The banks and Non-Banking Financial Institutions form a strong backbone of our economy however, they are still not in reach of people requiring funds specially those of living in rural areas or are lack of requisite documentation like Income Tax return and the like. Therefore, the Government of India came up with the concept of Nidhi Companies where people could allocate their savings into a pool and give loans therefrom, in a much-related concept like that of a credit cooperative society; however much more administrative, reliable and transparent.
However, the Nidhi Rules, 2014 places certain restrictions on rate of interest that the Company can take on loans and give away on deposits and accordingly in this article, we shall about the “rate of interest by Nidhi Companies”.
RATE OF INTEREST ON DEPOSITS
There are three types of Deposits which can be accepted by Nidhi and rate of interest on all are mentioned below:
- Fixed Deposit
In this case, rate of interest being offered shall not exceed maximum rate of interest prescribed by the Reserve Bank of India which the NBFCs can pay on their public deposits. As on date, the maximum rate of interest an NBFC can offer is 12.5% that has been prescribed by RBI and similarly, the interest rate that can be offered by Nidhi Companies on fixed Deposits cannot exceed 12.5% as well.
- Recurring Deposit
In case of recurring deposit or monthly income scheme (MIS), the rate of interest offered shall not exceed maximum rate of interest prescribed by the Reserve Bank of India which the NBFCs can pay on their public deposits which again is 12.5% as explained in the case of fixed deposits.
- Saving Deposit
In case of savings deposits, the rate of interest being offered shall not exceed 2% above the rate payable by nationalized banks on savings account. Currently, the rate of interest offered by all nationalized banks ranges somewhere between 3-4% and accordingly, the Nidhi Company can offer interest rate up to 6%.
RATE OF INTEREST ON DEPOSIT ON LOANS
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.
For instance, in case the Nidhi Company is offering 7% rate of interest on fixed deposit and recurring deposit and also 5% on savings, then the Company can charge up to maximum 14.5% on loans given.
OTHER IMPORTANT POINTS:
- The rate of interest on loans given should be charged on reducing balance method only.
- The Nidhi shall charge the same rate of interest in respect of the same class of loans and no discrimination shall be done between anyone.
- Rates of interest of all classes of loans shall be prominently displayed on the notice board at the registered office and each of its branch office, if any.
- The application form of deposit shall contain the rate of interest being offered.
- Where at the request of the depositor, a Nidhi repays any deposit after a period of three months, the depositor shall not be entitled to any interest up to six months from the date of deposit.
- Where at the request of the depositor, the Nidhi re-pays the deposit amount before the expiry of the period for which it has been accepted, then the rate of interest shall be reduced by 2% from which the Nidhi would have been ordinarily paid in case the amount was not withdrawn prematurely.
However, in case of death of depositor, the amount deposited shall be paid to the legal heir, nominee or surviving joint deposit holder along with the rate of interest without reducing any interest amount.
{The author i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and founder of Alliance Professionals and also can be reached at (M) +91-9999952595 and (E) cskajalgoyal@gmail.com}
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Interest on Deposits & Loans calculations