By | April 14, 2016


By CA Paras Mehra

Many people in India do the business of finance without being registered anywhere, due to this, they have to either close down their business or face the penal consequence of law. The main reason behind being unregistered is the cost and time involved in the registration. In India, only banks and Non Banking Financial Companies (NBFC) are allowed to do business of finance. Unlike Banks, NBFC requires lesser capital to start with but that too is large for a small business man. The minimum capital requirement for NBFC is Two crore.  Other than capital, there are various other restrictions as well like stringent regulations, capital adequacy norms, Provisioning norms etc.

Why People Register Nidhi Company?

Nidhi Company is one of the categories of NBFC or in other words, it is the cheapest and easiest form of NBFC as well. Also, it is very easy form to register and does not require much capital. Anybody can register a Nidhi Company with only 5 lakh minimum capital and with minimum of seven members.

Through, there are various restrictions as well, but we look at its cost involved, we can say it is a small and legal ways to start the finance business in India. When you business grew a lot in this, then you can anytime graduate to a full fledge Non Banking Financial Company.

Now, if anybody wants to register a Nidhi Company in India, then they must look into these 10 vital points.


  1. Deals only With Members: If you are registering Nidhi Company, so to deal with public at large, then this point might break your heart. As per law, Nidhi Company can only deal with its members. In other words, it means that it can accept deposit and provide loans only to its members.

Further Nidhi shall not admit a body corporate or trust as a member. 

  1. The Requirement after incorporation: The things after incorporation are known as post compliance. Unlike other companies, Nidhi Companies compliances are complicated and very important. You just cannot afford to miss those. Here are the list of requirement that you need to be complied with: 

a) Nidhi limited should have atleast two hundred members to avoid being in default with Rule 5 of Nidhi Rules, 2014.

b) Net Owned Funds (capital invested) should not be less than ten lakh. 

c) Ratio of Net owned funds to deposits should not be more than 1:20. In other words, if you have total Net owned Funds of INR 10 lakh then Nidhi Company can accept maximum deposits upto INR 2 crore.

What if a Nidhi Company cannot reach the member size of 200 within a year? In that case, Company will have to apply for extension with the Regional Director of the company in the Form NDH – 1.

  1. The Business Restriction: A Nidhi Company cannot do the following types of business as they are strictly prohibited by the rules.

a) Business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate.

b) Further, it shall not carry on any business other than the business of borrowing or lending in its own name.

  1. General Restrictions: Apart from the business restrictions, there are some general restrictions are also there which are as follows:

a) Nidhi Company shall not issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever.

b) Nidhi Company shall not open current account with its members. Please note, there is a restriction on current account that means you can still open saving account with the members.

c) A Nidhi Company cannot issue or cause to be issued any advertisement in any form for soliciting deposit:

d) Nidhi Company cannot pay any brokerage or incentive for mobilsing deposits from members or for deployment of funds or for granting loans.

  1. Minimum Share Requirements: Nidhi Company has to allot atleast 10 equity shares or shares equivalent to one hundred rupees. 
10 10 100 YES
1 100


100 1 100 NO

 However, savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten.

  1. Branches of Nidhi Company: A Nidhi Company can open 3 branches in its district only if it has earned profits after tax continuously during the preceding three financial years. For any additional branch, Nidhi will be first apply for approval from the Regional Director. 
  1. Rate of Interest: The rate of interest to be charged on any loan given by a Nidhi shall not exceed seven and half per cent above the highest rate of interest offered on deposits by Nidhi. E.g. 
Rate on Deposits Maximum Addition Total Rate Possible?
9% 7.5% 16.5% Yes
7.5% 7.5% 15% Yes
8% 8% 16% No



There are still many points in Nidhi Rules, 2014 which will affect your business. But, since it is only an article, we cannot write everything into one article. Hence, would always recommend you to consult to a professional before you proceed for Nidhi Company registration.

About the Author

CA Paras Mehra is a practicing Chartered Accountant, a specialist in dealing with Nidhi Companies Registration and Practice. He is also a founder of Hubco.in a leading website for providing accounting solutions to the Industry. You may reach at paras.mehra18@gmail.com or +91 9654622792.

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