Nidhi Company

Incorporation of Nidhi Company

A company incorporated to cultivate the habit of saving amidst its members or shareholders falls under Nidhi Company. The dictionary meaning of the term Nidhi is ‘treasure’. However, in the Indian financial sector, it a mutual benefit society which gets notified by the Central Government. Nidhi companies can solely take a deposit from their members and lend to their members only. Nidhi Companies are also known as Permanent Fund, Benefit Fund, Mutual Benefit Fund ad Mutual Benefit Company.

RBI regulates the matters of a Nidhi Company in regards to its deposit acceptance activities. Nidhi Company is one of the forms of Non-Banking Financial Company (NBFC) which do not require RBI approval. Despite being an NBFC, a Nidhi company has exempted from the core provisions of the RBI Act, 2013 because it works for the welfare of its members. The incorporation of Nidhi Company is a lengthy procedure for which one needs to meet the eligibility criteria.

Nidhi Company is not governed by the RBI but by the Central Government and hence the Central Government has introduced the Nidhi Company rules 2014 in order to better govern the company in a more transparent manner.

In order to form Nidhi Company in India, you have to incorporate a Public Limited Company under the ‘Company Act, 2013’, with a minimum paid-up equity share capital is ₹ 5 Lac. A minimum of 3 directors and 7 shareholders are required to start a Nidhi Company incorporation process. After being incorporated as a Nidhi Company, it shall comply with all the provisions and restrictions applicable under Companies Act 2013 as well as Nidhi Rule 2014.

Key Features

  • It is not entitled to perform either a “vehicle finance business or microfinance business” in India.
  • Within 12 months of registration, the number of members must be at least 200.
  • A maximum interest rate of 20% p.a. (calculated by the reducing balance method) can be charged.
  • The maximum rate of interest that can be offered on savings deposit account shall not exceed 2% above the rate offered by Nationalised Banks.
  • Nidhi Company can accept FD, RD & savings and can earn an interest of 12.5% currently on FD & RD.
  • The rate of interest that can be offered on Fixed and Recurring Deposits shall not exceed the maximum rate of interest prescribed by RBI for the NBFCs to be offered on deposits. The maximum limit for the rate of interest for NBFCs is also applicable to the Nidhi companies.
  • Its operations must be limited to the district level for the first 3 Years. After completion of 3 years, 3 offices can be set up within the same district. For expansion out of the district, prior approval from the “Regulator Director” is required.
  • It can only give loans against security. These securities may be Gold, Property, Fixed Deposits, Government Securities, or Life Insurance Certificates.
  • Unencumbered deposits (Deposits which aren’t offered as securities for any purpose) should not be less than 10 % of outstanding deposits.
  • Filing of Annual Accounts, Audit, and Tax Returns, in the proper format, is compulsory.