Nidhi Company Registration: Checklist, Limits and Compliance

A Nidhi company is a public limited company that takes deposits from its members and lends to them against security, for mutual benefit. Before forming one, check five things: the business stays member-only and secured, you can reach 200 members and ₹20 lakh Net Owned Funds within 120 days, every promoter and director is "fit and proper", you can live with small loan limits in the early years, and you can sustain public-company compliance. The points below follow the Nidhi Rules, 2014 as amended up to the Nidhi (Amendment) Rules, 2024.

Is a Nidhi the right structure for the business?

A Nidhi may only cultivate thrift and savings among members, take their deposits and lend to them. It suits a savings-and-secured-lending business in one district. It does not suit a plan that involves:

• lending to the public, unsecured loans, business loans or microfinance
• chit funds, hire purchase, leasing, insurance or investing in shares of other companies
• borrowing from banks or financial institutions to lend onward
• dealing with companies, trusts or any body corporate
• advertising for deposits or paying commission to agents
• operating in more than one State

If any of these is part of the plan, an NBFC registration or another structure fits better.

What is needed at incorporation?

Requirement	Detail
Company type	Public limited company: at least 7 members and 3 directors
Paid-up capital	At least ₹10 lakh, only fully paid equity shares of ₹10 or more
Preference shares / debentures	Not allowed
Name	"Nidhi Limited" only after the Central Government declares the company a Nidhi
Main object	Thrift and savings among members; deposits from and loans to members only
Directors	Must be members, hold DINs and not be disqualified under Section 164

Plan capital at ₹20 lakh or more from the start. Incorporation costs and early losses reduce Net Owned Funds, so keep a cushion. The company incorporation is done through SPICe+ like any other public company; our note on choosing a company form explains that process.

Who passes the fit-and-proper test?

Every promoter and director files a declaration with NDH-4. A person fails the test if there is a pending complaint or charge sheet for economic offences, a regulator's restraint order in force, a conviction for an offence involving moral turpitude, undischarged insolvency, a court finding of unsound mind, wilful-defaulter or fugitive-economic-offender status. A person who is already a director in five or more Nidhis, or a promoter of three or more, is also ineligible.

What must happen in the first 120 days?

The company cannot accept a single deposit or give a single loan until NDH-4 is approved.

Step	Requirement	Timeline
Build membership	At least 200 members, each holding at least 10 shares or ₹100	Within 120 days of incorporation
Build NOF	Net Owned Funds of ₹20 lakh or more	Within 120 days
File NDH-4	With fit-and-proper declarations	Within 120 days
Decision	No decision in 45 days means deemed approval	45 days from filing
Commence	File the approval with INC-20A, then change the name	After approval

If NDH-4 is not filed or is rejected, the company cannot take deposits or lend, and any deposit raised later falls under Chapter V of the Companies Act, 2013.

What are the deposit rules for a Nidhi company?

Product	Tenure	Interest limit
Fixed deposit	6 to 60 months	RBI ceiling for NBFC public deposits, currently 12.5% a year
Recurring deposit	12 to 60 months	Same ceiling
Savings account	–	Interest only on up to ₹1 lakh; at most 2% above nationalised banks' savings rate

Total deposits cannot exceed 20 times Net Owned Funds as per the last audited balance sheet. At least 10% of outstanding deposits must sit in unencumbered term deposits with a scheduled commercial bank or the post office. No deposit can be repaid in the first three months. A withdrawal before six months earns no interest; a later premature withdrawal earns 2% less than the applicable rate.

How much can a Nidhi company lend to one member?

Total deposits of the Nidhi	Maximum loan per member	Without profits in the 3 preceding years
Below ₹2 crore	₹2,00,000	₹1,00,000
₹2 crore to ₹20 crore	₹7,50,000	₹3,75,000
₹20 crore to ₹50 crore	₹12,00,000	₹6,00,000
Above ₹50 crore	₹15,00,000	₹7,50,000

A new Nidhi has no three-year profit record, so in practice it starts at ₹1 lakh per member. Loans must be secured by gold, silver or jewellery (loan-to-value up to 80%, tenure up to one year), immovable property (up to 50% of its value, tenure up to seven years) or FDs, NSCs, government securities and insurance policies.

What interest can be charged on loans?

Loan interest cannot exceed 7.5% above the highest deposit rate the Nidhi pays, and must be calculated on reducing balance. The same rate applies to every borrower in a class of loan, and all rates are displayed on the notice board of each office.

What has to be done every year?

• Provisioning: an account becomes an NPA when interest or instalment is unpaid for 12 months; provide 10% (sub-standard), 25% (doubtful, 2–3 years) and 100% (loss). Gold loans not recovered or renewed within three months of the due date are provided in full.
• Returns: NDH-3 every half-year within 30 days, certified by a practising professional, plus AOC-4, MGT-7, statutory audit and the auditor's certificate of compliance with the Nidhi Rules.
• Governance: directors serve up to 10 consecutive years; auditor rotation applies; dividend is capped at 25%.
• Branches: only after three consecutive years of net profit, up to three within the district, never outside the State.
• Tax: TDS on interest paid to members, and no cash loans or deposits of ₹20,000 or more.

A breach of the Rules attracts a fine of up to ₹5,000, plus up to ₹500 a day for a continuing default, and the Central Government can appoint a Special Officer to take over management.

The information in this article reflects the law as on the date of publication and is for general guidance only.

CA. Kunal Darwani

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