Searching for a loan at a reasonable rate? Learn about Nidhi Company Loan Rules, their lending services are highly competitive with interest rates lower than Banks and NBFCs.
Introduction:-
Nidhi Company has been mentioned and recognized under section 620A of the Companies Act, 1956, and again it has been mentioned under section 406 of the Companies Act, 2013. Get to Know about Nidhi Company Loan Rules.
Nidhi Company has a very limited scope, and objects, the sole purpose of this company is to promote savings and deposits among its members.
As per the Ministry of Corporate Affairs records, there are approximately 350 such companies currently exist in India. Nidhi Company works on a simple model. It accepts deposits from its members by way of recurring, fixed, and saving deposits, which it distributes to other members by way of loans and advances.
Services:-
All the facilities and services of Nidhi Company are restricted only to lending and borrowing only, these services can only be availed by the members who are also the equity shareholder of such company.
The company, after its incorporation, must have at least 200 members within a period of one year, failure to do so, the company shall make representation to the regional director who is appointed by the central government under the Ministry of Corporate Affairs in the appropriate form NDH2 for extension of time.
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Limitation
There is a certain compulsive restriction of Nidhi Company, and under no circumstances shall it carry on any business activity related to insurance, chit fund, hire purchase, lease financing, and acquisition of securities by any Body Corporate. Nidhi Company Registration is prohibited from issuing any kind of preference rights shares, debentures, or any kind of instrument, whether convertible, non-convertible, irredeemable, or redeemable. Nidhi Company cannot operate on the current account of its members.
Nidhi Company cannot become a holding or subsidiary company by acquiring securities of other companies, nor can it influence control in the composition of the Board of Directors without seeking prior approval of the regional director along with a special resolution passed in the Annual General Meeting (AGM). Nidhi Company cannot engage in any kind of business other than lending and borrowing to its members under the purview of Nidhi Company Loan Rules, 2014. Not It can enter into any partnership for lending and borrowing business neither it can advertise for soliciting such deposit schemes.
Deposits
Members of Nidhi Company are only eligible to open an account and deposit by way of saving, recurring, and fixed deposits. Members can opt for a fixed deposit for a minimum period of six months, and such a deposit can be accepted for a maximum period of sixty months that is 5 years.
In the case of a recurring deposit, a minimum period is twelve months, whereas the maximum period is sixty months. The company shall allot a minimum of ten equity shares having a nominal value of ten each to the deposit holder having a value of ₹100. In the case of recurring and saving account holders, at least one equity share of ₹10 each.
The maximum amount to qualify for interest on a savings account shall not exceed more than ₹1 lakh. The rate of interest on deposits shall not exceed the maximum rate prescribed by the Reserve Bank of India for NBFC on the public deposit.
Loans
We can provide Nidhi Company Loan Rules only to its members. Loans sanctioned by Nidhi to its members are subject to certain terms and conditions.
1.₹2 Lakh, if the total amount of deposits of Nidhi is less than ₹ 2 crore.
- Seven Lakh Fifty Thousand rupees, if the total deposits from its members are more than ₹2 crore but less than ₹20 crores.
- ₹12 lakhs if the total deposits from its members are more than ₹ 20 crore but less than ₹ 50 crore.
- ₹15 lakhs if the total deposits from its members are more than ₹50 crore.
In case Nidhi has not made continuous profits for the last three financial years, Nidhi shall not sanction any further with Nidhi Company Loan Rules exceeding fifty per cent of maximum loans.
Calculation of total deposits shall be based on the last audited annual financial statement.
Tenure of Loan and Securities
A loan to its member can be passed against securities, provided that only a limited asset is considered as security in Nidhi. Here as follows:
- Jeweler of gold or silver: The repayment period cannot be more than one year. If the delay in payment goes beyond 3 months, Nidhi can sell off the security.
- Immovable property: A loan against immovable property cannot exceed more than 50% of its value. Repayment of such loan shall exceed 7 years.
- National saving certificate, insurance policy, fixed deposits, and other government securities: Provided that the maturity date of such securities must be beyond the loan period or one year, whichever is earlier.
Interest Rates
The rate of interest on loans in Nidhi shall not exceed more than 7.5 % beyond the highest rate offered on deposits by Nidhi Company. It must be calculated on the reducing balance method.
E.g., if XYZ Nidhi Ltd. Gives 8% interest p.a. on the savings account, which is the highest interest rate provided by XYZ Nidhi Ltd. Then the interest rate on loan cannot exceed more than 15.5% p.a. (Saving interest 8% [highest interest rate] + 7.5% [maximum interest on loan])
The rate of interest in the same class of loan must be the same for all the members. Apart from that, as per rule16, Nidhi Company must list all the classes of loans and their interest rates on the notice board, which is accessible and available to all the members.
There are certain benefits of procuring loans from reports in the above-said circumstances. The idea of savings and deposits promoting transparency is an added advantage.
Due to its limited activity, the only source of income for Nidhi is to get as many members as possible due to transactions of loans and deposits that can coincide with each other, and with the rise in member’s equity share capital will also increase.
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FAQs
What is rule 5 of Nidhi rules?
Rule 5 of Nidhi Rules outlines the prerequisites for Nidhi companies to obtain a certificate of commencement, emphasising compliance with capital requirements, member criteria, and detailed documentation. Adhering to this rule ensures a structured and lawful commencement of operations for Nidhi companies, fostering transparency and regulatory compliance.
What is rule 7 of Nidhi rules?
Rule 7 of Nidhi Rules encompasses the essential procedures for Nidhi companies to accept deposits, defining the eligibility criteria and limits for members. This rule establishes a framework for Nidhi companies to responsibly manage and utilise member funds while maintaining financial stability and regulatory adherence.
What are the new Nidhi Rules 2023?
A Nidhi Company must maintain a minimum of 200 members consistently. While it can be established with an initial membership of 7 individuals, it is mandatory to augment the member count to 200 within the first 120 days of incorporation.
What is the rule 3 of Nidhi rules?
Rule 3 of Nidhi Rules is a foundational guideline that defines the core objectives and activities permissible for Nidhi companies. It delineates the scope of operations, emphasising the mutual benefit principles that govern Nidhi companies. Understanding Rule 3 is crucial for Nidhi companies to align their functions with regulatory expectations.
What is the loan limit of Nidhi?
The loan limit of Nidhi companies is regulated by Nidhi Rules, restricting the maximum amount that can be lent to its members. Complying with these limits ensures that Nidhi companies operate within the defined financial parameters, promoting responsible lending practices and safeguarding the interests of both the company and its members.
What are the limitations of Nidhi Company?
Nidhi companies have limitations imposed by regulatory frameworks to ensure prudent financial management. These restrictions encompass constraints on the nature of business activities, geographical reach, and capital utilisation. Adhering to these limitations is crucial for Nidhi companies to maintain legal standing, financial stability, and uphold the trust of their members.
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