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This article throws light on the working of the Nidhi Company Loan system and the charging of loans and Interest by Nidhi Companies from the legislative requirement. Nidhi Company is a 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 registered members and provide loans to its members only. This means Nidhi Company loans are for the shared advantage of 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 banking system’s functioning, RBI
has formalised the channels of NBFC. Some financial institutions like Nidhi Company have been formed in the form of non-banking. The Nidhi Company has reached the smaller sections of society.
They function as:
The lending of money is a significant feature of the Nidhi Company. Here are some of the loans which can be provided by the Nidhi Company Loan system:
The acceptance of deposits is the key feature of Nidhi Company; here are some features:
Rule 16 of Nidhi Company Rules, 2014
The maximum rate of Interest which is chargeable under the Nidhi Company Loan system-
7.5% + Maximum Rate offered on Deposits
It can be understood as:
It can be concluded that the rate of Interest on loans should be charged using the reducing balance method. The Company Loan system shall 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 on the notice board at the registered and branch offices. When the request is made to a Nidhi Company to repay the deposit after three 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before the expiry of the period for which it is accepted, the rate of Interest shall be reduced by 2 % as the amount is withdrawn prematurely.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.
The interest rate varies between 4 and 11 per cent.
The maximum amount of financing secured by gold is 80%. There will be a 12-month payback period. The maximum rate of Interest on a loan secured by gold must not be more than 7.5 per cent.
Yes, these savings are safe and secure since the Reserve Bank of India and the Ministry of Corporate Affairs have established certain laws and guidelines to assure the safety and security of deposits.
The interest rate on Nidhi loans cannot be more than 7.5% over the highest rate Nidhi Company is willing to provide on deposits.
In the event that the total contributions for the Nidhi are less than two crore rupees, a maximum of two lakh rupees may be granted. Loans may be granted in exchange for a guarantee, such as gold, silver, or other priceless jewels.
In the event that the total contributions for the Nidhi are less than two crore rupees, a maximum of two lakh rupees may be granted. Loans may be granted in exchange for a guarantee, such as gold, silver, or other priceless jewels. The maximum payback duration should be one year.
Nidhi Company is only permitted to conduct loan and borrowing activities for its members.
Personal loans, auto loans, hire-purchase loans, and microloans are not permissible from Nidhi Companies. The Firms Act governs Nidhi firms, which are created with the intention of instilling the habit of saving among its members.
Nidhi Finance India must always maintain a minimum net-owned fund of Rs. 10 lahks and a minimum liquidity ratio of 20%. They may provide a range of goods, including loans, recurring deposits, and fixed deposits. They are not allowed to take part in any investment operations.
Rule 14 of the Nidhi Rules 2014 states that unencumbered term deposits must make up at least 10% of total deposits.
No Nidhi may re-appoint or nominate the same person as an auditor for more than one term of five years in a row.
Every Nidhi must abide by the prudential standards set out in this article for the revenue recognition and asset classification of mortgage loans and gem loans.
(1) A Nidhi may only open branches if it has continually generated net profits after tax for the previous three fiscal years. (2) A Nidhi may establish up to three branches in the district, subject to the restrictions in sub-rule (1).
A Nidhi firm is not permitted to offer fixed-deposit interest rates that are higher than the maximum rate of Interest set by the RBI for NBFCs to pay on their customers’ deposits. NBFCs may offer depositors a maximum interest rate of 12.50%.
There is a minimum fixed deposit period of six months and a maximum fixed deposit period of sixty months. A minimum of 12 months and a maximum of 60 months can be accepted for recurring deposits.
A Nidhi Company Registration Online may only offer loans to and receive deposits from its members in accordance with the conditions of the regulations, 2014. Due to the lower chance of loan default compared to other firms of a similar kind, it becomes a less hazardous investment.
In India, a Nidhi business is a non-banking financial organisation (NBFO) that was established to encourage members to save more and build up reserve reserves. The business only has the ability to lend money to its representatives for their mutual benefit after receiving it from them.
The only goal of Nidhi Company, which has a very narrow range of objectives, is to encourage savings and deposits among its members. According to data kept by the Ministry of Corporate Affairs, India now has about 350 such businesses.
Read our article:How to Register a Nidhi Company in India?
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