Nidhi Companies are a kind of financial institution in India which concentrates on motivating savings among members. If you’re thinking about borrowing from a Nidhi Company or want to know the way they operate, this guide will discuss the key areas and rules for Nidhi company loans and Nidhi company registration.
Understanding Meaning of Nidhi Company
A Nidhi Company is an NBFC recognised under the Companies Act. The objective of Nidhi Companies is to motivate members to save and thrift. They take deposits from members and loan money to members. They are popular in India with more or less 350 of them in operation.
How Do Nidhi Companies Work?
Nidhi Companies follow a simple model. They accept deposits from members in the form of recurring, fixed and savings deposits. These deposits are then used to loan other members. Only members of the Nidhi Company may deposit cash and apply for loans.
Main Services Of Nidhi Companies
Nidhi Companies provide several financial services but focus on lending and borrowing among members. The key points are:
- Deposits: Members open accounts and also make deposits. They might be savings, recurring funds (like a monthly deposit scheme) or even fixed deposits (such as a term deposit).
- Loans: Members can request loans based upon the company’s deposits.
Restrictions & Limitations of Nidhi Companies
Nidhi Companies have several restrictions to operate legally and remain focused on their prime function. The key limitations are as follows:
- Business Activities: Nidhi companies can’t carry on insurance, hire purchase, chit funds, lease financing or acquire securities of other Companies.
- Issuing Securities: They can’t issue preference shares, bonds or any other equivalent instruments.
- Banking Operations: They can’t run current accounts for their members.
- Subsidiaries & Holdings: Nidhi companies can’t be holding or subsidiary Companies without the approval of the local director and a special resolution of the AGM.
- Advertising: They can not advertise to solicit deposits.
Deposit Rules of Nidhi Companies
Deposits are a vital component of any Nidhi Company’s performance. Some rules about deposits in Nidhi Companies are:
- Types of Deposits: Members may make savings, recurring and fixed deposits.
- Terms of Deposits: Fixed deposits are offered for 6 months or 5 years. Recurring deposits are twelve months minimum and sixty months maximum.
- Minimum Shares: A minimum of equity shares must be owned by depositors. For instance, a fixed deposit person has to own 10 shares and savings account owners have to have a single share.
- Interest Rates: The interest rate on deposits might not exceed the highest rate permitted by the RBI for NBFCs.
Nidhi Company Loan Rules
Nidhi Companies can lend only to their members. The amount you can borrow depends upon the company’s total deposits:
- As much as 2 lakh If the company has less than 2 crore in total deposits.
- As much as 7.5 lakh If total deposits are between 2 crore and 20 crore.
- Up to 12 lakh If deposits total 20 crore to 50 crore.
- As much as 15 lakh If all deposits are over 50 crore.
Nidhi Company that hasn’t sustained continuous profits for 3 years can’t sanction loans exceeding 50% of the maximum loan amount.
Loan Security and Tenure
Loans from Nidhi Companies are frequently secured by assets. This is what you need to know:
- Gold or Silver Jewellery: Loans against jewellery must be returned within a year. Above and beyond 3 months, the company can sell the jewellery.
- Immovable Property: Loans against immovable property can not exceed 50% of the home value and should be repaid in 7 years.
- Government Securities: Loans may be secured by national savings certificates, fixed deposits, insurance policies, along with other public securities which mature following the loan time or within a year.
Interest Rates on Nidhi Company Loans
The interest rates on loan applications from Nidhi Companies are capped for fairness and affordability. This is the way it works:
- Interest Cap: The rate of interest on loans might not be greater compared to the best interest rates provided on deposits by the Nidhi Company. In case for instance a Nidhi Company provides 8% interest on savings deposits then the maximum rate of interest on loans would be 15.5%.
- Uniform Rates: The rate of interest for all members must be the same for the same category of loan. Nidhi Companies shall post all classes of loans along with their interest rates on a notice board open to all members.
Conclusion
Nidhi Companies encourage members to save and lend to their members at extremely low rates. First, understand the rules & regulations of Nidhi Companies and make informed choices regarding your finances. Whether you wish to save or borrow, joining a Nidhi Company might be a smart choice. However, remember that these companies have legal boundaries and are exclusively for their members.
FAQs
What are the rules of Nidhi Company loan?
Nidhi Companies may lend only to their members. The loans are capped at the company’s entire deposits and range from two lakh to 15 lakh a month based on deposit quantities. Loans must be supported by approved assets and interest rates are capped.
What is the maximum interest rate on Nidhi Company?
Nidhi Companies might provide a maximum interest rate of 12.5% on FDs & Recurring Deposits (RDs) and 6% on bank accounts. The highest rate of interest on loans might not be over 7.5% over probably the highest interest rates available on deposits.
What are the conditions for Nidhi?
Nidhi Companies has to have 200 members within one year of incorporation, may only borrow and lend from members, and may not issue preference shares or operate current accounts. They also must follow certain loan and deposit regulations.
What is the penalty for Nidhi Company?
Nidhi Companies violating regulations face fines and also potential legal action. Conformity with membership requirements, unauthorised business activities and non compliance with deposit and loan limits could lead to regulatory penalties.
What is Nidhi Company’s minimum paid up capital?
A Nidhi Company’s minimum paid up equity share capital is five lakh. This capital enables the company in order to meet its operational needs and to finance member deposits along with loans.
