Loan and interest of Nidhi Company: A Legislative Requirement

This article throws light about the working of Nidhi Company Loan system and charging of loan and Interest by Nidhi Companies, from the legislative requirement. Nidhi Company is a kind of Non-Banking Financial Institution-NBFC. However, there is a fundamental difference in the working of the two institutions. Nidhi Company is bound to accept deposits from the registered members and provide loans to its members only. This means Nidhi Company loans are for the shared advantage for its members. The Nidhi company registration is done to inculcate the habit of thrift and saving among its members.

The banking system of the country comprises the backbone of the economy. In India, banks have reached the poor, however facilities have not reached them. The informal banking system is still prevalent in our country. To regularise the functioning of the banking system, RBI^[1] has formalised the channels of NBFC. There are financial institutions in the form non-banking have been formed like Nidhi Company. The Nidhi Company have reached to the smaller sections of the society.

Working of Nidhi Company Loan System

They function as:

1. Where the registered members accumulate their savings together.
2. The Nidhi Company Loan system is that, where they charge rate of Interest on loans provided to its members and has the facility to offer various  types of loans to members.
3. The Interest charged on the loans offered by a Nidhi Company is regulated by the Ministry of Corporate Affairs-MCA.
4. Nidhi Company loan cannot be more than the interest rate specified by RBI and MCA.

Features of Loans -Nidhi Company Loan System

The lending of money is a significant feature of the Nidhi Company. Here are some of the loans which can be provided by Nidhi Company Loan system:

• Loan to an Individual

A loan of Rupees 2 lakh to any individual, if the capacity stored is 2 Crores.

• No Unsecured loans

No unsecured loans or Microfinance loans by Nidhi Companies.

• Maximum Period of Gold Credit

The maximum period of Gold credit is 1 year

• Advance against property

The reimbursement period over the advance against property cannot exceed 7 years.

• For Gold Loan

In the case of gold loan, the maximum amount of loan which can be provided is 80 % of the Gold value.

• Loan against Property

Loan against property, the maximum amount which can be provided is 50% of the property value.

• No loan for vehicles

No loan for vehicles can be provided by Nidhi companies.

Features of Deposits made under -Nidhi Company Loan System

The acceptance of deposits is the key feature of Nidhi Company, here are some features:

1. The fixed deposits can be accepted for at least a minimum period of 6 months, and the maximum period is 60 months.
2.  In case of a recurring deposit, the minimum period is 1 year, and the maximum is 60 months.
3. The maximum limit over which bank account can’t surpass is Rupees 1 Lakh.

Maximum loans under Nidhi Company Loan System

S.No.	Particulars- deposit Amount	Loan Limit
1.	Deposit less than 2 Crores	Two Lakhs Rupees
2.	A Deposit of 2 crores less than 20 Crores	Seven Lakh fifty thousand
3.	Deposit more than 20 Crores but less than 50 Crores	Twelve Lakhs Rupees
4.	The total amount of deposit is more than 50 Crores	Fifteen Lakhs Rupees

 

Maximum Rate of Interest to be Charged by- Nidhi Company Loan

Rule 16 of Nidhi Company Rules, 2014

The maximum rate of Interest which is chargeable under Nidhi Company Loan system-

7.5% + Maximum Rate offered on Deposits

It can be understood as:

S.No.	Fixed Deposits	Recurring Deposits	Savings	Margins	Maximum Rate of Interest on Loan
1.	8%	6%	4%	7.5%	15.5%
2.	6%	7%	5.5%	7.5%	14.5%
3.	6.5%	7.6%	7.9%	7.5%	15.1%

Nidhi Company Loans are advanced towards securities

1. Gold Loan

• Maximum finance against gold shall be up to 80%.
• The time period for repayment shall be 12 months.
• Rate of Interest shall not exceed 7.5%+ maximum rate of Interest on gold loan.
• Maximum loan to be advanced is Rs. 2 Lakh.

2. Loan against Immovable Property

• Maximum loan can be of Rs. 2 Lakh.
• Repayment period maximum of 60 months.
• Maximum finance is 50%.

3. Loan against FDR and Deposits

• The repayment period shall not exceed the period of deposit.
• The maximum finance can be provided up to the value of Fixed Deposits under Nidhi Company.

4. Loan against NSC or Government Bonds

• It is rarely used.

5. Unsecured loan by Nidhi Company

• It is completely prohibited under the company.

6. Vehicle Finance

• Vehicle Finance is not allowed.

Rate of Interest on Deposits Offered by Nidhi Company Loan System

1. Fixed deposits

• The Interest shall not exceed the maximum rate of Interest prescribed by the RBI which the NBFC can pay to its public deposits.
• The maximum rate of Interest offered by Nidhi Company is 12.5%.

2. Recurring Deposits

• It is the type of monthly investment scheme.
• The rate of Interest cannot exceed the Interest by the RBI over fixed deposits.
• The maximum rate of Interest is 12.5%.

3. Saving Deposits

• The Nidhi Company loan system can offer maximum up top 6%.

Conclusion

It can be concluded that the rate of Interest on loans should be charged using the reducing balance method. The Company Loan system shall be to charge the same Interest in respect of the same class of loans, and no discrimination shall be done between anyone. The Nidhi Company loan rate of Interest will be displayed at the notice board at the registered office and branch office. When the request is made   to a Nidhi Company to repay the deposit after 3 months, the depositor shall not be entitled to any interest up to 6 months from the date of the deposit. Where the depositor requests the Nidhi to repay the deposit amount before the expiry of the period for which it is accepted, the rate of Interest shall be reduced by 2 % as the amount is withdrawn prematurely. The Nidhi Company registration under the category of NBFC is making an informal financial institution a formal one, with rules like this.

Read our article:How to Register a Nidhi Company in India?