Nidhi Company

Maximum Rate Interest Loan by Nidhi Company

As per Companies Act, 2013 interest on a loan made by Nidhi company has been well regulated by MCA and Nidhi company registered under the act cannot charge interest on loan more than interest rate specified by MCA & RBI.

What is Maximum Rate of Interest on Loan by Nidhi company?

According to rule 16, the rate of Interest to be charged on loan given by Nidhi shall not go above seven and a half percent (7.5%) above the highest rate of interest offered on deposits by Nidhi. In other words, 7.5% is the gross margin that a Nidhi Company is able to earn from the operations.

Formula derived:

We can form a formula out of the above explanation:

Maximum Rate of Interest on Loan = 7.5% + Maximum rate offered on deposits.

Explanation

As per the rule, 7.5% can be added to the maximum interest rate offered on deposits. Deposits consist of Saving, Fixed Deposits, and Recurring deposits. Over the highest rate of interest offered on deposits by Nidhi and shall be calculated by reducing balance method:

Provided that Nidhi shall charge the same interest rate on borrowers regarding the same class of loans and the rates of interest of all classes of loans shall be obviously displayed on the notice board at the registered office and each branch office of Nidhi.

Example

So, even if Mr. A has 99% recurring deposits and 1% fixed deposits with higher Interest rate offered, in that case, the 7.5% margin will be added to Interest offered on Fixed Deposits. Hence, the margin of Nidhi Company can be more than 7.5% if properly planned.

Relationship with RBI

Also, one must remember that though Nidhi Companies aren’t registered with Reserve Bank (RBI)^[1], somehow Reserve Bank (RBI) does affect the working of Nidhi Companies. The chain actually works as under:

The interest chain:

                  

Conclusion

These compliances are much more important than just registering the company and hence, it is always important to comply properly with the norms to keep your company legally fit.