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A Nidhi company is a type of non-banking financial company (NBFC) that is specifically designed for deposit and lending activities among its members. It is governed by the provisions of the Companies Act, 2013, and the Nidhi Rules, 2014. Unlike other NBFCs, a Nidhi company does not require approval from the Reserve Bank of India and is exempt from some of the provisions of the RBI Act. A Nidhi company is required to comply with the provisions of the Companies Act, 2013 and the Nidhi Rules, 2014, as well as any other applicable laws and regulations.
The objectives of a Nidhi Company, also known as a Mutual Benefit Company, in India are typically to promote the habit of thrift and savings among its members and to create a source of mutual credit for them. The profits generated from the business operations of the Nidhi Company are meant to be distributed among its members in the form of dividends. The primary aim of a Nidhi Company is to serve the financial needs of its members, promote savings, and provide loans at reasonable rates of interest.
Public company: The Nidhi Company can be incorporated as a public company only.
Minimum number of directors and members: A Nidhi company must have at least 3 directors and 7 members.
Minimum paid-up capital: : A Nidhi company can be registered with a paid-up capital of Rs. 10 lakhs.
Name of the company: The name of the Nidhi Company must end with the words "Nidhi Limited".
Objectives: The main objective of a Nidhi company is to cultivate the habit of thrift and savings amongst its members.
Acceptance of Deposits: Nidhi companies can only accept deposits from their members and cannot accept public deposits.
Loan Limits: Nidhi companies can provide loans only to their members, and the loan amount cannot exceed the deposit amount made by the member.
Reserve Funds: Nidhi companies must maintain a certain percentage of their deposit liabilities as reserves.
Investment: Nidhi companies can invest only in government securities or bonds issued by other companies.
Auditing: Nidhi companies are required to undergo regular auditing and submit financial statements to the Ministry of Corporate Affairs.
Low cost of borrowing:
Nidhi Company offers loans to members at lower interest rates compared to other financial institutions. This makes it an attractive source of credit for members, as they can access funds at a lower cost. The low interest rate is due to the mutual benefit structure of a Nidhi company, which allows it to operate without the need to generate high profits. Instead, the aim of a Nidhi company is to serve the financial needs of its members and promote savings.
Easy access to credit:
Nidhi Company provides easy access to credit for its members. As a mutual benefit company, the aim of a Nidhi Company is to serve the financial needs of its members, and providing loans is a key part of this mission. Members can easily apply for loans and access credit without going through the rigorous processes required by other financial institutions, making it a convenient source of funding for those in need.
Promotion of Savings:
Promoting savings is one of the primary objectives of a Nidhi company. The aim of a Nidhi Company is to encourage members to regularly set aside a portion of their income for future use. By promoting the habit of thrift and saving, a Nidhi Company can help members build a financial cushion and prepare for unexpected expenses. This, in turn, contributes to financial stability and security for both individuals and the community as a whole.
Dividends:
The profits generated from the business operations of a Nidhi company in India are distributed among its members in the form of dividends. This provides a source of additional income for members and aligns with the mutual benefit structure of the company. The goal of a Nidhi Company is not to generate high profits, but rather to serve the financial needs of its members and promote savings. The distribution of dividends among members is one way to accomplish this.
Community development:
Another benefit of a Nidhi company in India is that it can play a role in community development. By providing members with access to credit and financial services, a Nidhi Company can support individuals and small businesses in the community, promoting economic growth and stability. This, in turn, contributes to the overall development of the community. As a mutual benefit society, a Nidhi Company can also play an important role in building a sense of community and encouraging members to support each other financially.
Ease of operation:
The formation and operation of a Nidhi Company are relatively straightforward compared to other financial institutions, making it an attractive option for small and medium-sized enterprises. The simple structure and streamlined processes of a Nidhi Company make it a convenient option for those seeking to access credit or invest their savings. Additionally, the mutual benefit structure of a Nidhi Company allows it to operate without the need to generate high profits, making it a less complex and less regulated option compared to other financial institutions.
Passport-size photographs
Copy of Members PAN Card
Copy of members' identity proof (Aadhaar Card, Voter Card, Driving Licence, or Passport)
Copy of member's address proof (latest bank statement or any latest utility bill)
Copy of address proof (latest utility bill) for the registered office of the company.
Copy of the NOC or rental agreement permitting the use of the premises for the registered office.
The first step in the incorporation of Nidhi Company is to obtain the digital signatures of all seven members. The following documents are required for digital signatures:
The second step for the registration of Nidhi Company is the filling out of an application for approval of its name. Form Spice+ Part A is used for name reservation. Two names can be filed in this form. The name must be unique, and it should not resemble the name of any existing company. The availability of the trademark shall also be checked.
After the reservation of the name, the next step is to prepare the SPICE+ Part B form. With this form, KYC of all members and directors, E-MOA, E-AOA, registered office address proof, and rent agreement or NOC are filed with the Registrar of Companies, CRC.
After filling out Form SPICE+ Part B, ROC will check the form and attached documents. If all the documents are in order and the ROC is satisfied, he will issue a certificate of incorporation for the company.
We must understand the key features of Nidhi Company if we want to understand the concept of Nidhi Company in the best way.
RBI approval is not required. The RBI regulates the finance industry in India. Nidhi Company does not require approval from the RBI to do finance business.
Can open 3 branches: The Nidhi Company can open three branches within the district where its registered office is situated after three years.
Loan against security only: The Nidhi company can lend against the security of gold, property, FDs, and government securities.
Interest on Loan: The Nidhi Company can charge a maximum of 20 percent interest on loans using the reducing balance method.
Interest on deposits: The Nidhi Company can accept RD and FD at a 12 percent rate of interest.
Microfinance is not allowed in Nidhi Company: Nidhi Company cannot do microfinance business activities.
Nidhi companies are subject to certain restrictions and limitations in their business activities. The following are certain circumstances under which Nidhi Company cannot deal, accept deposits, or lend funds:
After the registration of Nidhi Company, the following requirements must be met:
200 Members:
The Nidhi company must have 200 members within 120 days of incorporation.
Net worth of Rs. 20 lakhs:
A Nidhi company must have a net worth of Rs. 20 lakhs within 120 days from the date of its incorporation.
Filling out Form NDH-4:
After completing 200 members and increasing its net worth to 20 lakhs, Nidhi Company must file Form NDH-4 within 120 days of incorporation to declare the company a Nidhi Company. Company can do business only after the approval of NDH-4.
Filling out the Form INC-20A:
Nidhi Company must file Form INC-20A within 180 days of incorporation.
Ratio of net owned funds:
The ratio of net owned funds to deposit shall be not more than 1:20;
Unencumbered term deposits:
Nidhi Company must maintain unencumbered term deposits of not less than 10% of the outstanding deposits.
Branches:
A Nidhi company cannot open branches outside the district where its registered office is situated.
Nidhi Company can take deposits and lend money only to its members. Let’s understand in brief the loan and deposits under Nidhi Company.
Loan under Nidhi Company
Deposits under the Nidhi Company
FORM NDH - 1 Filing with ROC (Only for Companies Incorporated Before 19-April-2022)
NDH-1 is a yearly regulatory filing requirement for Nidhi companies as per the Nidhi Rules. It is a one-time annual statement that must be filed with the Registrar of Companies (ROC) to maintain the Nidhi Company status with the central government. If the NDH-1 return is not filed in a timely manner, it may result in the loss of the Nidhi Company status.
E-FORM NDH-4 (within 120 days of incorporation)
NDH-4 is a form used by companies to apply for recognition as a Nidhi company by the Central Government. This form must be filed within 120 days of incorporation. The main requirements for filing the NDH-4 form are that the company must have a minimum of 200 members and a net owned fund (NOF) of not less than INR 20 lakhs.
Form NDH-3 (HALFTIME YEARLY RETURN)
NDH-3 is a half-yearly regulatory filing requirement for Nidhi companies as per the Nidhi Rules. It is a return that must be filed twice a year, by September 30 and March 31 each year, to ensure that the Nidhi company is operating in compliance with the rules and regulations.
FORM MGT-7
Form MGT-7 is used to file the annual return of a company with the Registrar of Companies (ROC). The annual report contains information about the company's directors, shareholders, and other important details about the company's operations and financial position.
FORM AOC-4
Form AOC-4 is used to file the balance sheet and profit and loss account of a company with the Registrar of Companies (ROC). The form contains financial information such as assets, liabilities, income, expenses, and other important details about the company's financial performance.
Income Tax Return
Nidhi Company, like any other company, is required to file an income tax return to report its taxable income and calculate its tax liability. The company must declare all sources of income, such as interest earned on deposits, profits from lending activities, and any other taxable income. The income tax return must be filed annually by the due date.
"Nidhi" is a Sanskrit word that means "treasure". A Nidhi company is a type of financial company regulated by the Ministry of Corporate Affairs. It is a type of non-banking financial company that is registered under the Companies Act, 2013. The primary business of a Nidhi company is to provide loans to its members, who are shareholders of the company. The company mobilises funds from its members by accepting deposits and utilises these funds to provide loans to its members, while adhering to the guidelines set by the Reserve Bank of India.
Nidhi Company can be formed as a public company only. A minimum of seven members is required for forming a Nidhi company.
Nidhi companies are a specific type of NBFC and do not require RBI approval to operate in India.
Microfinance business is not allowed for Nidhi companies. As per the guidelines set by the Ministry of Corporate Affairs, the primary business of a Nidhi company is to accept deposits from its members and to lend those funds to its members only. They cannot engage in microfinance activities or provide loans to non-members.
According to the provisions of the Companies Act of 2013 and Nidhi Rules, a Nidhi company can open up to three branches after three years of continuous profit-making. These three branches can be opened within the district where the registered office of the company is located. Further, to open any branch outside the district, approval from the RD is required.
According to the provisions of the 2013 Companies Act and Nidhi Rules, a Nidhi company is allowed to take a maximum of 20 times its net owned fund. Net owned funds (NOF) is the total of paid-up share capital and free reserves less accumulated and intangible assets as appearing in the last balance sheet.
A minor cannot be admitted as a member of a Nidhi company. However, deposits can be accepted in the name of a minor if they are made by the minor's natural or legal guardian, who must be a member of the same Nidhi company. The minor's natural or legal guardian is responsible for managing the minor's deposit account until the minor reaches the age of majority.
The principle of mutual benefit has been to pool the savings of members and lend only to members, never dealing with non-members.
Nidhi shall not issue preference shares.
Equity shares of the nominal value of not less than ten rupees shall be issued by each Nidhi company.
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