In the context of the Indian Financial Sector a mutual benefit society is termed as Nidhi Company by the Central Government of India which is derived from depth of the word “treasure”. The main object is to cultivate the habit of thrift and saving among its members.
The dealings of Nidhi Company are restricted to its members only i.e. borrowing from the members and lending to back to them only and hence regarded as the mutual benefit societies. Nidhi Companies provides loans at less rates comparatively than Banks.
Nidhi Company Registration
- Nidhi Companies are incorporated as Public Limited Company with at least 3 Directors, 7 Members and a minimum capital of Rs.10 Lakh;
- Cannot issue preference shares during its life;
- The Company should have use “Nidhi Limited” as its suffix forming part of its name;
- The Company should have more than net owned funds of Rs.10 lakh or more;
- Company should have unencumbered deposits of not less than 10% of the outstanding deposits;
- The ratio of Net owned Funds to deposits should not exceed the ratio 1:20.
- Carrying on the business of Chit Fund, Hire Purchase, Leasing , Insurance or Acquisition of Securities issued by anybody corporate;
- Opening current accounts with its company members;
- Enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over Nidhi.
- Carry on any business other than the business of borrowing or lending in its own name;
- Accept Deposits from or lend to any person, other than its members;
- Pledge any of the assets lodged by its members as security;
- Take Deposits from or lend money to anybody corporate;
- Enter into any Partnership Arrangement in its borrowing or lending activities;
- Issue or cause to be issued any advertisement in any form for soliciting deposit;
- Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans
What all are allowed to Nidhi Companies
Nidhi Companies are not allowed to provide or give unsecured loans to its Members and is not allowed to do Micro Finance Business and hence is only allowed to lend secured loans to its Members only.
Nidhi Companies are allowed to advance loan only towards the following securities:-
- Gold Loan: Gold Loan is one of the main streams of business and is very popular for Nidhi Companies subject to certain rules and regulation as applicable under the Nidhi Rules, 2014. Here are the following conditions:
- The maximum finance against the gold shall be up to 80%.
- The maximum repayment period shall be 12 months.
- The rate of interest shall not exceed 7.5% plus the maximum rate of interest on gold loan.
- A maximum amount of loan of Rs. 2, 00,000 can be advanced by Nidhi Company if deposits do not exceed Rs.2 Crore.
- Loan against immovable Property: Though it is not very famous for Nidhi Company and has certain conditions. However, an option is provided through which Nidhi Company can pay their loans to those people who does not have the gold with them:-
- The maximum loan can be rs.2, 00,000 if deposits do not exceed Rs.2 Crore.
- The repayment period of loan shall not exceed 60 months.
- The maximum finance can be up to 50%.
- Further, this type of loan cannot exceed 50% of the total loan amount.
- Loan against FDR and Deposits: Nidhi Company can advance loan against FDR and also the against the deposits kept by it. There are also certain restrictions which are as follows:-
- The repayment period under this loan shall not exceed the period of Fixed Deposit.
- The maximum finance under this case shall be up to the value of Fixed Deposit under Nidhi Company.
- Loan against NSC/Government Bonds: Though it s not as much as popular like others and is rarely used.
- Unsecured loan by Nidhi Company: This type of loan is completely prohibited by Nidhi Company.
- Vehicle Finance by Nidhi Company: This type of loan is also not allowed under Nidhi Company. Vehicle finance is allowed to Non-Banking Financial Companies (NBFC) in India.
Limited RBI Regulations
Though Nidhi Company falls under the category of NBFC as it is a finance Company but does not require approval of RBI and is exempted from the main provisions as applicable to other NBFC’s in India and further involves less intervention of RBI.
Exemptions and privileges under the Companies Act, 2013:
Accordingly, certain provisions of the Companies Act, 2013 shall not apply to the Nidhi Company and Nidhi would be exempted from certain provisions of the same.
Service of documents to Nidhi members may be done by sending it to him by post or by registered post or by speed post or by courier or by delivering the same at his office or by such electronic or other mode as may be prescribed.
A Nidhi Company is free to make a private placement to any number of persons and it shall not be deemed to be an offer to the public.
Acceptance of Deposits
- A Nidhi shall not accept deposits exceeding 20 times of its Net Owned Assets as per last audited financial statements.
- The fixed deposits shall be accepted for a minimum period of 6 months and a maximum period of 60 months.
- Recurring deposits shall be accepted for a minimum period of 12 months and a maximum period of 60 months.
- In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.
- The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed Rs.1,00,000/- and the interest shall not exceed 2% above the rate of interest payable to savings bank account by nationalized banks.
- Interest for fixed and recurring deposits shall be at a rate not exceeding the maximum rate of interest prescribed by RBI which the NBFC can pay on their public deposits.
Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a scheduled commercial bank or post office deposits in its own name an amount which shall not be less than 10% of the deposits outstanding at the close of the business on the last working day of the second preceding month.
In case of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director for the purpose of repayment to depositors, subject to such conditions and time limit which may be specified by the Regional Director to ensure restoration of the prescribed limit of 10%
A Nidhi shall provide loans only to its members. The loans given to a member shall be subject to the following limits:
- 2,00,000/- where the total amount of deposits from members is less than Rs.2 crores;
- 7,50,000/- where the total amount of deposits from its members more than Rs.2 crores but less than Rs.20 crores;
- 12,00,000/- where the total amount of deposits from its members is more than Rs.25 crores but less than Rs.50 crores;
- 15,00,000/- where the total amount of deposits from its members is more than Rs.50 crores.
NOTE: A Nidhi shall give loans to its members only against the following securities, namely:—
- Loans to the members shall be given against the securities of gold, silver and jewellery and immovable property.
- Repayment period of such loan shall not exceed one year in case of gold, silver and jewellery.
- In case of immovable property the loan shall not exceed 50% of the value of the property offered as security and the period of repayment of such loan shall not exceed 7 years.
- Loan may be given against the fixed deposit receipts, National Savings Certificates and other Government securities and insurance policies.
The rate of interest to be charged on any loan shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method.
For the above purposes, the amount of deposits shall be calculated on the basis of the last audited annual financial statements.
Returns to be filed by Nidhi Company.
- Within 90 days from the closure of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH – 1 along with such fee as prescribed with the Registrar duly certified by a Company Secretary in practice or a Chartered Accountant in practice or a Cost Accountant in Practice.
- If the company is not complying with the above it shall within90 days from the close of the first financial year, apply to the Regional Director in Form NDH -2 along with fee for extension of time and;
- Every Nidhi Company is required to File Form NDH-3 with ROC within 30 days from the close of each half year. i.e. 30th April for the half year ending on 31st March and 30th Oct for the half year ending on 30th Form NDH-3 contains the details of Number of Members admitted during the half year, number of members ceased to be members and total number of members as on the date, Loan granted by Nidhi company along against the particular security and Deposits accepted by the Nidhi company form its members. Form NDH-3 should be certified by Company Secretary or CA, CMA in Practice.
- As per Rule 3A of Nidhi (Amendments) Rules, 2019 the Nidhi Company within period of a period of one year from the date of its incorporation or within a period of six months from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later is required to file e-form NDH-4