Net worth
Also called: Net owned fund · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
Net worth is what a business truly owns after it pays off everything it owes. The formula is: Net Worth = Assets − Liabilities. It is the owners' own money in the business, and it absorbs losses first. For example, if a bank's loan goes bad, its assets shrink while its deposits (liabilities) stay the same, so the loss comes straight out of net worth. Net owned fund (NOF) is a stricter version that regulators use. It starts with owned funds (paid-up capital plus free reserves). It then subtracts accumulated losses, intangible assets such as goodwill, and large investments in or loans to group companies. Regulators set a minimum NOF or net worth as an entry bar, so that only firms with real money of their own get a licence.
Example
An Asset Reconstruction Company must have a minimum net owned fund of Rs 300 crore (raised in 2022). An RBI Account Aggregator needs a NOF of at least ₹2 crore. Under the DPDP framework, a Consent Manager needs a minimum net worth of ₹2 crore to register (from 13 November 2026).
Don't confuse with
- Total assets: total assets include everything bought with borrowed money such as deposits. Net worth counts only the owners' share, after all liabilities are subtracted.
- Net NPA: Net NPA is bad loans minus provisions (money set aside for expected losses). It measures loan quality, not the owners' funds.