The word “Nidhi” in Nidhi Company advances from a root word which traditionally means “treasure”. Recently, in the Indian financial sector a Nidhi Company refers to any mutual benefit society notified under the Central / Union Government as a Nidhi Company. They are created basically for the motive of encouraging the custom of frugality as well as savings amongst its members. The various organisations that are a part of Nidhi business, and are known under various names such as Benefit Funds, Mutual Benefit Funds, Nidhi, Permanent Fund and Mutual Benefit Company.
Nidhis are more well known in South India and are highly sectarized single office organisations. They are usually mutual benefit societies, as their affairs/concerns are limited only to the members; and membership is restricted to individuals. The leading source of assets is the benefaction from the members.
The grants are provided to the members at approximately reasonable rates for purposes such as manufacturing houses or restoration/fixation and are generally secured. The deposits organised by Nidhis are not great in comparison to the organized banking sector.
Regulatory framework Nidhi’s are Companies that are registered under the Companies Act.
Although the Nidhis are regulated by the provisions of the Companies Act, 1956, they are discharged from certain provisions of the Act, as relevant to other companies, due to curbing their operations within members. The Central Government notification comprising a Committee to analyse the various features of the working of the Nidhi Companies.There was previously no Government bulletin defining the word ‘Nidhi’. Talking about the approach adopted by Nidhi companies for their operation and the guidance of Shri P.Sabanayagam Committee in its report in order to curb immoral persons utilising the word ‘Nidhi’ in their name without being integrated with Department of Company Affairs (DCA).
The word Nidhi shall not be a part of the name of any organisation, firm or individual involved in appropriating and accommodating money without embodyment by DCA. Also, such breach will ultimately lead to penal action.” A part of this definition is reflected in the new Companies Bill 2012 under Section 406.
Nidhi Company Setup shall contribute to make money and persist to keep providing, in not encumbered term deposits along with a Scheduled commercial bank (other than a co-operative bank or a regional rural bank), or even a post office deposit in its own name.
Here, the main source of funds is a beneficence from its members. The credit is given to the members at relatively moderate rates for things like house construction or repairs and are mostly guaranteed against some property or encumbrance.
The deposits or funds assembled by Nidhi’s are limited in comparison to the organized banking sector because it operates in a limited area with a specified fund base. They can carry on the following business:
A Nidhi company is integrated as a public limited company with a minimum paid-up capital surmounted at Rs. 5 lakhs. It can’t circulate preference shares, debentures or even a debt instrument. The objective must be quoted in the MOA as developing the habit of thrift aa well as savings amidst its members, getting deposits from or lending to, its members only, for their mutual benefit.
Also, one must have the title of a NIDHI LIMITED at the end of its name after incorporation as well as all its dealings.
NBFCs need to comply with the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. Here are some of the important regulations are:
This type of financial institution has the business of leasing equipment or financing for such activity.
Its principal business is related to hire purchase transactions.
Its principal business is to provide finance, by way of making loans or advances.
Its principal business is related to buying and selling of securities.
The various advantages offered by Nidhi Companies are as follows:
All the Deposits with Nidhi companies are very much safe as well as secure as the Ministry of Corporate Affairs and the Reserve Bank of India has framed rules and regulations to ensure the safety and security of Deposits. And the Nidhi Company compulsorily abide by the rules of Central Government.
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