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
- 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.
- 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.
- 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.
- 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.