Rules Regarding Nidhi Company Setup in India
Nidhi Company Setup shall invest and continue to keep investing, in unencumbered term deposits with a Scheduled commercial bank (other than a co-operative bank or a regional rural bank), or post office deposits in its own name an amount which shall not
- It is registered under section 406 of Companies Act, 2013.
- It is governed by Nidhi Rules, 2014.
- It belongs to NBFC sector
- Their core business is borrowing and lending money amongst their members which complies with rules of Chapter XXVI of Companies Rules, 2014.
- Also known as Mutual benefit companies, permanent funds, benefit funds.
- They are primarily regulated by MCA.
- However, RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities.
- Incorporated in the nature of a public limited company, thus it has a two-faced
- No such RBI approval is needed for this sort of NBFC Registration in India.
- Their membership is limited to a ceiling & also it is only individuals who can participate.
- These type of Companies are generally in light in South India.
How Do They Work?
Here, the principal source of funds is a contribution from the members. The loans are given to the members at relatively reasonable rates for purposes such as house construction or repairs and are generally secured against some property or encumbrance.
The deposits or funds mobilized by Nidhi’s are limited when compared to the organized banking sector as they operate in a limited area with specific fund base. They can carry on the following business:
- They can provide loans to its members
- They can accumulate deposits from its members
- Loans should be subject to some limits.
A Nidhi company is incorporated as a public limited company with a minimum paid-up capital capped at 5 lakhs. It can’t issue preference shares, debentures or a debt instrument. The object must be stated in the MOA as cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.
Also, I must have NIDHI LIMITED at the end of its name after incorporation & all its dealings. It can’t open any current account with its members. Nidhi Company Setup
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Carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate
- 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
- Carry on the business of lending & borrowing other than in its own name.
- They may provide locker facilities to members provided that the rental income from such facilities should not exceed more than 20% of the gross income of Nidhi during the financial year.
- Pledge or get encumbered any property kept as security by the members.
- Take deposits or lend to & form body corporate.
- Prohibition on the issuance of any advertisement soliciting deposits from the general
- Payment of commission or brokerage in order to mobilize deposits from members.
- It can’t admit a Body corporate or trust as a member.
Every Nidhi Company Setup should ensure that its members should not get reduced to less than 200 at any point in time during the year. Also, a minor cannot be admitted as a member.
- Also, the equity shares issued should not have a nominal value less than 10 Rs. Each.
- Every Nidhi shall allot to each deposit holder at least a minimum of ten equity shares or shares equivalent to one hundred rupees.
- NOF requirement is 10 lakhs or such other higher amount as the central Gov. specifies from time to time in this behalf.
- Nidhi Company Setup shall invest and continue to keep investing, in unencumbered term deposits with a Scheduled commercial bank (other than a co-operative bank or a regional rural bank), or post office deposits in its own name an amount which shall not be less than ten percent of the deposits outstanding at the close of business on the last working day of the second preceding month.
- Provided that in cases of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director for the purpose of repayment to depositors, subject to such conditions and a time limit which may be specified by the Regional Director to ensure restoration of the prescribed limit of ten percent.
Limits on Loan Sanction:
- Loans can only be provided to members of the Nidhi Company Setup.
- Provided that where a Nidhi has not made profits continuously in the three preceding financial years, it shall not make any fresh loans exceeding fifty percent of the maximum amounts of loans specified in above table.
- 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.
- The ratio of NOF to deposits should not be more than 1:20
Amount of Deposit – Maximum of Loan amount given to members
2 Crores/2 lakhs
2 Crores – 20 Crores/7.5 lakhs
20 Crores – 50 Crores/12 lakhs
More than 50 Crores/15 lakhs
Securities to be Encumbered for Loan Purpose:
- Gold & Silver Jewellery (repayment period should not exceed 1 year)
- Immoveable Property (repayment period should not exceed 7 years)
- Fixed deposit receipts, NSC, Insurance policies other gov. policies