Reserve Bank of India Act, 1934 | Chapter IIIB
Section 45-IA RBI Act, 1934: NBFC Registration and Net Owned Fund
Section 45-IA regulates the entry and continued operation of non-banking financial companies (NBFCs) in India. It requires a Reserve Bank of India (RBI) certificate of registration and the applicable minimum net owned fund (NOF), subject to statutory and regulatory exemptions.
1. Mandatory RBI registration under Section 45-IA(1)
The opening words of sub-section (1) are a non-obstante clause: the statutory restriction prevails despite inconsistent provisions elsewhere in Chapter IIIB or other laws. An NBFC may not commence or carry on the business of a non-banking financial institution unless it (a) holds the required certificate of registration and (b) meets the minimum net owned fund prescribed under the Act and applicable RBI notifications.
Important legal update: the older text on this page refers to a maximum notified NOF of Rs. 2 crore (200 lakh). The Finance (No. 2) Act, 2019 amended Section 45-IA(1)(b) to permit the RBI to specify a NOF amount up to Rs. 100 crore. This statutory ceiling is distinct from the category-wise minimum currently notified or directed by RBI.
2. Current RBI minimum NOF requirements
RBI's scale-based regulatory framework raised the minimum NOF for new NBFC-Investment and Credit Companies (NBFC-ICC), NBFC-Microfinance Institutions (NBFC-MFI) and NBFC-Factors generally to Rs. 10 crore. Eligible existing companies in these categories have a phased transition: generally Rs. 5 crore for NBFC-ICC and Rs. 7 crore for NBFC-MFI and NBFC-Factors by 31 March 2025, and Rs. 10 crore by 31 March 2027 (subject to the specific category and applicable exceptions). NBFC-P2P, NBFC-Account Aggregators and NBFCs with neither public funds nor customer interface generally retain a Rs. 2 crore requirement. Other categories, including housing finance, infrastructure and mortgage guarantee companies, may have different higher requirements.
3. Application and assessment - sub-sections (2) to (5)
Under sub-section (2), the company applies to the RBI in the prescribed form. The proviso concerning NBFCs existing when the 1997 amendment commenced is a transitional historical provision. Sub-section (3) similarly provided a limited transitional period to certain existing companies with insufficient NOF, capped at six years in aggregate; it is not a fresh general exemption for newly formed NBFCs.
Under sub-section (4), RBI may inspect the books and assess whether depositors can be paid when due, business conduct protects depositors, management is fit and consistent with public interest, capital structure and earning prospects are adequate, and registration supports financial-sector stability and other prescribed safeguards. Sub-section (5) permits RBI to grant registration subject to conditions.
4. Cancellation, opportunity of hearing and appeal
Sub-section (6) allows cancellation if an NBFC stops its regulated business, breaches certificate conditions or qualifying safeguards, fails to follow RBI directions, fails to maintain or produce records, or remains under a deposit-acceptance prohibition for at least three months. The provision contains an opportunity to remedy certain defaults, unless delay would be prejudicial, and requires a reasonable opportunity of being heard before cancellation.
Under sub-section (7), an aggrieved company may appeal rejection or cancellation to the Central Government within 30 days of communication. An opportunity of hearing is also required before an appeal is rejected.
5. Meaning and calculation of net owned fund
The Explanation to Section 45-IA starts with paid-up equity capital and free reserves in the latest balance sheet and deducts accumulated losses, deferred revenue expenditure and intangible assets. It further adjusts for investments in subsidiaries, same-group companies and other NBFCs, as well as specified group loans, advances, debentures, bonds and deposits, to the extent that the aggregate exceeds 10% of the initial amount. Group and subsidiary relationships must be identified under applicable company-law definitions and RBI rules.
6. Section 45-IA: Detailed statutory provisions and original coverage
The following clause-by-clause material retains the substance of the original page. Read the older monetary ceiling and historical references together with the legislative and regulatory updates explained above.
(1) Notwithstanding anything contained in this Chapter or in any other law for the time being in force, no non-banking financial company shall commence or carry on the business of a non-banking financial institution without-
(a) obtaining a certificate of registration issued under this Chapter; and
(b) having the net owned fund of twenty-five lakh rupees or such other amount, not exceeding two hundred lakh rupees, as the Bank may, by notification in the Official Gazette, specify.
(2) Every non-banking financial company shall make an application for registration to the Bank in such form as the Bank may specify :
Provided that a non-banking financial company in existence on the commencement of the Reserve Bank of India (Amendment) Act, 1997 (23 of 1997) shall make an application for registration to the bank before the expiry of six months from such commencement and notwithstanding anything contained in sub-section (1) may continue to carry on the business of a non-banking financial institution until a certificate of registration is issued to it or rejection of application for registration is communicated to it.
(3) Notwithstanding anything contained in sub-section (1), a non-banking financial company in existence on the commencement of the Reserve Bank of India (Amendment) Act, 1997 and having a net owned fund of less than twenty-five lakh rupees may, for the purpose of enabling such company to fulfil the requirement of the net owned fund, continue to carry on the business of a non-banking financial institution-
(i) for a period of three years from such commencement; or
(ii) for such further period as the bank may, after recording the reasons in writing for so doing, extend, subject to the condition that such company shall, within three months of fulfilling the requirement of the net owned fund, inform the Bank about such fulfillment :
Provided that the period allowed to continue business under this sub-section shall in no case exceed six years in the aggregate.
(4) The Bank may, for the purpose of considering the application for registration, require to be satisfied by an inspection of the books of the non-banking financial company or otherwise that the following conditions are fulfilled :-
(a) that the non-banking financial company is or shall be in a position to pay its present or future depositors in full as and when their claims accrue;
(b) that the affairs of the non-banking financial company are not being or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors ;
(c) that the general character of the management or the proposed management of the non-banking financial company shall not be prejudicial to the public interest or the interest of its depositors ;
(d) that the non-banking financial company has adequate capital structure and earning prospects ;
(e) that the public interest shall be served by the grant of certificate of registration to the non-banking financial company to commence or to carry on the business in India ;
(f) that the grant of certificate of registration shall not be prejudicial to the operation and consolidation of the financial sector consistent with monetary stability, economic growth and considering such other relevant factors which the Bank may, by notification in the Official Gazette, specify ; and
(g) any other condition, fulfillment of which in the opinion of the Bank, shall be necessary to ensure that the commencement of or carrying on of the business in India by a non-banking financial company shall not be prejudicial to the public interest or in the interest of the depositors.
(5) The Bank may, after being satisfied that the conditions specified in sub-section (4) are fulfilled, grant a certificate of registration subject to such conditions which it may consider fit to impose.
(6) The Bank may cancel a certificate of registration granted to a non-banking financial company under this section if such company-
(i) ceases to carry on the business of a non-banking financial institution in India ; or
(ii) has failed to comply with any condition subject to which the certificate of registration had been issued to it; or
(iii) at any time fails to fulfill any of the conditions referred to in clauses (a) to (g) of sub-section (4); or
(iv) fails-
(a) to comply with any direction issued by the Bank under the provisions of this Chapter ; or
(b) to maintain accounts in accordance with the requirements of any law or any direction or order issued by the Bank under the provisions of this Chapter; or
(c) to submit or offer for inspection its books of account and other relevant documents when so demanded by an inspecting authority of the Bank; or
(v) has been prohibited from accepting deposit by an order made by the Bank under the provisions of this Chapter and such order has been in force for a period of not less than three months :
Provided that before cancelling a certificate of registration on the ground that the non-banking financial company has failed to comply with the provisions of clause (ii) or has failed to fulfill any of the conditions referred to in clause (iii) the Bank, unless it is of the opinion that the delay in cancelling the certificate of registration shall be prejudicial to public interest or the interest of the depositors or the non-banking financial company, shall give an opportunity to such company on such terms as the Bank may specify for taking necessary steps to comply with such provision or fulfillment of such condition :
Provided further that before making any order of cancellation of certificate of registration, such company shall be given a reasonable opportunity of being heard.
(7) A company aggrieved by the order of rejection of application for registration or cancellation of certificate of registration may prefer an appeal, within a period of thirty days from the date on which such order of rejection or cancellation is communicated to it, to the Central Government and the decision of the Central Government where an appeal has been preferred to it, or of the Bank where no appeal has been preferred, shall be final :
Provided that before making any order of rejection of appeal, such company shall be given a reasonable opportunity of being heard.
Explanation.-For the purposes of this section,-
(I) "net owned fund" means-
(a) the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting therefrom-
(i) accumulated balance of loss;
(ii) deferred revenue expenditure; and
(iii) other intangible assets ; and
(b) further reduced by the amounts representing-
(1) investments of such company in shares of-
(i) its subsidiaries;
(ii) companies in the same group ;
(iii) all other non-banking financial companies ; and
(2) the book value of debentures, bonds, outstanding loans and advances
(including hire-purchase and lease finance) made to, and deposits with,-
(i) subsidiaries of such company ; and
(ii) companies in the same group,
to the extent such amount exceeds ten per cent of (a) above.
(II) "subsidiaries" and "companies in the same group" shall have the same meanings assigned to them in the Companies Act, 1956 (1 of 1956)
7. Official legislation and RBI regulatory sources
For authoritative interpretation and the latest requirements, consult the Reserve Bank of India Act, 1934 (Government of India PDF), the RBI scale-based regulation framework, and the RBI official website. The statute and subsequent RBI notifications should be read together; regulations and transitional deadlines can change.
Frequently asked questions
Is RBI registration compulsory for every finance company?
Registration is generally required for an NBFC carrying on the regulated business, subject to the applicable legal exclusions and exemptions. Mere incorporation as a company does not amount to RBI registration.
Is Rs. 2 crore sufficient NOF for every NBFC?
No. Minimum NOF varies by NBFC category and applicable RBI directions, and many categories have a higher requirement.
Can RBI cancel an NBFC's registration?
Yes, on the grounds set out in Section 45-IA(6), subject to the prescribed safeguards and right of appeal.