Introduction

A Nidhi Company is created by any person for the purpose of accepting deposits, accepting and lending money to its members. The rule 11 and 13 of Nidhi Rules, 2014 are one of the most important rules governing Nidhi Companies. Hence, these rules should be followed accurately to avoid any non-compliance. Before discussing the rules, let us first understand the maximum ceiling limit on Deposits.

Maximum Deposits: A Nidhi Company shall not accept deposits exceeding twenty times of its Net Owned Funds as per last audited Financial Statement.

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A Nidhi Company can accept deposits in proportion to its net owned Fund.  Net owned Funds means the total capital invested into the business. The ceiling limit on deposits is the twenty time of Net Owned Funds. Let us understand this by the table below:

Let us understand the deposit rules as written in rule 13 of Nidhi Rules, 2014

• The fixed deposits can be accepted for a minimum period of six months and a maximum period of sixty months (Five Years).
  1. Analysis: Nidhi Company can accept fixed deposits like a bank/NBFC and can offer a lucrative interest rate to attract a rational investor/member. However, unlike a bank or NBFC, Nidhi Company is not allowed to accept funds/deposits for a period exceeding 5 years (60 Months).
  2. Loophole: However, the important point is that Nidhi can renew the Fixed Deposit for the next five years on the choice of the respective depositor. Nidhi Rules do not put any restriction on the renewal of deposits nor it states anywhere that the funds have to be paid back on maturity.
• Recurring deposits can be accepted for a minimum period of 1 Year (twelve months) and a maximum period of 5 Years (sixty months).
  1. Analysis: This is one of the important products for a Nidhi Company. Nidhi Companies generally provide quite lucrative deals for its members to open the recurring deposit account(s). The maximum limit for a recurring deposit is 5 years (60 months).
  2. Loophole: Practically, once the recurring account is closed. The money in the respective recurring deposit account is automatically transferred to the regular saving accounts. In the case of Nidhi Company also the similar procedure is followed. A Nidhi Company may offer the recurring account facility to the same member more than once and bulk money can also be invested in a fixed deposit on the choice of the customer.
• In the case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.
  1. Analysis: This point is very simple but still complicated. We must understand this by ways of an example. Suppose ABC Nidhi Limited lends a mortgage loan to Member X for a repayment period of 7 years. Member X also opens a recurring account with Nidhi Company for 7 years. Can he do it? Yes, because in the case, of Mortgage loans, the maximum period of recurring deposit can be equal to the repayment period of such loans. However, it is important to note that this limit is applicable to mortgage loans only and for other loans point no. 2 shall be applicable.
• The maximum balance in a savings deposit account at any given time (in order to qualify for interest) shall not exceed one lakh rupees at any given point of time and the rate of interest shall not be more than two percent above the rate of interest payable on the savings bank account by nationalized banks.

1. Analysis: Nidhi Company can also offer saving account services to its members like bank/NBFC subject to a condition that maximum balance of account shall not exceed one lakh. However, if any saving account with zero interest shall not be subject to the above limit.
2. Maximum Rate on Saving Account (explanation): The maximum ceiling limit for Nidhi Company to offer on saving accounts if two percent above the rate offered by the nationalized banks. Let us understand this by example

INTEREST OFFERED BY BANKS AND NIDHI

• A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the NBFC can pay on their public deposits.
  1. Analysis: The maximum interest rate offered on Fixed Deposit and Recurring deposits will always be floating and it is always important to look at the RBI policies towards the Interest rate.

Whatever RBI decides for NBFC about the rate of interest, the same will be applied directly to the Nidhi Companies.

Conclusion

The legal environment of India is very dynamic in nature. Hence, it is advisable to consult a professional in order to keep your Company compliant in order avoid any penalties. In the case of any doubt or feedback, please contact us at reach@corpseed.com or 7558640644.