Nidhi

Companies
Nidhi Companies
Informal but categorised as NBFC

A Nidhi company, is one that belongs to the non-banking Indian Finance sector and is
recognized under section 406 of the Companies Act, 2013

“Nidhi” is a Hindi word, which means finance or fund.

Nidhi Company is a NBFC which is being exempt by the RBI from registration. It is the only
type of company which can accept deposit and which does not require any RBI approval

The ultimate objective of Nidhi Company was to promote the habit of saving among the
members.

Nidhi Company can only lend to his members only.

requires minimum 3 members to start with and Appoint at least 200 members in his
first year of closing.

All the Nidhi company’s incorporated shall have the last word as “Nidhi Limited” as
part of its name. Nidhi company is easy and economical to register.

Nidhi companies are formed so to accept the deposits and then mobilize this savings
to provide loans and earn the interest from the same.

They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and
Mutual Benefit Company. It is regulated by Ministry of Corporate Affairs. Reserve
Bank of India (RBI)is empowered to issue directions to them in matters relating to
their deposit acceptance activities. However, in recognition of the fact that these
Nidhis deal with their shareholder-members only.
Nidhi company can accept deposits in the ratio of 1:20, i.e. if owner has invested
Re.1, then he is eligible to accept deposit up to Rs.20.

Nidhi Company does not require any RBI approval and there are separate rules,
which govern the Nidhi Company.

Nidhi Company registration is very easy as compared to the complex Non

Banking Financial Company (NBFC).

There are many restrictions on the Nidhi Companies which prohibits Nidhi
Company to give loan other than the secured loans.
A Nidhi company can only start in his
district and in any case cannot go outside
the state.

The basic concept of nidhi is "Principle of

Mutuality" These companies are more
popular in South India,
and 80% of Nidhi companies are located in
Tamil Nadu.
Opening of branches by Nidhi Company in India
A Nidhi Company is a state-specific company which means its operations cannot go out of the state
at any time. Here are some other relating aspects:

Further, Nidhi Company can only open branches if it has earned a net profit after tax continuously
during three preceding years.

After three years, a Nidhi can open up to 3 branches in the district.

If the Nidhi Company wants to open more than three branches within the district or outside the
district, it shall have to take prior permission of the Regional Director.

No Nidhi shall open branches or collection centers or offices or deposit centers, or by whatever
name called unless financial statement and the annual return (up to date) are filed with the
Registrar.
Loan against securities
• 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 in the
community and is popularly known as a 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 a 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.
Loan which a Nidhi Company is not allowed

Micro Finance –
Personal Loan: A
Small
Nidhi Company is
Credit: Microfinance Vehicle Finance: The
not allowed to lend
business is very business of vehicle Hire
money as a
famous especially in finance is also not Purchase: The
personal loan on
rural and semi-urban allowed. The business of hire
the basis of
areas. However, no business of vehicle purchase has also
credibility or
company is allowed finance is also been restricted to
Income Tax return.
to do the business allowed only to a Nidhi companies.
The loan has to be
of microfinance, registered NBFC.
against any
other than the
security.
registered NBFC.
Interest on loan by Nidhi Company

The rate of interest to be charged on any

loan given by a Nidhi shall not exceed
seven and a half percent above the
highest rate of interest offered on
deposits by Nidhi and shall be calculated
on reducing balance method.
 Deposits under Nidhi company in India

Fixed deposits: The fixed Saving deposit: The maximum

Recurring deposits: The
deposits can be accepted for a balance in a saving deposit at any
recurring deposits shall be
minimum period of six months given time qualifying for interest
accepted for a minimum
and a maximum period of sixty shall not exceed Rs.1 lakh.
period of 12 months and a
months. The maximum Further, the rate of interest shall
maximum period of 60
interest rate on fixed deposits not exceed two percent above
months. The maximum rate of
cannot exceed the rate of the rate of interest payable on
interest on RD shall be the
interest provided by RBI for savings bank account by the
same as in case of FD .
NBFC. nationalized bank.
Membership in a Nidhi:
Except as otherwise
permitted under these
A Nidhi shall not admit a rules, every Nidhi shall
body corporate as a ensure that its
member. membership is not
reduced to less than 200
members at any time*.

But deposits may be

accepted in the name of
A minor shall not be minor , if they are made
admitted as a member by natural or legal
in a Nidhi company. guardian who is a
member of the
respective Nidhi.
General restriction on Nidhi Company in India
• No Nidhi Company shall carry on the business of chit fund, hire purchase finance, leasing
finance, insurance or acquisition of securities issued by anybody corporate;

• No Nidhi Company shall issue preference shares, debentures or any other debt instrument
by any name or in any form whatsoever;

• No Nidhi Company shall open any current account with its members;

• No Nidhi Company shall acquire another company by purchase of securities or control the
composition of the Board of Directors of any other company in any manner whatsoever or
enter into any arrangement for the change of its management, unless it has passed a
special resolution in its general meeting and also obtained the previous approval of the
Regional Director having jurisdiction over such Nidhi.

• No Nidhi Company shall carry on any business other than the business of borrowing or
lending in its own name:
• No Nidhi Company shall accept deposits from or lend to any person, other than its
members;

• No Nidhi Company shall pledge any of the assets lodged by its members as security;

• No Nidhi Company shall take deposits from or lend money to any body corporate;

• No Nidhi Company shall enter into any partnership arrangement in its borrowing or
lending activities;

• No Nidhi Company shall issue or cause to be issued any advertisement in any form for
soliciting deposit:
• However, the private circulation of the details of fixed deposit Schemes among the
members of the Nidhi carrying the words "for private circulation to members only" shall
not be considered to be an advertisement for soliciting deposits.
• No Nidhi Company shall pay any brokerage or incentive for mobilizing deposits from
members or for deployment of funds or for granting loans.
Examples of Nidhi companies in India
• Racmak Nidhi Limited
• MABEN NIDHI LIMITED
• Mini Muthoottu Nidhi Ltd
• TBF NIDHI (K) LTD
• Muthoottu Nidhi (Kerala) Limited
• Jayant India Nidhi Limited
• Kalayil Nancy Nidhi Limited
• Taxway Wealth Nidhi Limited
• Swasthirtha Nidhi Ltd.(Maharashtra)
• SaiAmrit India Nidhi Ltd.
• Orianna Futures India Nidhi Limited
• Navika India Nidhi Limited
• Royalbenefit mutual india nidhi limited.