A guide and introduction to Nidhi Business.
Updated: Sep 17, 2020
Nidhi Introduction: A Nidhi Company, is one that belongs to the non-banking Indian finance sector and is recognized under section “406” of the Companies Act, 2013. Their core business is borrowing and lending money between their members. Nidhi Companies are created for cultivating the habit of saving amongst the members.
Nidhi Companies can accept/lend funds only from/to its members. They are regulated by Ministry of Corporate Affairs, Section “406” of Companies Act 2013 and Companies (Nidhi Companies) Rules, 2014 govern Nidhi companies. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities, However as Nidhi Companies only accept/lend funds only from/to its members, RBI has exempted Nidhi Companies from the core provisions or regulations applicable on NBFC.
Business sectors of a Nidhi Limited Company:
We can divide operations on Nidhi in two parts
A. Accepting Deposits
B. Lending Money
Accepting deposits: As mentioned in introduction a Nidhi can only do business with their members therefor Nidhi companies can open following deposit accounts of their members
Saving Deposit Account
Recurring Deposit Account (RD)
Fixed Deposit Account
(A member can have all three deposit accounts in a nidhi.)
Lending Money: Nidhi companies are allowed to do only secured loan business with their members and cannot lend money without prescribed securities. Nidhi companies are allowed to provide loans against following securities only:
A. Gold, Silver and Jewellery.
B. Immovable property.
C. Fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies
Restrictions on Nidhi Companies
There are some restrictions on Nidhi Companies under Nidhi Rules, 2014. According to Rule ‘6’ of Nidhi Rules, 2014, a Nidhi Company shall not:
1. Carry on the business of-
· Chit Fund,
· Hire Purchase finance,
· Leasing Finance,
· Insurance or Acquisition of Securities issued by anybody corporate.
2. Issue Preference Shares, Debentures or Any other debt instrument by any name or in any form whatsoever.
3. Open any Current Account with its members.
4. Acquire another company by Purchase of securities or control the composition of Board of Directors of any company in any manner whatsoever or enter into any arrangement for the change of its management unless it has approved by a Special Resolution in its general meeting and also obtain the prior approval of Regional Director.
5. Carry on any business other than borrowing/lending in its own name.
(Nidhi which have adhered to all the provisions of Nidhi Rules may provide locker facilities on rent to its members on rental basis, but the rental income from such facilities not exceed 20% of the gross income of the nidhi at any point of the time.)
6. Accept deposits from or lend to any person, other than its members.
7. Pledge any of the assets that have been lodged by its members as security,
8. Take Deposits from or lend money to any body corporate,
9. Enter into any Partnership Arrangement in its borrowing or lending activities,
10. Issue or cause to be issued any advertisement in any form for soliciting deposit,
(Private circulation of the details of Fixed Deposit Scheme among the members of Nidhi carrying the words “ For Private Circulation to Members only” will not be considered as an advertisement.)
Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.
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