Nidhi Company is governed by Nidhi Rules, 2014. Nidhi companies are incorporated in the nature of Limited company and hence, they have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi Rules, 2014. No RBI approval is necessary to register the Nidhi Company. RBI has specifically exempted this category of NBFC in India to comply with its core provisions such as registration with RBI etc.
- Deals only With Members: If you are registering Nidhi Company, so to deal with public at large, then this point might break your heart. As per law, Nidhi Company can only deal with its members. In other words, it means that it can accept deposit and provide loans only to its members.
Further Nidhi shall not admit a body corporate or trust as a member.
- The Requirement after incorporation: The things after incorporation are known as post compliance. Unlike other companies, Nidhi Companies compliances are complicated and very important. You just cannot afford to miss those. Here is the list of requirement that you need to be complied with:
a) Nidhi limited should have at least two hundred members to avoid being in default with Rule 5 of Nidhi Rules, 2014.
b) Net Owned Funds (capital invested) should not be less than ten lakh.
c) Ratio of Net owned funds to deposits should not be more than 1:20. In other words, if you have total Net owned Funds of INR 10 lakh then Nidhi Company can accept maximum deposits up to INR 2 crore.
d) What if a Nidhi Company cannot reach the member size of 200 within a year? In that case, Company will have to apply for extension with the Regional Director of the company in the Form NDH – 1
- The Business Restriction: A Nidhi Company cannot do the following types of business as they are strictly prohibited by the rules.
a) Business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate.
b) Further, it shall not carry on any business other than the business of borrowing or lending in its own name.
- General Restrictions: Apart from the business restrictions, there are some general restrictions are also there which are as follows:
A) Nidhi Company shall not issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever.
B) Nidhi Company shall not open current account with its members. Please note, there is a restriction on current account that means you can still open saving account with the members.
C) A Nidhi Company cannot issue or cause to be issued any advertisement in any form for soliciting deposit.
D) Nidhi Company cannot pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans.
- E) No Nidhi Company shall pledge any of the assets lodged by its members as security.
- F) No Nidhi Company shall accept deposits from or lend to any person, other than its members.
G) No Nidhi Company shall take deposits from or lend money to anybody corporate.
- H) No Nidhi Company shall enter into any partnership arrangement in its borrowing or lending activities.
I) No Nidhi Company shall 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.
- J) Nidhi company can accept a deposit of maximum of 60 months.
- K) Nidhi company cannot deal in Motor Finance.
- Minimum Share Requirements: Nidhi Company has to allot at least 10 equity shares or shares equivalent to one hundred rupees. However, savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten.
- Branches of Nidhi Company: A Nidhi Company can open 3 branches in its district only if it has earned profits after tax continuously during the preceding three financial years. For any additional branch, Nidhi will be first apply for approval from the Regional Director.
- Rate of Interest: The rate of interest to be charged on any loan given by a Nidhi shall not exceed seven and half per cent above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method. Nidhi shall charge the same rate of interest on the borrowers in respect of the same class of loans and the rates of interest of all classes of loans shall be prominently displayed on the notice board at the registered office and each branch office of Nidhi.
- Nidhi Company Loans [Rule 15]
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:
A) two lakh rupees, where the total amount of deposits of such Nidhi from its members is less than two crore rupees;
B) seven lakh fifty thousand rupees, where the total amount of deposits of such Nidhi from its members is more than two crore rupees but less than twenty crore rupees;
C) twelve lakh rupees, where the total amount of deposits of such Nidhi from its members is more than twenty crore rupees but less than fifty crore rupees; and
D> fifteen lakh rupees, where the total amount of deposits of such Nidhi from its members is more than fifty crore rupees.
Where a Nidhi has not made profits continuously in the three preceding financial years, it shall not make any fresh loans exceeding fifty per cent of the maximum amounts of loans specified in clauses (a), (b), (c) or (d). 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. The amount of deposits shall be calculated on the basis of the last audited annual financial statements.
A Nidhi shall give loans to its members only against the following securities, namely:
A) gold, silver and Jewellery; The re-payment period of such loan shall not exceed one year.
B) Immovable property; The total loans against immovable property [excluding mortgage loans granted on the security of property by registered mortgage, being a registered mortgage under section 69 of the Transfer of Property Act, 1882 (IV of 1882)] shall not exceed fifty per cent of the overall loan outstanding on the date of approval by the board, the individual loan shall not exceed fifty per cent of the value of property offered as security and the period of repayment of such loan shall not exceed seven years.
C) Fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies: Such securities duly discharged shall be pledged with Nidhi and the maturity date of such securities shall not fall beyond the loan period or one year whichever is earlier. In the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.