What is Nidhi Company?

Nidhi Company is incorporated with an intention to cultivate savings among members and to provide finance among members only. It is allowed to take loans from members and can lend to only members. Hence, it can not accept deposits or lend from/to non-members. Nidhi company, which is a type of Non-Banking Financial Company (NBFC) that is allowed to take deposits from its members and lend to its members. Nidhi company is regulated under Section 406 of the Companies Act, 2013. Nidhi company contributes to society in several ways and is not limited to helping its members only. It promotes and cultivates the habit of saving among its members and provides them with financial assistance in terms of loans. Nidhi company acts as a very popular lending mechanism for secured loans, and the operations of Nidhi company are very similar to that of a co- operative society. The prime rationale behind establishing a Nidhi company is to encourage its members to save so that they can smoothly satisfy their financial requirements arising from time to time. The Minimum capital requirement for Nidhi company registration is Rs. 5 lacs, and seven members are required for registration. On issuance of the certificate of registration by the Ministry of Corporate Affairs, you can use initial capital to give loans to members. Further, you can take deposits from members, which will be equal to 20 times the capital invested in Nidhi company. Nidhi company registration is completely an online process, and you can achieve such registration in 15 days; the cost of incorporation will approximately arrive at Rs. 15,000 - 20,000. The approval from the Reserve bank of India (RBI) has been exempted for Nidhi companies. For the ease of doing business in India, a Nidhi company can start its business just after obtaining approval from the Ministry of Corporate Affairs. For the first three years of operations, a Nidhi company will continue to operate within one district, and after three years, it can work within the State. In case you are willing to operate in more than one district, then you will need to register another Nidhi company.

Deposits Rules:-

A Nidhi Company can accept all three kinds of deposits such as Savings Deposits, Recurring Deposits (RD) and Fixed Deposits (FD);

• A Nidhi company can accept deposits from its members up to twenty times of its capital;
• The deposits shall be accepted only through its members;
• No deposits accepted by a Nidhi company shall be from other corporate or from any individual other than its members;
• The Nidhi Company can distribute dividends to its members only after it has paid all its matured deposits along with the interests;
• The maximum rate of interest to be provided on Savings Deposit shall not exceed 6% and for FD and RD, the maximum rate of interest shall not exceed 12.5%;
• The above rates of interest have been prescribed by RBI and every Nidhi Company shall adhere to the same.
• Within one year of its operations, Unencumbered deposits should not exceed 10 % of outstanding deposits of the Nidhi Company

Loans Rules:-

Nidhi Company can provide only the secured loans to its members;

• The security may include Gold, silver, other precious jewelry, immovable assets, FD Receipts, National Saving Certificates (NSCs) , Life Insurance policies or any other kind of government-approved security or bonds;
• The interest rate charged on the loans provided by Nidhi Companies shall not exceed 20%;
• Otherwise, the interest rate on loans shall not exceed seven and a half percent above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method
• The maximum amount of loan to be provided by Nidhi Companies having deposits up to 2 crores shall not exceed INR 2 lac per member;
• Between Deposits of 2 crores to 20 crores, the amount of loan shall not exceed 7.5 lacs;
• Between Deposits of 20 crores to 50 crores, the amount of loan shall not exceed INR 12 lacs;
• The loan amount of up to INR 15 lacs shall be provided only if the total deposits exceeds INR 50 crores.
• The same rate of interest shall be charged among the same class of borrowers;
• The rate of interest charged by Nidhi Company shall be displayed predominantly on the Notice Board at the registered office and all the branches.