Introduction
Nidhi Finance Bank is a company where several people pool their funds together to constitute one large corpus fund which serves the sole purpose of providing financial assistance to the members of the company in the form of loans. These loans are given out at reasonable rates which are usually lower than the market rates. These loans are mostly taken for personal purposes. These loans are generally secured loans backed up with collateral assets
Nidhi Finance Bank and Companies are also commonly known as Permanent Funds, Benefit Funds, Quasi Bank, Mutual Benefit Funds, and Mutual Benefit Companies. This type of company is quite popular, especially in the southern part of the country, and are considered to be a localised single-office institution. They are mutual benefit societies as their dealings are restricted to their members and the membership is limited.
Since most of the funds come from the members, deposits thus raised by a Nidhi company are not much as compared to the organised banking sector. Since Nidhis are categorized as NBFCs, the RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities.
However, since Nidhis deal with their shareholder-members only, RBI has exempted such notified firms from the core provisions of the RBI Act and other directions applicable to NBFCs. As on date (February 2013) RBI does not have any specified regulatory framework for Nidhis.
Loans Under Nidhi Finance Bank
Fund lending is a major feature for a Nidhi Finance Bank. Here are some important points:
- The maximum loan to one person will not exceed ₹200,000 if the deposit is less than ₹2 crore
- A Nidhi Company cannot give any unsecured loans or a micro finance loans
- The maximum period of a gold loan is 1 year
- The repayment period for a loan against property cannot exceed 7 years
- The maximum gold loan can be 80% of the value of the gold
- Maximum loan against a property cannot exceed 50% of the value of the property
- A Nidhi Company cannot provide vehicle loans.
Interest Rates on Deposits
There are essentially two types of deposits on which the interest is provided which are as follows:
- Fixed deposits (FD): The maximum rate should not exceed the rate provided by the NBFC which is currently 12.5%
- Recurring deposit (RD): The maximum rate should not exceed the rate provided by the NBFC which is currently 12.5%.
Interest Rates on Loans
There are essentially three types of loans which are provided by a Nidhi.
- Gold/Silver loan: Maximum rate should be 7.5% plus the max rate given on deposits. e.g. 7.5% + 12.5% = 20%
- Loan against property: The maximum rate should be 7.5% plus the maximum rate given on deposits. e.g. 7.5% + 12.5% = 20%
- Other Loans (includes against FD): Maximum rate should be 7.5% plus the max rate given on deposits. e.g. 7.5% + 12.5% = 20%
Acceptance of Deposits Under Nidhi Company
The acceptance of deposits is one of the major features for a Nidhi Finance Bank and, therefore, one must adhere to the Nidhi rules. Here are some important points:
- A fixed deposit can be accepted for a minimum of 6 months and a maximum of 60 months
- Recurring deposits can be accepted for a minimum of 12 months and a maximum of 60 months.
- A maximum balance on which the interest is given under the savings account cannot exceed ₹ 100,000.
Additionally, The points given below are also important for repayment of deposits:
- No deposit can be redeemed within 3 months
- If the deposits are redeemed before maturity, then the interest provided will be reduced by 2%.
Applicability of Nidhi Finance Bank
The Centre made ‘Nidhi Rules, 2014’ for the purpose of carrying out the objectives of ‘Nidhi’ companies. These rules shall be applicable to:
- A Nidhi or Mutual Benefits registered under Section 620A(1)of Companies Act, 1956
- Every company functioning on the lines of a Nidhi company or mutual benefit society but has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under Section 620A(1)of Companies Act, 1956
- Every company incorporated as a Nidhi with respect to the provisions of Section 406 of the Companies Act, 2013.
Things To Keep In Mind Before Start A Nidhi Company
There are certain important basics in starting a Nidhi Company. Business owners can decide to start a Nidhi company based on the benefits that you can enjoy. There are certain restrictions and deposit conditions when starting a Nidhi company. A clear idea on Nidhi company is required when you’re new to the business.
Benefits Of Registering Nidhi Company In India
As per provisions of the Nidhi Rules, 2014, a Nidhi Company can provide loans to and accept deposits from its members only. This makes it a less risky proposition as the risk of loan default is less as compared to other businesses of similar nature. Also, as all financial activities are restricted to the members only, there is less risk of external factors affecting the working of such companies. However, it’s one of the safest and the easiest way of inviting deposits from the public. Register them as members.
Features of Loans -Nidhi Company Loan System
Here are some of the loans a Nidhi company can provide:
- Loans for Individuals: A loan of ₹2 lahks is available to any individual if their capacity stored is ₹2 Crores
- No Unsecured Loans: Nidhi companies do not provide unsecured loans or Microfinance loans
- Maximum Gold Credit Period: The maximum period for Gold credit is one year
- Advance Against Property: The reimbursement period for advances against property cannot exceed seven years
- Gold Loan: For a gold loan, the maximum loan amount provided is 80% of the Gold value
- Loan Against Property: For loans against property, the maximum amount provided is 50% of the property value
- Vehicle Loan: Nidhi companies do not provide loans for vehicles.
Features of Deposits Made Under -Nidhi Company Loan System
- Fixed Deposits: Fixed deposits can be accepted for a minimum period of 6 months, with a maximum period of 60 months
- Recurring Deposit: For recurring deposits, the minimum period is one year, and the maximum is 60 months
- Bank Account Limit: The maximum limit that a bank account cannot surpass is ₹1 Lakh.
Maximum Loans Under Nidhi Company Loan System
| SI. No | Particulars Deposit Amount | Loan Limit |
| 1 |
Deposit less than ₹2 Crores |
₹2 Lakhs
|
| 2 |
A Deposit of ₹2 crores less than ₹20 Crores |
₹7,50,000 |
| 3 |
Deposit more than ₹20 Crores but less than ₹50 Crores |
₹12,00,000 |
| 4 |
The total amount of the deposit is more than ₹50 Crores |
₹15,00,000 |
Rate of Interest on Deposits Offered by Nidhi Company Loan
| S.No. |
Fixed Deposits |
Recurring Deposits | Savings | Margins |
| 1. | 8% | 6% | 4% | 7.5% |
| 2. | 6% | 7% | 5.5% | 7.5% |
| 3. | 6.5% | 7.6% | 7.9% | 7.5% |
Requirements for Nidhi Company
- A Nidhi Company Registration done under this Act shall be a public company;
- It must have a minimum paid up equity share capital of ₹5,00,000
- There will be no issuances of preference shares. If such shares had already been issued by a Nidhi Finance Bank before commencement of this Act, such preference shares are to be redeemed in accordance with the terms of issue of such shares
- The objective of such a firm would be to imbibe in the members a habit of thrift and saving and the services would only be restricted to its members
- The name must have Nidhi Limited
Let us now take a look at what follows the incorporation of a Nidhi Finance Bank Every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has a minimum membership of 200 people. It must also ensure that net owned funds are ₹10,00,000 or more (‘net owned funds’ mean the aggregate of paid up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet).
It must also ensure that the ratio of net owned funds to deposit is not more than 1:20. Unencumbered term deposits should not be less than 10% of the outstanding deposits, thus specified in Rule 14.
Rule 6 provides general restrictions. According to this rule, no Nidhi shall:
- Carry on the business of
- Chit Fund
- Hire Purchase Finance
- Leasing Finance
- Insurance or Acquisition of Securities issued by anybody corporate
- Issue of financial instruments
- Preference Shares
- Debentures or
- Any other debt instrument by any name or in any form whatsoever
- Open any Current Account with its members
- 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 Nidhi
- Carry on any business other than the business of borrowing or lending in its own name
- Accept deposits from or lend to any person, other than its members
- Must not pledge any of the assets that have been lodged by its members as security
- Take Deposits from or lend money to anybody corporate
- Enter into any Partnership Arrangement in its borrowing or lending activities
- Issue or cause to be issued any advertisement in any form for soliciting deposit
- Pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or the granting loans.
It’s imperative to note that Nidhis which have adhered to all the provisions of these rules may rent out facilities of lockers to its members. The rent must not exceed 20% of the gross income of the Nidhi at any point of time during a financial year.
Conclusion
As it can be seen from above, the process of incorporating a Nidhi Finance Bank can be quite harrowing. This is the case with all kinds of non-banking financial corporations because of the privacy they enjoy as to what to do with their funds, unlike a regular banking business.
So the government has to be thorough in its due diligence at the registration stage itself. So it is advisable to seek the help of the consul of a trained expert who has the experience and the knowledge regarding Nidhi Finance Bank registrations and regulations. If you have any further queries regarding Nidhi funds or require assistance with regards to registering a Nidhi business, get in touch with us and we will ensure that you receive the best advice as per your requirements and sound guidance throughout the process of your requirements.
Frequently Asked Questions
What is Nidhi in banking?
Nidhi refers to a company established to promote the culture of saving and building reserve funds among its members, along with accepting deposits and providing loans exclusively for their mutual advantage.
Is Nidhi bank under RBI?
Nidhis, included within the group of Non-Banking Finance Companies (NBFCs), primarily function within the informal money market. Nonetheless, since 1997, NBFCs have progressively fallen under the regulatory purview of the Reserve Bank of India (RBI).
Is it safe to use Nidhi bank?
Yes, Deposits of this nature are considered safe and secure because they adhere to regulations set forth by both the Ministry of Corporate Affairs and the Reserve Bank of India, ensuring their protection and security.
What is the limit of Nidhi loan?
The loan limit for deposits ranging from over twenty crore to under ₹50 crore is ₹12 lakh, while for total deposits exceeding ₹50 crore, the loan limit is ₹15 lakh.
What are the rules for Nidhi loan?
The Nidhi Company requires a minimum of 200 members, with the Net Owned Funds (NOF) amounting to at least ₹10 lakh more than the sum of paid-up equity capital, reserves, and surplus. Additionally, the deposits cannot surpass 20 times the NOF.
Is Nidhi Company legal?
Yes, Nidhi companies operate under the regulations outlined in the Nidhi Rules of 2014. As entities resembling Public Limited companies, they must adhere to two sets of regulations: those applicable to Public Limited companies under the Companies Act of 2013, and those specified in the Nidhi Rules of 2014.
How to start a Nidhi bank?
Step 1: Apply for DSC and DPIN Step 2: Approval of name Step 3: Submission of MOA and AOA Step 4: Obtain incorporation certificate Step 5: Get PAN, TAN and bank account
How to get profit from Nidhi Company?
Nidhi companies generate revenue by offering financial products and services, commonly referred to as investment companies. They provide diverse investment opportunities such as mutual funds, individual securities, and venture capital.
Who controls Nidhi Company?
The Ministry of Corporate Affairs regulates them and has the authority to issue directions regarding their acceptance of deposits.
What is the difference between Nidhi Company and bank?
The Nidhi Company operates as a mutual benefit organisation, distinct from for-profit corporations, while NBFCs must establish a current account. Nidhi Companies are prohibited from paying brokerage fees or offering inducements to mobilise members' funds.
