In India, a Nidhi Company is a particular kind of Non Banking Financial Company (NBFC) which lends money among its members. Unlike any other NBFCs, Nidhi Companies don’t need a licence from RBI but are governed by the Ministry of Corporate Affairs (MCA).
The MCA has created rules to help these companies operate smoothly and safeguard members’ interests. These regulations were modified in 2023. This article summarises these changes.
What’s a Nidhi Company?
A Nidhi Company borrows and also lends money principally among members. The word Nidhi means treasure in Hindi and represents the financial assistance these companies offer their members. The concept would be to motivate members to save and also offer some monetary help.
Key Nidhi Company Amendment Rules 2023
These are the Nidhi Company Amendment Rules 2023:
1. Issuance & Allotment of shares
- No preference shares: Nidhi Companies can’t issue Preference Shares. They can issue only fully paid up equity shares.
- Shares Minimum Value: This kind of equity shares must have a face value of Rs. 10.
- No Service Charges: Nidhi Companies can charge no service fee for issuing shares.
- Minimum Shares Requirements : Every member shall own at least one equity share worth Rs. 10. Deposit holders ought to also receive more than ten shares or shares worth Rs. 100.
2. Membership Rules
- Minimum Membership: A Nidhi Company needs to have 200 members. It may begin with 7 members but should increase to 200 within 120 days of incorporation.
- Membership Restrictions: Body Corporates, Trusts, and minors cannot become members. But a guardian could make a deposit for a minor.
- Transfer of Shares: Members can’t transfer over 50% of their shares when the company has an outstanding loan or deposit.
3. Branch Operations
- Definition of branch: Any office apart from the registered office is a Branch.
- Opening New Branches: A Nidhi Company could open only new branches if it has a net profit for the last three years and has filed annual accounts. It can open 3 branches in the district, but requires extra procedures for opening branches outside the state.
- Closing Branches: Closing a branch requires endorsement by the Board of Directors and the Regional Director, a public announcement in a paper and Registrar notification within thirty days of closure.
4. Acceptance of deposits
- Deposit Limits: A Nidhi Company may accept deposits as much as twenty times its Net Owned Funds.
- Fixed & Recurring Deposits: Fixed deposits have to be for six and 60 months and recurring deposits between 12 to 60 months. Premature withdrawals carry particular conditions and rates of interest.
- Savings Deposits (SDDs): The interest rate on savings deposits may not exceed 2% above the rate offered by nationalised banks and the total balance might not exceed Rs. 1,000,00.
- Unencumbered Term Deposits: At least 10% of outstanding deposits have to be invested in unencumbered term deposits with scheduled commercial banks or post offices.
5. Granting Loans
- Loan Limits: The Loan amount a Nidhi Company can grant depends upon its deposits. For instance, loans up to Rs. two lakhs is given if the overall deposits are under Rs. two crores. This particular limit increases with larger deposits.
- Collateral for Loans: The collateral for loans must be gold, movable property, fixed deposits or government securities.
- Interest Rates on Loans: The highest interest rate for loans is 7.5% over the top deposit rates. Interest must be computed from reducing balance and be uniformly applied and prominently displayed.
6. Directors’ Regulations
- Membership Requirement: Directors are members of the Nidhi Company.
- Tenure: Directors serve for as much as ten years. They could be reappointed only after two years.
- Qualifications: Directors have to have a DIN and shouldn’t be barred from holding the post.
7. Dividend Rules
- Maximum dividend: Nidhi Companies declare a Maximum Dividend of 25% each financial year.
Importance of 2023 Nidhi Company Amendments
These amendments are essential for Nidhi company registration for several reasons:
- Member Protection: They protect the members’ interests. As an example, the prohibition on issuing preference shares prevents members from being abused.
- Operational Efficiency: The amendments regulate branch openings and closures and keep Nidhi Companies running transparently and smoothly.
- Financial Stability: Rules on deposits and loans keep the company financially sound and stop it from overextending itself and risking members’ funds.
- Transparency: Requirements for public announcements and clear display of interest rates encourage trust and openness among members.
- Regulatory Compliance: The rules enforce that Nidhi Companies meet regulatory standards and stop financial malpractices.
Conclusion
The 2023 amendments to the rules governing Nidhi businesses are meant to increase transparency, protect members and make the Companies run smoothly. By following these rules, Nidhi Companies can continue promoting savings and also offer financial assistance to their members in a regulated and safe environment.
Anyone related to a Nidhi Company (as member, potential investor) or director must know these rules. Keeping informed and compliant helps Nidhi Companies lay a foundation for growth and member satisfaction.
FAQs
What is the Nidhi Company amendment 2023?
The Nidhi Company Amendment 2023 provided new rules for Nidhi Companies including share issuance, deposit acceptance, branch operations, membership requirements, loan limits and directors’ tenure. These changes are meant to enhance transparency, member protection and operational efficiency within Nidhi Companies.
What limitations does Nidhi Company have?
Nidhi Companies can not issue preference shares, have a minimum of 200 members and admit deposits of twenty times their Net Owned Funds. They also don’t accept corporate or trust members, or minors joining directly (though guardians may make deposits on their behalf).
What is the limit of Nidhi loan?
The loan limit of a Nidhi Company depends upon its deposits. For deposits lesser than Rs. Rs. 2 lakhs. This limit rises with greater deposits up to a maximum of Rs. fifty crores.
What is the maximum period of directorship in Nidhi Company?
A director in a Nidhi Company could serve for ten consecutive years at most. After this period, they are eligible for re-appointment only after a 2 – year mandatory break.
What is the minimum paid capital of Nidhi Company?
A Nidhi Company’s minimum paid up equity share capital is Rs. 5 lakhs. This provides the company with adequate cash to operate and meet regulatory needs.
What are the conditions for Nidhi?
Nidhi Companies has to have 200 members, can’t issue preference shares and must follow specific rules for accepting deposits and loans. Additionally they must comply with regulations governing branch operations, directors’ tenure and interest rates on deposits and loans.
