Nidhi Company: Can you get loans under Nidhi Company?

Last Updated at: January 07, 2020
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Nidhi Company: Can you get loans under Nidhi Company?

The title for the name “Nidhi Company” came from the Hindi word ‘Nidhi’ meaning treasure. They follow the Companies Act, 2013 and are regulated by the Ministry of Corporate Affairs in conjugation with the Reserve Bank of India. They have been formed mainly for encouraging people to invest in their savings and are hence also called mutual benefit societies. 

  • They have been established to inculcate in its members the habit of saving and investing in the right manner. 
  • Members can deposit, and accept loans from these mutual benefit institutions and hence they are considered a secure means of investment.
  • As investing and financial sectors get increasingly complex, small families and members of rural populations find it exceedingly hard to invest their hard-earned money. It is to assist such households that the concept of Nidhi Company was introduced. 
  • While this business structure is more popular in South India, they have sprung up all over India thanks to their ease of working.

Regulations

The Nidhi Company comes under section 20A of the Companies Act, 1956 and is regulated by the Ministry of Corporate Affairs. The primary source of funding for them comes from the members themselves in the form of deposits. To provide benefits to members, loans are granted by the company at relatively reasonable rates for house construction, repairs and maintenance.  

Basic guidelines

    • Nidhi Company is listed as a Public Limited Company.
    • The objectives of the Nidhi Company are to encourage saving, receive deposits and lend money to members for mutual benefit. 
    •  Nidhi Companies must acquire at least 200 members, within one year of its founding.
    • Further, within one year they must possess Rs 10 lac or more as deposits and the ratio of funds to deposits must not exceed 1:20. 
    • Must have a minimum equity share capital of rupees five lakhs. 
    • Every company following the scheme should have the words “Nidhi Limited” in its name.
    • Within 90 days of the end of the first financial year since its founding, the Nidhi Company must file for a return of compliances as mentioned in Form NDH-1 along with the required fees.
    • Failure to comply with the rules as mentioned earlier will result in the Nidhi Company being unable to receive deposits and will also result in them being liable to legal repercussions. 
    • Every Nidhi may issue shares for a value not less than ten rupees each, but shall not levy any added service charge.  
    • Each deposit holder may be provided with a minimum of ten shares or equity worth one hundred rupees.
    • The maximum balance in a savings account should not exceed one lakh rupees.

Regsiter Your Nidhi Company

Deposit conditions

  1. The number of deposits accepted must not exceed 20 % of their net owned funds.
  2. The fixed deposit may be accepted for a minimum of 6 and maximum of 60 Months while the time period for recurring deposits may range between 12 to 60 months.
  3. The interest rate can never exceed 2 % of the rate as offered by a national bank. 

Provisions for loan

  1. While they are provisions for loans within the framework of the Nidhi Scheme, the amount of interest levied on such loans shall amount to at least the rate of interest as prescribed by the RBI. 
  2. In some instances, the guarantee or security for procuring the loan is provided by the company while the credit is delivered to a Subsidiary Company from the financial institution. 
  3. The approval of the Ministry of Corporate Affairs or the department of commerce of either the Central or State Government is required prior to giving out any loan. 
  4. Loans may be given out only to members of the Nidhi Company and may not be given to Corporate bodies. 
  5. There are limits on the amount that can be provided. 
  6. A maximum of two lakh rupees may be issued if the total deposits of the Nidhi come below two Crore rupees.
  7.  Loans may be handed out on the basis of some form of security such as gold, silver or other types of valuable jewellery.  
  8. The repayment period should not exceed one year. 
  9. The loan against an immovable property such as a house or a fixed asset should not exceed fifty per of the rate approved by the board. The repayment period for such loans should not exceed the time frame of seven years. 
  10. The maturity date of securities like fixed deposits, savings certificates and insurance policies should not exceed the loan period or one year. 
  11. For loans against fixed deposits, the period of credit should not go beyond the expiry period of the fixed deposits.

Loans

  1. Amount 2 lakh – For a deposit of 2 crore
  2. Amount 7.5 lakh – Deposit between 2 and 20 crores
  3. Amount 12 lakh – Deposit between 20 and 50 crores
  4. Amount 15 lakh – Deposit greater than 50 crore

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