What is Nidhi Company
A Nidhi Company is created basically for the motive of encouraging savings as well as frugality amongst its members.
It is a company registered under the Companies Act, 2013. With the sole objective of cultivating the habit of saving and thrift amongst its members. Nidhi companies are allowed to take a deposit from their members and lend to their members only. Which essentially means that the funds contributed into a Nidhi company come only from its members (shareholders) and are to be used only by the shareholders of the Nidhi Company.
The word “Nidhi” in Nidhi Company has roots in the word “Nidhi”, a word commonly found in the Hindi vocabulary that means “treasure”.
Nidhi Company is a class of NBFC and RBI has powers to issue directives for them related to their deposit acceptance activities. However, since these Nidhis deal with their shareholder-members only, RBI has exempted them from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal entity to take a deposit from and lend to a specific group of people.
About Nidhi Company Registration
The Nidhi Company is entitled to borrow from its members, and give loans only to its members. Therefore, it is also referred to as Mutual Benefit Society. Because it works for the mutual benefit and welfare of all members.
The Section-406 of the Indian Companies Act of 2013 and the Companies (Nidhi Companies) Rules of 2014 contain the provisions/rules/regulations for incorporation and governance of the Nidhi Companies in India. The activities of the Nidhi Companies also fall under the purview of RBI. Implying that the Central Bank can issue directives to govern financial activities and investments by companies including the NBFCs.
Due to the reason that the Nidhi Companies deal with deposits and loans by its members only, RBI has provided certain exemptions to these companies.
The loans are provided to the members at quite reasonable rates for purposes such as manufacturing houses or restoration/fixation. These are generally secured loans. The deposits organized by Nidhis do not earn much interest as compared to the organized banking sector.