A Nidhi Company is a type of Non-Banking Financial Companies (NBFC) and Banking Companies. Their core business is borrowing and lending money between its members. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds, and Mutual Benefit Company.
However, in recognition of the fact that these companies deal with their shareholder-members only. Nidhi means a company which has been incorporated with the object of developing the habit of thrift and reserve funds amongst its members and also receiving deposits and lending to its members only for their mutual benefit.
Regulatory and Governing Bodies
Nidhis companies are incorporated like Public Limited company and recognized under Section 406 of the Companies Act, 2013 (or Section 620A of the Companies Act, 1956) and is regulated by the Ministry of Corporate Affairs (MCA). Nidhi companies are governed by Nidhi Rules, 2014. They have to comply with two sets of norms, one of Public Limited Company as per Companies Act, 2013 and another is for Nidhi rules, 2014.
Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities. Hence, no RBI approval is necessary to register the company, as RBI has specifically exempted this category of NBFC in India to comply with its core provisions such as registration with RBI, etc.
Incorporation of a Nidhi Company
Nidhi company registration is simple and less complex as compared to other types of finance companies like NBFC which require an RBI license to start. A Nidhi Company can be started with an initial capital of Rs. 5 lakh and requires at least seven people to start with (minimum 7 members) and also requires three directors initially.
Nidhi Company must have at least 200 members, within one year of its existence. Additionally, the Net Owned Funds should be Minimum Rs. 10 Lakh or more, and unencumbered term deposits should be not less than 10% of the outstanding deposits. The ratio of Net Owned Funds to deposits of not more than 1:20.
Conditions to Deposit
The conditions that every Nidhi Company should comply with before granting loans are as follows-
- The deposits which are accepted by the Nidhi Company should not surpass 20% of its net owned funds.
- The fixed deposit amount can be accepted for a minimum of six months and a maximum of sixty months while the periodic deposits can be accepted for a minimum of 12 months and a maximum of 60 months.
- The interest rate on deposit should never exceed 2% above the rate presented by the Nationalized Bank.
The loans given by a Nidhi to a member shall be subject to the following limits, namely:-
- Loan amount 2 lakhs – If the deposit is two crores.
- A loan amount of 7.50 lakhs – If the deposit is more than two crores but less than 20 crores.
- A loan amount of 12 Lakhs – If the deposit is more than 20 crores but less than 50 crores.
- Loan amount 15 lakhs – If the deposit is more than 50 crores.
Filing of requisite Annual Forms with ROC by Nidhi Companies:
- Form NDH-1 within 90 from the close of the financial year;
- Form NDH-3 within 30 days from the conclusion of each half-year;
- Form AOC-4 within 30 days of the annual general meeting;
- Form MGT-7 within 60 days of the annual general meeting.
Advantages of Nidhi Company
- Limited RBI Regulatory Compliance: Nidhi companies can be incorporated as a Public Limited Company. But there is no need to require an RBI license to operate.
- Less risky proposition: ANidhi company can provide loans and accept deposits, with its members only.
- Limited capital requirement:As per Nidhi Rules, 2014, the minimum capital requirement to register a Nidhi Company is Rs. 5 Lakh only.
- Simple procedure: All you need are 7 members, and a few basic documents to register a company with the MCA.
- Uninterrupted Operation: Operations remain uninterrupted during the death, insolvency or retirement of any member due to the practice of perpetual succession.
Restrictions on Nidhi Company
No Nidhi shall-
- carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate;
- issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
- open any current account with its members;
- acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or 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 such Nidhi;
- carry on any business other than the business of borrowing or lending in its 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 any body 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 the deployment of funds or for granting loans.