CA Paras Mehra

1.0 Introduction

In this article, we shall discuss the practical aspects about the lending power under the Nidhi Company. Nidhi Companies are one of the special types of companies in India which had a power to accept deposit and lend money. However, for some people it is still a mystery on how loan is given and against which security the same is to be initiated.

Let us proceed on to understand the laws for loan under Nidhi Company.

2.0 Loan limit

As per the law, a Nidhi company can advance loan upto Rs.2 lakh if the amount of deposits is less than two crore rupees. Further details are as follows:

Loan Limit Deposit Amount
Two Lakh Rupees Deposit is less than two crore rupees
Seven lakh fifty thousand rupees Deposits are more than two crore but less than twenty crore rupees.
Twelve lakh rupees Deposits are more than twenty crore but less than fifty crore rupees.
Fifteen Lakh rupees Total amount of deposits is more than fifty crore rupees.

Apart from the loan limits, there are restriction on loan to be disbursed against which security. Let us proceed on to discuss that part.

3.0 Loan against securities

Before moving forward, the golden rule for loans is that a Nidhi Company cannot lend any unsecured loan. Further, it can only give loan against the securities mentioned in the law.

A Nidhi Company can advance loan against the following securities:

#Security No.1 – Gold, Silver and Jewellery: This type of loan is very popular among the community and is popularly known as gold loan. The repayment period of such loan shall not exceed one year. The total value of loan should not exceed the 80% of the total value of gold or silver.

#Security No.2 – Immovable property: This type of loan is known as loan against immovable property. The repayment of this type of loan shall not exceed 50% of the overall loan and repayment period shall not exceed seven years.

#Security No.3 – FD Receipts, National Saving Certificates, Government securities and insurance Policies: The loan against these securities are not very common. Further, in the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.

4.0 Loan which a Nidhi Company is not allowed

Here is the list of loans which a Nidhi Company is not allowed:

  • Personal Loan: A Nidhi Company is not allowed to lend money as personal loan on the basis of credibility or Income Tax return. The loan has to be against any security.
  • Micro Finance – Small Credit: Micro finance business is very famous especially in rural and semi urban areas. However, no company is allowed to do the business of micro finance, other than the registered NBFC.
  • Vehicle Finance: The business of vehicle finance is also not allowed. The business of vehicle finance is also allowed only to a registered NBFC. These are all special categories and need a net worth of atleast Rs.2 crores.
  • Hire Purchase: The business of hire purchase has also been restricted to Nidhi companies.

5.0 Conclusion

The finance business is India is highly regulated and complex. We have put on a small light on the complex subject matters. However, you can only solve the mystery once you put yourself on.

About the Author

Author is CA Paras Mehra who is professionally associated with Hubco.in, a brand to register and manage Nidhi Companies in India. You can reach him on paras@hubco.in or agam@hubco.in.

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