Nidhi as the Hindi word denotes 'sampatti' is a type of public company which may be incorporated with an exclusive object of cultivating the habit of thrift and savings amongst its members, deposits from, and lending to, its members only, for their mutual benefit.
What is a Nidhi Company?
Nidhi Company is incorporated under Section 406 of the Companies Act, 2013, read with the applicable rules, as a public company with a minimum paid-up equity share capital of Rs. 5 lakhs. Although the activities of a Nidhi company is similar to that of a non-banking financial company, as to accepting deposits and granting loans, however, they have been exempted from the purview of the RBI Act, 1934 by virtue of the 'RBI Master Direction- Exemptions from the provisions of RBI Act, 1934'.
Statutory requirements for a Nidhi Company
Every Nidhi company shall, within a period of one year from the date of its incorporation, ensure that it has-:
- Not less than 200 members;
- Net Owned Funds of Rs. 10 lakhs or more;
- Unencumbered term deposits of not less than 10% of the total outstanding deposits;
- Ratio of Net Owned Funds to deposits not more than 1:20;
- To allot a minimum of 10 equity shares having nominal value not less than Rs. 10 each or shares equivalent to Rs. 100.
(Note: Net Owned Funds= aggregate of paid up equity share capital + free reserves - accumulated losses and intangible assets appearing in the last audited balance sheet)
Operational requirements for a Nidhi Company
As mentioned above, the objective of a Nidhi company is to take deposits and provide loans to its members. The Ministry of Corporate Affairs ('MCA') being the regulator of Nidhi companies has regulated the norms for taking deposits and providing loans which are as follows:
A Nidhi Company shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements.
The Nidhi Company is allowed to accept deposits with the following timelines:
- Savings deposit- There is no time limit
- Fixed deposits- 6 to 60 months
- Recurring deposits- 12-60 months
- Recurring deposits relating to mortgage loans- Maximum period shall correspond to the repayment period of loans granted.
Interest rate on deposits
Savings Account- Maximum 2% above the rate allowed by nationalized banks, but maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed Rs. 1 lakh.
Fixed and Recurring deposits- Maximum rate of interest a NBFC can pay on its public deposits as prescribed by the RBI.
A Nidhi shall provide loans only to its members.
The loans given by a Nidhi to a member shall be subject to the following limits, namely:-
Ceiling limit on loan
< Rs. 2 Cr
Rs. 2 lakhs
Rs. 2 Cr - Rs. 20 Cr
Rs. 7.50 lakhs
Rs. 20 Cr - Rs. 50 Cr
Rs. 12 lakhs
>Rs. 50 Cr
Rs. 15 lakhs
A Nidhi shall give loans to its members only against the following securities, namely:-
(a) gold, silver and jewellery:
(b) immovable property:
(c) FDR, NSC, other Government Securities and insurance policies:
Interest rates of loans
The interest charged on any loan given by a Nidhi company shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method.
General restrictions or prohibitions
Similar to a NBFC, there are certain restrictions or prohibitions on Nidhi companies as well. Some of the major restrictions or prohibitions of a Nidhi company are that it shall not:
- carry on the business of chit fund, hire-purchase finance, leasing finance, insurance or acquisition of securities issued by any corporate;
- open any current account with its members;
- accept deposits from or lend to any person, other than its members;
- carry on the business other than the business of borrowing or lending in its own name;
- take deposits or lend money to any body corporate;
- issue of advertisements in any form soliciting deposits;
- pay brokerage in order to mobilize deposits from members or for deployment of funds or for granting loans
Compliances to be made by Nidhi Companies
Nidhi companies shall be required to do the following compliances:
- Filing of return of statutory compliances in e-Form NDH-1- Within 90 days of the close of first F.Y. and where applicable, the second F.Y.
- Filing of non-compliance with the conditions mentioned w.r.t incorporation of a Nidhi company such as minimum no. of members, Net Owned Funds etc. in e-Form NDH-2- Within 30 days of the close of first F.Y.
- Filing of half-yearly return in e-Form NDH-3- Within 30 days of the conclusion of each half year.
Note: This article is purely for academic purpose and shall not be acted upon as a professional advice. The provisions of law referred to in this article may be amended at any time. Thus, I assume no responsibility for the consequences of use of such information without any professional advice. In no event, shall I be liable for any direct, indirect or incidental damage arising in connection with the use of information here in contained.
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