ans. A Housing Finance Company must maintain a minimum Net Owned Fund of ₹20 crore.

Q5. What is the minimum capital required for an NBFC-IFC?

Ans. An Infrastructure Finance Company must maintain a minimum Net Owned Fund of ₹300 crore.

Q6. What is the capital requirement for an Account Aggregator?

Ans. An NBFC-Account Aggregator must maintain a minimum Net Owned Fund of ₹2 crore.

Q7. What is the capital requirement for an NBFC-P2P Platform?

Ans. An NBFC-P2P Platform must maintain a minimum Net Owned Fund of ₹2 crore.

Q8. Can the company use the capital after registration?

Ans. The capital remains part of the company’s financial resources and may be used for legitimate business purposes. However, the company must continue satisfying the applicable Net Owned Fund and capital-adequacy requirements.

Q9. Does ₹10 crore guarantee RBI approval?

Ans. No. The RBI also examines the source of funds, promoters, management, business model, governance and public-interest considerations.

Q10. Can promoter loans be counted as Net Owned Fund?

Ans. Ordinary promoter or director loans are liabilities and are not equivalent to paid-up equity capital. The amount must be properly converted and allotted as qualifying capital before it can be considered, subject to applicable law and regulatory treatment.