Nidhi Companies are basically Non-Banking Financial Companies (NBFC) that are engaged in the business of accepting deposits and providing loans to their members. It is a company formed with the exclusive object of cultivating the habit of thrift, savings, and functioning for the mutual benefit of members by receiving deposits only from individuals enrolled as members and by lending only to individuals, also enrolled as members. Therefore, it restricts dealing with individuals who are non-members.

The primary object of Nidhi Companies is to carry on the business of accepting deposits and lending money to member-borrowers against gold, silver jewelry, immovable property, fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies, etc.

Also, they are not allowed to engage themselves in the business of Chit Fund, hire purchase, insurance, or in any other business including investments in shares or debentures.

Further, Nidhi companies are incorporated in the nature of a Public Limited company and hence, they have to comply with two sets of norms, one of Public limited company as per the Companies Act, 2013 and another is the Nidhi Rules, 2014 as amended by Nidhi (Amendment) Rules, 2022.

Nidhi Company is a class of Non-Banking Financial Companies (NBFC) and the Reserve Bank of India(RBI) has powers to issue directions and make rules for deposit-related activities. But, as Nidhi Companies deal with shareholder-members only, RBI has exempted them from the provisions of the RBI Act and other directions applicable to NBFCs. Nidhi Company is also known as the Mutual Benefit Society.

Features of Nidhi Company Registration

Membership

• Nidhi Company is allowed to carry on business (lending and borrowing) only with its members. Therefore, before accepting deposits or lending loans to any person, it shall induct such person as a member/shareholder of the Company.
• A Nidhi Company shall not induct a body corporate or trust or a minor person as a member.
• There shall be a minimum of seven (7) members at the time of incorporation. However, the number of members shall be increased to 200 within 120 days of incorporation., there is no maximum limit on the number of members.
• The Directors of Nidhi Company shall also be its members.

Name and Object 

• In order to differentiate Nidhi Companies from other Public Limited Companies, it would require adding the word “Nidhi Limited” as a suffix in its name.
• The object of the company shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefit.

Deposits

• Nidhi Company may accept deposits from members in the form of Savings Deposits, Fixed deposits (FD), and Recurring deposits (RD)
• The 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.

Loans

• Nidhi Company shall only give secured loans to its members against gold, silver, jewelry, immovable property, fixed deposit receipts, National Savings Certificates, Government securities, and insurance policies.

A Nidhi Company shall give loans subject to the following limits – 

1. Upto Rs. 2,00,000, if its total deposits from members are less than Rs. 2 crores; 

2. Upto Rs. 7,50,000, if its total deposits from members are more than Rs. 2 crores but less than Rs. 20 crores;

3. Upto Rs. 12,00,000, if its total deposits from members are more than Rs. 20 crores but less than Rs. 50 crores;

4. Upto Rs.15,00,000, if its total deposits from members are more than Rs. 50 crores;

• The rate of interest to be charged on any loan given shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing the balance method
• A member shall not be eligible for any further loan if he has borrowed any earlier loan from the Nidhi and has defaulted in repayment of such loan.

Branches

• Nidhi Company may open branches if it has earned net profits after tax continuously during the preceding 3 financial years. It has the option to open up to 3 branches within the district, but it is not permitted to open any branch outside the state where its registered office is located.
• If a Nidhi intends to open more than 3 branches within the district or any branch outside the district, it must seek prior permission from the Regional Director (RD). Additionally, the company must inform the Registrar about the opening of each branch within 30 days from the date of such opening.
• If a Nidhi Company intends to close its branch, then also it shall obtain prior approval of the Regional Director. In addition, the company must inform the Registrar about the closing of each branch within 30 days of such closure.

Every Nidhi Company shall fulfill the following conditions within a period of 1 year from the date of incorporation :

• It should have a minimum of 200 members/shareholders
• It should have minimum Net Owned Funds of 10 lakh rupees or more (Net owned funds would include a sum of Equity Share Capital + Free reserves – Accumulated Losses – Intangible Assets)
• The ratio of Net Owned Funds to deposits shall not be more than 1:20 (A Nidhi Company shall not accept deposits exceeding 20 times its Net Owned Funds (NOF) as per its last audited financial statements.)
• Unencumbered term deposits of not less than 10 percent of the outstanding deposits (At least 10% of the funds deposited in the Nidhi should be kept in a Nationalised Bank in the form of unencumbered Fixed Deposit Receipts and the remaining 90% should be used for business purpose)

Note: According to Nidhi (Amendment) Rules, 2022, the above requirements do not apply to companies that are formed as a Nidhi Company on or after the date of commencement of such rules i.e. 19th April 2022.

A registered Nidhi Limited Company shall not carry out the following activities –

• Business of chit fund, hire purchase finance, leasing finance, insurance, or acquisition of securities issued by any body corporate
• Issue preference shares, debentures, or any other debt instrument
• Open any current account with its members
• Accept deposits from or lend to any person, other than its members
• Carry on any business other than the business of borrowing or lending in its own name
• 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.
• 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.
• Pay any brokerage or incentive for mobilizing deposits from members or for the deployment of funds or for granting loans.
• Raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi.