The word “Nidhi” in Nidhi Company advances from a root word which traditionally means “treasure”. Recently, in the Indian financial sector a Nidhi Company refers to any mutual benefit society notified under the Central / Union Government as a Nidhi Company. They are created basically for the motive of encouraging the custom of frugality as well as savings amongst its members. The various organisations that are a part of Nidhi business, and are known under various names such as Benefit Funds, Mutual Benefit Funds, Nidhi, Permanent Fund and Mutual Benefit Company.


Nidhis are more well known in South India and are highly sectarized single office organisations. They are usually mutual benefit societies, as their affairs/concerns are limited only to the members; and membership is restricted to individuals. The leading source of assets is the benefaction from the members.


The grants are provided to the members at approximately reasonable rates for purposes such as manufacturing houses or restoration/fixation and are generally secured. The deposits organised by Nidhis are not great in comparison to the organized banking sector.
Regulatory framework Nidhi’s are Companies that are registered under the Companies Act.


Although the Nidhis are regulated by the provisions of the Companies Act, 1956, they are discharged from certain provisions of the Act, as relevant to other companies, due to curbing their operations within members. The Central Government notification comprising a Committee to analyse the various features of the working of the Nidhi Companies.There was previously no Government bulletin defining the word ‘Nidhi’. Talking about the approach adopted by Nidhi companies for their operation and the guidance of Shri P.Sabanayagam Committee in its report in order to curb immoral persons utilising the word ‘Nidhi’ in their name without being integrated with Department of Company Affairs (DCA).


The word Nidhi shall not be a part of the name of any organisation, firm or individual involved in appropriating and accommodating money without embodyment by DCA. Also, such breach will ultimately lead to penal action.” A part of this definition is reflected in the new Companies Bill 2012 under Section 406.


Rules Regarding Setting up of a Nidhi Company in India

Legal Structure Requirement

Nidhi Company Setup shall contribute to make money and persist to keep providing, in not encumbered term deposits along with a Scheduled commercial bank (other than a co-operative bank or a regional rural bank), or even a post office deposit in its own name.

  • It is registered under Companies Act, 2013.
  • Administered by the Nidhi Rules, 2014.
  • Belonging to NBFC sector
  • The essence of their business is borrowing as well as lending money amidst its members that abides with rules of the Companies Laws, 2014.
  • It is also known as Mutual benefit companies, permanent funds, or even benefit funds.
  • They are chiefly coordinated and managed by MCA.
  • Nevertheless, the RBI is authorised to issue directions to them for matters describing their deposit acceptance activities.
  • Integrated in the nature of a public limited company, hence it has a two-faces
  • No RBI approval is needed for this type of NBFC Registration in our country.
  • Their membership is limited to a ceiling & also it is only individuals who can participate.
  • These kind of Companies are generally in highlight in South India.


How does it Work?

Here, the main source of funds is a beneficence from its members. The credit is given to the members at relatively moderate rates for things like house construction or repairs and are mostly guaranteed against some property or encumbrance.


The deposits or funds assembled by Nidhi’s are limited in comparison to the organized banking sector because it operates in a limited area with a specified fund base. They can carry on the following business:

  • To provide loans to its members
  • To accumulate deposits from its members
  • Loans should be subject to some limits.

What is the Process of Registration of a Nidhi Company?

A Nidhi company is integrated as a public limited company with a minimum paid-up capital surmounted at Rs. 5 lakhs. It can’t circulate preference shares, debentures or even a debt instrument. The objective must be quoted in the MOA as developing the habit of thrift aa well as savings amidst its members, getting deposits from or lending to, its members only, for their mutual benefit.


Also, one must have the title of a NIDHI LIMITED at the end of its name after incorporation as well as all its dealings.


Requirements for NBFCs Registration

  • First, it is very important to get registered itself with the RBI.
  • Any company, desirous of commencing business as NBFC should have a minimum net owned funds of Rs. 200 lakhs.
  • (Net Owned Funds = Paid up share capital + Free Reserves – Accumulated losses, deferred revenue expenditure, and other intangible assets.)
  • For the purpose of registration, one must have to submit the application in the prescribed format along with the documents required by the RBI.
  • After satisfaction RBI issues the certificate of registration to the company.
  • NBFCs holding a valid certificate of registration can accept public deposits.

NBFCs need to comply with the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. Here are some of the important regulations are:


  • They must possess investment grade credit rating.
  • They can accept public deposits for a minimum period of 12 months and for a maximum period of 60 months.
  • Repayment of deposits cannot be guaranteed by RBI.
  • They cannot offer any additional benefit or gifts to the depositors.
  • They Cannot accept deposits repayable on demand.

Types of NBFCs

  • Equipment Leasing Company

    This type of financial institution has the business of leasing equipment or financing for such activity.

  • Hire Purchase Company

    Its principal business is related to hire purchase transactions.

  • Loan Company

    Its principal business is to provide finance, by way of making loans or advances.

  • Investment Company

    Its principal business is related to buying and selling of securities.

Further Re-classification

  • Asset Finance Company;

  • Investment Company;

  • Loan Company.