What is a Nidhi Company?

  • In the Indian financial sector it refers to any mutual benefit society notified by the Central / Union Government which has been termed  as a Nidhi Company.
  • They are created mainly for cultivating the habit of thrift and savings amongst its members. Nidhi Companies can help Government’s policy to cover the financial inclusion where reaching out to the people in urban areas with their sole intention of cultivating saving habits.
  • The companies doing Nidhi business, viz. borrowing from members and lending to members only, are known under different names such as Nidhi, Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company.
  • Nidhis are more popular in South India and are highly localized single office institutions.
  • They are mutual benefit societies, because their dealings are restricted only to the members; and membership is limited to individuals.
  • The principal source of funds is the contribution from the members.

According to the section 406 of the Companies Act 2013, “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to, its members only, for their mutual benefit and which complies with such rules as are prescribed by the Central Government for regulation of such companies.

A copy of every notification proposed to be issued under sub-section (2), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days, and if, both Houses agree in disapproving the issue of notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.

In reckoning any such period of thirty days as is referred to in sub-section (3), no account shall be taken of any period during which the House referred to in sub-section (3) is prorogued or adjourned for more than four consecutive days

The copies of every notification issued under this section shall, as soon as may be after it has been issued, be laid before each House of Parliament.

S.No 

Name  Nidhi Company Act
1 Section &       Authority 406 of the Companies Act, 2013 effective from 01.04.2014. All Nidhi companies are controlled by Ministry of corporate affairs (MCA)
2 Status Always incorporated Public Company
3 Minimum Paid Up Equity Capital Rupees 5,00,000
4 Objective No Nidhi shall have any object other than the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit
5 Minimum Shares to be subscribed 10  Equity Shares of Rs 10/- each for other
6 Branches 1. Earned net profits after tax continuously during the preceding three financial years.
Subject to up to three branches within the district.
2. If need to open more than three branches within the district or any branch outside the district, Required prior permission of Regional Director
7 Restriction on opening Branches 1.  Branches outside State where its registered office is situated.
2.  If financial statement and annual return (up to date) are not filed with the Registrar.
8 Acceptance of Deposits Deposits are not exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements.
9 Period of Deposits 1. Fixed Deposit – 6 to 60 Months
2. Recurring Deposit – 12 to 60 Months
3. Recurring deposits relating to mortgage loans – Maximum Period correspond to repayment period of Loans
4. Maximum Balance in Saving deposit account shall not exceed Rs 1 Lakh at any point of time
10 Rate of interest to be given 1. Saving account – Not exceed 2% above rate payable on Saving account by nationalised Banks viz. 9%
2. Fixed or Recurring  –  Maximum rate of interest which NBFC can pay on their public deposits viz. 12.5%
11 Rate of interest to be received Not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method viz. 20%
12 Dividend A Nidhi shall not declare dividend exceeding 25% or
Such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing and further subject to the following conditions-
An equal amount is transferred to General Reserve;
There has been no default in repayment of matured deposits and interest; and
It has completed with all the rules as applicable to Nidhis.
13 Foreclosure of account Foreclosure of fixed deposit account or a recurring deposit account by the depositor subject to following conditions
– Nidhi shall not repay any deposit within a period of three months from the date of its acceptance;
– 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, a Nidhi makes repayment of a deposit before the expiry of the period for which such deposit was accepted by Nidhi, the rate of interest payable by Nidhi on such deposit shall be reduced by two per cent. from the rate which Nidhi would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run:
14 Loans Nidhi shall provide loans only to its Member subject to following limits:-
1 total deposits of Nidhi from Members is less than 2 Crore Rupees –  Rs 2 Lakh
2. total deposits of Nidhi from Members is More than 2 crore but less than 20 Crore –  Rs 7.50 Lakh
3. total deposits of Nidhi from Members is More than 20 crore but less than 50 Crore      –  Rs 12  Lakh
4. total deposits of Nidhi from Members is More than 50 Crore –  Rs 15  Lakh
Conditions:-
– Not make any fresh loans exceeding fifty per cent. of the maximum amounts of loans specified in clauses (1), (2), (3) or (4) if Nidhi has not made profits continuously in the three preceding FY
– In case of default in repayment of loan, member shall not eligible for further loan
15 Security furnished members against loans 1. Gold, silver and jewellery, repayment period not exceed one year.
immovable property subject to fifty per cent of the overall loan outstanding on the date of approval by the board, repayment period not exceed 7 years.
3.  fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies
16 Director Director
– shall be member of Nidhi
– shall hold office for a term up to ten consecutive years on the Board of Nidhi.
– Shall be eligible for re-appointment only after the expiry of two years from the date of expiry of ten years period.
17 Auditor No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of 5 years and audit firm for more than two terms of five consecutive years;
They are eligible for subsequent allotment after the expiration of two years
18 Penalty for Non Compliance Company and Every officer – Rs 5,000
In case of continuing failure  – Rs 500 for every day
19 Buyback of Shares When shares are purchased by the Nidhi from a member on his ceasing to be a depositor or borrower, it shall not consider in reduction of Share Capital
20 Payment of Dividend If the dividend is not claimed by a member within 30 days from the date of declaration, then the same may be paid by crediting it to the account of the member.

Further Section 127 deals with punishment for failure to distribute dividend. However for Nidhi companies, where the dividend payable to a member is one hundred rupees or less, it shall be sufficient compliance of the provisions of the section, if the declaration of dividend is announced in the local language in one local news paper of wide circulation and announcement of the said declaration is also displayed on the notice board of the Nidhis for at least three months

S. No Section Nidhi rules
1 Incorporation and incidental matters As per rule 4 of Nidhi rules, 2014 a Nidhi company incorporated under the Act shall be a public company and shall have a minimum paid up equity share capital value of rupees five lakhs. Every company incorporated as a “Nidhi” shall have the last word “Nidhi Limited” as part of its name.

As per rule 5 of the Nidhi rules, 2014, every Nidhi shall within one year of its commencement shall ensure that it has minimum of two hundred members, net owned funds of ten lakh rupees or more and unencumbered term loan deposits of not less than 10% of the outstanding deposits and ratio of net owned funds to deposits of not more than 1:20 ratio.

Within 90 days from the close of the first financial year after its “incorporation and where applicable, and the second financial year Nidhi shall file a return of statutory compliances in Form NDH- 1 along with such fee as provided in the applicable rules.

Any failure to comply with the provisions of the said rules, the Nidhi shall not accept any further deposits and shall be liable to penal consequences as well.

2 General Restrictions As per rule 6, no Nidhi company shall carry on the business of chit funds, hire purchase, leasing finance, insurance or acquisition of securities issued by anybody corporate, issue preference shares or open any current account with its members, accept deposits from or lend to any person, other than its members, take deposits from or lend money from or lend money to anybody corporate, etc.
3 Share capital and allotment As per rule 7, every Nidhi shall issue equity shares of the nominal value of not less than TEN Rupees each, no service charge shall be levied for the issue of shares and shall allot to each deposit holder, at least, a minimum of ten equity shares or shares equivalent to one hundred rupees.
4 Membership As per rule 8, no Nidhi shall admit a body corporate or trust as a member. A minor shall also be not admitted as a member.
5 Deposits As per rule 13, Fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty month;  Recurring deposits – min period 12 months; max 60 months.  The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time, and the rate of interest shall not exceed two percent of the rate of interest payable on savings bank account by nationalized banks.
6 Loans As per rule 15, a Nidhi shall provide loan only to its members.
7 Directors and committees  As per rule 17, a director shall be a member of Nidhi and shall hold office for a term up to ten consecutive years on the board of Nidhi. The director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a director. The director shall comply with the provisions of the rule
8 Annual returns and Filing of Half- Yearly Return As per rule 21, every company covered under rule 2 shall file half yearly return with the registrar in form NDH-3 along with such fees as provided in Companies Rules, 2014 within 30 days from the conclusion of each half year.

As per rule 23, for the purpose of enforcement of such rules, the registrar of the company may call upon any member of Nidhi for any information and may put the matter before Regional Director, who may upon giving an opportunity to be heard may decide the matter accordingly.

As per rule 24, for any contraventions of the rules, any company and all its members who are in default shall be punishable with a fine which may extend to five thousand rupees and the case of continuance then five hundred rupees for each day of such contravention.