An NBFC is Nidhi Company (Non-Banking Financial Company). In plain English, a nidhi is a business established with the goal of instilling a culture of financial responsibility among its participants and accepting deposits from and lending to them for their mutual gain. Nidhi Company may be incorporated with a minimum of seven members, three of whom must serve as the company’s directors. The definition of the word “Nidhi,” as well as its essential components and registration paperwork, are briefly explained in this article.
Meaning Of Nidhi
The definition of “Nidhi” According to rule 3(da) of the Nidhi Rules, 2014, a company that has been incorporated as a Nidhi with the purpose of – fostering a culture of thrift and saving among the members, -accepting deposits from and lending to the members for their mutual benefit, -and also properly adhering to the rules established by the Central Government—is referred to as a “Nidhi.”
1. The incorporation requirements [Rule 4]
i. A Nidhi must be a “public company.”
ii. It should have at least INR 5 Lakhs in paid-up equity share capital.
iii. Nidhi won’t issue preference shares after incorporation. Preference shares should be redeemed in accordance with the terms of the issue if they were already issued prior to incorporation.
iv. The goal of Nidhi should be to encourage members to practise thrift and saving, as well as accepting deposits from and lending to members for mutual gain.
v. Nidhi shall have “Nidhi Limited” as the final word in its name.
2. The Nidhi must fulfil certain requirements after incorporation [Rule 5] – Within a year of incorporation, the Nidhi Company must meet the following requirements:
i. It must have at least 200 members
ii. Its net owned funds must be at least INR 10 lakhs
iii. It must have unencumbered term deposits equal to at least 10% of the outstanding deposits
iv. Its net owned funds to deposits ratio must not exceed 1:20.
Please note that Net Owned Funds are calculated as follows: Equity Share Capital + Free Reserves – Accumulated Losses – Intangible Assets. The Nidhi Company must submit a return of statutory compliances in Form NDH-01 if the conditions outlined above are met. Within 90 days of the first financial year following incorporation, the return must be filed. A practising Chartered Accountant, Cost Accountant, or Cost Accountant must certify the Form NDH-01. If the Nidhi Company is unable to meet the requirement of having a minimum of 200 members or if the ratio of net owned funds to deposits is greater than 1:20. The Nidhi Company may then submit a request for an extension of time using Form NDH-2 to the Regional Director.
The Nidhi Company may then submit a request for an extension of time in Form NDH-2 to the Regional Director within 30 days after the conclusion of the first financial year. The Nidhi Company cannot receive any additional deposits from the start of the second financial year until the conditions are satisfied, albeit, if the failure to satisfy the aforementioned conditions continues past the second financial year.
3. Restrictions / Prohibitions [Rule 6] – Major restrictions / prohibitions on Nidhi are listed below –
- cannot conduct business in the areas of chit funds, leasing, hire-buy, insurance, or the purchase of securities issued by body corporates.
- cannot issue debentures, preferred shares, or any other type of debt instrument.
- not allow any current accounts to be opened with its members
- cannot accept deposits from or lend money to anyone besides members.
- cannot solicit a deposit to promote itself.
Documents for Registration
- MOA
- Memorandum of Association AOA
- Article of Association DIN of directors Property documents / rent agreement / lease agreement
- NOC of owner / landlord PAN of members
- Address proof of members Identity proof