Clarification on Networth Computation

1

Fixed Assets

This shall include: -

• Net book value of all the Tangible Assets as per Balance Sheet / Trial Balance.
• Advances given for acquisition of fixed assets
• Capital work in progress.

Assets under lease or taken on rent need not be deducted from the Net worth

2

Pledged Securities

Total value of own securities ( as recorded in the books of accounts) pledged with the Banks / NBFC or any Financial Institution for raising funds.

Own shares pledged to clearing corporations/clearing members are not required to be deducted from Networth.

Illustration:

3

Non-allowable securities

This shall include: -

• Value of all unlisted securities as recorded in the balance sheet including available under ‘non-current investments’.
• Investments done in unlisted securities of associate / subsidiary / group companies.

Liquid & Debt Mutual Funds, G-Sec, non-government debt securities, corporate bonds shall not form part of Non-allowable securities and the same shall be covered under 30% of marketable securities (See point no..9).

4

Doubtful Debts and advances

This shall include: -

• Debts or advances overdue for more than three months.

For instance: Debit Balance in the trading account of client ‘A’ as on Dec 01, 2020 – Rs. 1000. If the amount is not received till March 31, 2021, then the outstanding amount as on March 31, 2021 is to be reduced from the Networth (since the amount is outstanding for more than three months)

• Wherever, a provision is created for Doubtful / Bad Debts, net amount i.e. after reducing provision made for Doubtful / Bad Debts shall be considered.
• Any amount given in the nature of Loans, advances, Inter corporate deposits given to associates including subsidiaries / group companies of the member.
• Loans given to Directors/Partners or any related party of the Member or its Directors or its partners or to the entities in which such director /partners or their relatives have control, irrespective of time period, shall also be deducted.
• ‘Associate’ shall have the meaning as per the SEBI (Intermediaries) Regulations, 2008

“associate” means and includes any person controlled, directly or indirectly, by the intermediary, any person who controls, directly or indirectly, the intermediary, or any entity or person under common control with such intermediary, or where such intermediary is a natural person any relative as defined under the Companies Act, 1956 (1 of 1956) of such intermediary or where such intermediary is a body corporate its group companies or companies under the same management;

The expression 'control' shall have the same meaning as defined under clause (c) of Regulation 2 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

The term related party shall have the same meaning as given in clause 76 & 77 of Section 2 of Companies Act 2013 to be read with Rule 4 of the Companies (Specification and definition details) Rules, 2014.

5

Prepaid Expenses, losses

This shall include:

• Prepaid expenses and losses as per Balance Sheet / Trial Balance.
• Preliminary / Deferred revenue / Pre-operative expenses / Deferred Tax Asset/ MAT credit not written-off as per Balance Sheet
• GST credit not required to be deducted

6

Intangible Assets

Net book value of intangible assets such as goodwill, patents, copyrights, trademarks, computer software, investment in artwork and other antique items etc. as per Balance Sheet / Trial Balance.

7

30% of Marketable Securities

This shall include:

• Listed securities held either as investment or Stock-in-Trade / Inventories shall be referred as marketable securities.
• Value of these Securities to be considered for calculating this element shall be the value as recorded in the books of accounts, on the date of the computation of the Networth.

It is observed that Clearing Corporations applies different hair cut for less riskier securities (Liquid and Debt Mutual Funds, G-Sec, non-government debt securities, corporate bonds, T-bills & Sovereign Gold bonds) for the purpose of collecting collaterals from members. NCL vide its circular no. NCL/CMPT/48346 dated May 21, 2021 stipulated different hair cut on different type of approved securities. Based on this, instead of deducting 30% value, such approved securities (Liquid and Debt Mutual Funds, G-Sec, non-government debt securities, corporate bonds, T-bills & Sovereign Gold bonds) can be aligned with the percentage hair cut applied by the clearing corporation on such collaterals.

In case Liquid and Debt Mutual Funds, G-secs, T-bills, Sovereign Gold bonds, non-government debt securities, corporate bonds does not form part of aforementioned Exchange circular, Members are advised to refer SEBI circular dated Feb 21, 2019 for the haircut.

Illustration:

In this process, for those securities / other type of mutual funds wherever hair cut applied by Clearing Corporation is higher than 30%, maximum ceiling percentage of 30% given as per Dr L C Gupta formula shall be applicable.

Further, whenever member is dealing with more than one Exchanges / Clearing Corporations then for the purpose of haircut, maximum applicable haircut / VAR by any of the Clearing Corporations with shall be taken for valuation of such securities (Liquid and Debt Mutual Funds, G-Sec, non-government debt securities, corporate bonds, T-bills & Sovereign Gold bonds).