A Overview of Nidhi Company

In Simple Terms, Nidhi is a Hindi word which means “finance or fund”. In the India Financial Sector Nidhi refer to any mutual benefit society notified by the Central/Union Government as a Nidhi Company.

After Registration of NIdhi Company can borrow from member and lending i.e. who is the member of the Nidhi Company are not allowed to deposit any money or doing any kind of business with the concerned Nidhi Company.

Ndhi company is governed by the Companies Act, 2013 under section 406 and Nidhi Rules, 2014.

Nidhi Company as per companies Act, 2013

As per Section 406 of Companies Act, 2013

Nidhi means a company which has been incorporated as a NIdhi with the object cultivating the habit of thief and saving amongst its member, receiving deposit from, and lending to, its member only, for their mutual benefit, and which complies with such as are prescribe by the Central Government for regulation of such class of Companies.

Every Company which had been declare as a Nidhi Company ar Mutual Benefit Society under sub-section (1) of section 620A of the Companies Act, 1956.

Incorporation/Registration of Nidhi Company

A Nidhi Company to be Incorporation under the Act Shall be a public Company and shall have a minimum paid up equity capital of five lakh rupees.

On and after commencement of the Act, on Nidhi Company shall issue preference share.

Nidhi Company shall have its object of cultivating the habit of thrift and saving amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit under its Memorandum of Association.

Every Company incorporation as a NIdhi shall have the last words “Nidhi Limited” as part of its name.

Members detail and other legal formalities

As per NIdhi rules, 2014 Every Nidhi Company shall, within a period of one year from the commencement of these rules ensure that it has:-

(a)  It has Completed at lest 20 members. (which means 00 members are mandatory in a year from borrowing or lending) (only a natural person), (not minor) shall be member of Company).

(b)  Net owned funds of ten lakh rupees or more (net owned funds include Paid up Capital + Profit and Reserves earned during the year + long term Liability + Fictitious Assets i.e. Preliminary exp.)

         (c)  Unencumbered term deposit of not less than 10% of its Outstanding deposit as specifies under rule 14 And

         (d)  Ratio of net Owned Funds (NOF) to deposit of not more than 1:20

Branches (Rule 10)

Opening of Branches

As per rule 10 of Nidhi Rules, 2014, A Nidhi may open up to three branches if it has earned net profit after tax continuously during the preceding three financial years.

If a Nidhi proposes to open more than three branches within or outside the district, it shall obtain the prior permission of the regional Director (RD) and an intimation is to be give to the Register about Opening of every Branch within 30 days of such opening.

No Nidhi shall open branches or collection centers or offices deposit centers or whatever name called outside the state where its registered office is situated.

No Nidhi shall open branches or collecting centers or offices or deposit centers or by whatever name called unless financial statement and annual return (up to date) are filled with the Registrar.

Closing of Branches

A Nidhi shall not close any branch unless it-

(a) publishes an advertisement in a newspaper in vernacular language in the place where it carries on business at least thirty days prior to such closure, informing the public about such closure;

(b) fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi for a period of at least thirty days from the date on which advertisement was published under clause (a) ; and

(c) gives an intimation to the Registrar within thirty days of such closure.

Deposits (Rule 13)

Deposits- There are three types of deposits under Nidhi Company.

1. Fixed Deposit    2. Recurring Deposit    3. Saving Deposit Account

Maximum Deposit Limit:

A Nidhi shall not accept deposits exceeding 20 times of its NET OWNED FUNDS (NOF) as per the last audited financial statements.

(let us understand this by the table below as an example)

Net owned Fund (paid up capital + Profit) as per last audited balance sheets Maximum ceiling Limit on Deposits
Rs 10 lac Rs 2 Crore
Rs. 1 Crore Rs. 20 Crore
Rs. 10 Crore Rs. 200 Crore
Rs. 1000 Crore Rs. 20000 Crore

Duration of Deposit:

Fixed deposits shall be accepted for a minimum period of 6 months and a maximum period of 60 months.
(Nidhi Company can accept deposits like Banks/NBFCs of which maximum period of deposit is 5 years, however a company can renew the same for next 5 years on the choice of the depositor)

Recurring Deposits shall be accepted for a minimum period of 12 months and a maximum period of 60
months.

(Recurring deposit is a very good tool which is mostly uses by the Nidhi Companies to increase the deposit amount and funds and hence same like fixed deposits its maturity time is 5 years (60 months)

(Practically, When the Recurring deposit is closed or mature, the money of such deposits automatically transferred to the regular saving accounts. Nidhi Company can again offer the recurring account facility to the same member and amount accumulated of recurring deposit can be invested in fixed deposit as bulk money on the choice of the customer. Consequently, it is a sales promotion idea for the company.

In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi. (let us understand with example, suppose XYZ Nidhi Limited lends a mortgage loan to Member “A” for a repayment period of 7 years. Member “A” also opens a recurring account with Nidhi company for 7 years. Can he do it?

Answer is Yes, because in case, of mortgage loans, the maximum period of recurring deposit can be equal to repayment period of such loans. However, it is important to note that this limit is applicable to mortgage loans only and for other loans point no. 2 shall be applicable)

Rate of Interest on Fixed Deposit and Recurring Deposit

Rate of Interest which can be offered on Fixed and Recurring Deposit shall not exceed the maximum rate of interest prescribed by RBI which the NBFC offer on their deposits. (The Maximum interest rate offered on Fixed Deposit and Recurring deposit will always be floating and it is always important to look at the RBI policies towards the Interest rate.)

Whatever RBI decides for NBFC about the rate of interest, the same will be applied directly to the Nidhi companies. (at present 12.5%)

The Law is changing fastly day by day, to update about the rate of interest and other provisions, please get in touch with our professional team.

Limit of Amount of Saving Accounts and its Interest

Maximum Balance which can be kept in savings deposit account shall not exceed 1 lac Rs. (However, if any saving account with zero interest will not be subject to above 1 lac limit)

Rate of Interest which can be offered on saving deposit account shall not exceed 2% above the rate offered by Nationalised Bank. (let us understand this by the table below as an example).

INTEREST OFFERED BY BANK AND NIDHI
SBI OBC Federal Bank Max. Ceilling Limit
Situation 1 4% 4.5% 4% 4.5%+2=6.5%
Situation 2 3% 4% 6% 4%+2=6%
Note Federal Bank is not a National Bank

Loan

NIDHI can give Loan to member subject to the following limits:

Deposit Amount Loan Limit
Deposit is Less Than 2 Crores Rs. 2 Lac
Deposit are More than 2 Crores and Less than 20 Crores Rs. 7.5 Lac
Deposit are More than 20 Crores and Less than 50 Crores Rs. 12 Lac
Deposit are More than 50 Crores Rs. 15 Lac

Loan against Security

A Nidhi company Can not lend any Unsecured Loan (Loan without security), Therefore, it has to give loan against securities mentioned in the law.

A Nidhi company can give loan against the following securities —-

Gold, Silver and Jewellery – Loan against Gold, Silver, Jewellery is also known as Gold Loan. The Repayment period of such loan shall not exceed one year. The Total value (Principal plus Interest) of loan should not exceed the 80 % of the total value of gold or silver.

Loan against Property (Immovable Property) – Loan against property is also a part of loan given by Nidhi Company. The Repayment period shall not exceed from seven years. The total value of loan shall not exceed 50% of the total value of property.

FD Receipts, National Saving Certificates, Government Securities and Insurance Policies – Such type of Securities uses rarely. The Repayment Period of such loan against Fixed Deposits shall not exceed the unexpired period of the fixed deposits.

Loans which are not allowed by NIDHI Company

1. Personal Loan

2. Micro Finance small credit

3. Vehicle Finance

4. Hire Purchase

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 be the business of micro finance, other than registered NBFCs.

Vehicle Finance – The Business of vehicle finance is also not allowed. The business of vehicle finance is also allowed only to registered NBFC. These are all special categories and need a net worth of at least Rs. 2 Crores.

Hire Purchase – The business of hire Purchase has also been restricted to Nidhi companies.

Rate of interest on loan

The rate of interest to be charge on any loan given by a Nidhi small not ezceed 7.5% above the highest rate of interest offeed on deposits by Nidhi and shall be calculate on deducing balancing method,

(for example, if Nidhi company has decided to offer the rate of interest on deposit 12.5% then the maximum loan rate of interest shall be 20% {12.5 + 7.5} ).

Author Bio

Qualification: LL.B / Advocate
Company: JSONS SOLICITORS PRIVATE LIMITED
Location: JAIPUR, Rajasthan, IN
Member Since: 01 Dec 2018 | Total Posts: 1

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Tags : Companies Act (2596) Companies Act 2013 (2368)

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