01 Mar The Compliance Structure of NIDHI Companies
What is a NIDHI Company?
As per section 406 of Companies Act, 2013, a NIDHI Company is a non-banking financial business organization. The primary function of a NIDHI Company is lending and borrowing money among its members for their mutual benefit. It is also known as Benefit fund, permanent fund, mutual benefit fund, mutual benefit company, etc.
It fosters a culture of saving among its members. The formation of a NIDHI Company is straightforward and less complex compared to other financial institutions as it does not require obtaining a license from the Reserve Bank of India.
Features of NIDHI Company
The key characteristics of a NIDHI Company include:
- Formation of NIDHI Company is easy.
- Lending and borrowing are allowed only among its members, not to outsiders.
- It operates as a type of public limited company.
- No license from Reserve Bank of India is required.
- A minimum of 200 members is required within 1 year of formation.
- A minimum of 5 lakh rupees is required to start a NIDHI company.
- The ratio of Net owned fund to deposit should not exceed 1:20.
Restrictions on NIDHI Company
The restrictions placed on NIDHI Companies are as follows:
- Cannot open current accounts for company members.
- Cannot lend or borrow money from any outsider.
- Prohibited from engaging in hire purchase, chit fund, lease finance, acquisition of securities or insurance businesses.
- Not permitted to issue preference debentures or shares.
- Prohibited from issuing any type of advertisement.
Loan Granting Conditions
NIDHI Companies must adhere to certain conditions while granting loans:
- Deposits accepted by the NIDHI Company should not exceed 20% of its net owned funds.
- Fixed deposits can be accepted for a minimum of six months and a maximum of 60 months, while periodic deposits can be accepted for a minimum of 12 months and a maximum of 60 months.
- The interest rate on deposits should not exceed 2% above the rate offered by nationalized banks.
Branches
NIDHI Companies can open branches only after consistently earning a net profit after tax for three preceding years and submitting their financial statements and annual returns to the registrar. After this period, branches can be opened in the district.
Limits Against Deposits for Loans
The limits set against deposits for granting loans are as follows:
- If deposits are up to 2 crore, the loan amount can be up to 2 lakhs.
- For deposits more than 2 crore but less than 20 crore, the loan amount can be up to 7.5 lakhs.
- For deposits more than 20 crore but less than 50 crore, the loan amount can be up to 12 lakhs.
- For deposits exceeding 50 crore, the loan amount can be up to 15 lakhs.
Returns Required to be Filed
NIDHI Companies are required to file various returns with the ROC:
- NDH-1 (Return of Statutory Compliances): This must be filed within 90 days of the closure of the first or second financial year. It should be certified by a Practicing Company Secretary or a Practicing Chartered Accountant or a Practicing Cost Accountant.
- NDH-2 (Application for Extension of Time): If a return is not filed by the end of the first financial year, NDH-2 must be filed within 30 days to request an extension of time until the end of the second financial year.
- NDH-3 (Half-Yearly Filing): Form NDH-3 should be filed half-yearly with the registrar. It includes details such as the number of members admitted and ceased, total number of members, total loan granted, and total deposits accepted.
- NDH-4 (Declaration of Compliance): This is a one-time declaration of the company's status as a NIDHI Company, along with other compliance declarations as per the NIDHI Rules, 2014.
Annual Filing of Financial Statements and Annual Return
- AOC-4 (Filing Financial Statements): This should be filed within 30 days from the date of the Annual General Meeting of the NIDHI Company, containing financial statements, notices of General Meeting, Directors Report, Auditors Report, and Balance sheet.
- MGT-7 (Annual Return): Every NIDHI company must file MGT 7 form with ROC within 60 days from conducting the annual general meeting, containing details of their annual return and the list of members.
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