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Starting a Nidhi Company is a smart way to build a community-based finance business in India. Governed by the Companies Act, 2013 and Nidhi Rules, 2014, it promotes saving habits and provides safe lending among members. With simple legal formalities and low financial risk, it’s ideal for small groups. Registration and compliance are regulated by the Ministry of Corporate Affairs (MCA). In this blog, you will learn about the rules and regulations for Nidhi company registration.
A Nidhi Company is a type of non-banking financial company (NBFC) registered under Section 406 of the Companies Act, 2013 and governed by the Nidhi Rules, 2014. Its main purpose is to encourage saving habits among its members and provide loans at reasonable interest rates within the group. Nidhi Companies can accept deposits and lend money, but only to their registered members. They cannot deal with outsiders or offer unsecured loans like banks. These companies are ideal for small savings and credit needs within a close-knit community. They are regulated by the Ministry of Corporate Affairs (MCA), not the RBI, though RBI directions on deposit-taking still apply.
Here are the key rules and regulations for Nidhi company registration:
1. Incorporation as a Public Company
A Nidhi Company must be registered as a Public Limited Company.
It must have:
2. Minimum Capital Requirement
3. Mandatory Compliance within One Year
Within 12 months of registration, the Nidhi Company must:
If the company fails to meet these criteria within one year, it must apply to the Regional Director (RD) for an extension.
4. Restrictions on Business Activities
A Nidhi Company can only lend and accept deposits from its members. It cannot do the following:
Do businesses such as:
5. Rules for Loans and Deposits
6. Branch Operations
7. Annual Compliance
After registration, a Nidhi Company must regularly comply with the following:
8. Regulation and Supervision
Though Nidhi Companies fall under the NBFC category, they are exempted from RBI licensing, as long as they comply with Nidhi Rules. RBI does not regulate their activities directly, but may issue policy directions applicable to all NBFCs in general.
Below is a simplified and verified step-by-step registration process:
Step 1: Fulfil the Basic Eligibility Requirements
Before applying, make sure your proposed Nidhi Company meets the eligibility criteria or the rules and regulation that are mentioned above.
Step 2: Apply for Digital Signature Certificates (DSC)
All directors must have their Digital Signature Certificates (DSCs) to sign online forms securely. This is the first technical step in the process.
Step 3: Apply for Director Identification Number (DIN)
If any of the directors do not have a DIN, apply for it through the SPICe+ form while incorporating the company. It is a unique number issued by MCA to each director.
Step 4: Name Reservation through RUN or SPICe+
Choose a unique name for your Nidhi Company and apply for name approval through the SPICe+ Part A form on the MCA portal.
Once approved, you’ll receive a Name Reservation Letter (valid for 20 days).
Step 5: File SPICe+ Form (Company Incorporation)
Use the SPICe+ integrated form on the MCA portal to apply for company incorporation. It covers:
Documents required for Nidhi company registration are mentioned below:
Step 6: Receive Certificate of Incorporation (COI)
Once all documents are verified and forms processed, MCA will issue a Certificate of Incorporation (COI). This certificate includes:
COI confirms that your Nidhi Company is legally formed.
Step 7: Open a Company Bank Account
Use the Certificate of Incorporation, PAN, and TAN to open a bank account in the company’s name. Deposit the required Rs. 10 lakh minimum capital into the account.
Step 8: File NDH-1 Within 90 Days
Within 90 days of incorporation, file Form NDH-1 with the MCA to declare:
This form is crucial for compliance under the Nidhi Rules.
Step 9: Achieve 200 Members Within 1 Year
Within 1 year, your Nidhi Company must:
If unable to meet these, file NDH-2 for an extension.
Step 10: Ensure Regular Compliance
The following details include some of the benefits of registering a Nidhi company:
A Nidhi Company is created to promote a culture of saving among its members. It encourages people to deposit small amounts regularly, which builds financial discipline over time. This also strengthens the financial position of the company and its members.
Compared to other financial institutions like NBFCs or co-operative societies, registering a Nidhi Company is more affordable and easier. It does not require RBI approval or heavy documentation, as it is regulated directly by the Ministry of Corporate Affairs (MCA). With just Rs.10 lakh capital and 7 members, you can start your own Nidhi Company.
Nidhi Companies can only accept deposits and lend money to their registered members. This closed-loop model ensures low risk and greater trust within the group. Unlike public NBFCs, there is no external financial exposure or uncontrolled lending. This structure ensures transparency and mutual benefit.
If you're looking to start a micro-finance business or want to serve small communities with loans, Nidhi Companies are a perfect fit. They offer secured loans against gold, property, or fixed deposits at low interest rates. This is especially helpful for Self-help groups, Rural areas, and Small traders and local entrepreneurs.
Though Nidhi Companies fall under the NBFC category, they are exempt from core RBI regulations as long as they follow the Nidhi Rules. This makes it easier to operate without facing complex banking laws. RBI does not directly supervise Nidhi Companies, which makes them more accessible and easier to manage.
Since the operations are restricted to the members, a Nidhi Company fosters community bonding and trust. Members feel more secure saving and borrowing from people they know rather than dealing with large banks or unknown NBFCs.
Nidhi Companies have limited compliances, mostly annual and half-yearly filings such as NDH-1, NDH-3, MGT-7, and AOC-4. There are no hidden obligations or complex legal requirements. They also require fewer documents, can operate digitally, and are easy to scale with additional members and branches (with permission)
Once a Nidhi Company becomes profitable and stable for three consecutive years, it can open up to three branches within the same district. This allows entrepreneurs to expand their reach locally without dealing with excessive paperwork or RBI licensing.
Here is a detailed, simplified explanation of the major restrictions every Nidhi Company must follow:
Cannot Deal with Non-Members
A Nidhi Company is strictly allowed to accept deposits and give loans only to its registered members. It cannot accept money from or lend to the general public or anyone outside its member base. This ensures a closed and secure financial system focused on trust and mutual benefit.
Cannot Issue Certain Financial Instruments
Nidhi Companies are not allowed to issue the following:
Even issuing such instruments to its own members is not permitted.
Cannot Advertise for Deposits
Nidhi Companies cannot advertise publicly or use promotional campaigns to invite deposits. They can only inform their existing members about deposit schemes in a private and compliant manner. Information can be shared through notices, internal circulars, or during meetings, but not via mass media.
Cannot Carry Out Certain Financial Businesses
Nidhi Companies are restricted from engaging in the following types of business activities:
These activities are considered beyond the scope of a Nidhi Company and are regulated by separate financial laws and authorities.
Cannot Accept or Lend More Than Permitted
Nidhi Companies must maintain a strict ratio of Net Owned Funds (NOF) to deposits, which should not exceed 1:20. This means that for every Rs. 1 lakh of owned funds, they can take deposits of up to Rs. 20 lakhs only.
Additionally, the maximum loan limits are based on the deposit base:
These limits ensure that lending stays within safe financial boundaries.
Cannot Open Branches Without Conditions
A Nidhi Company can only:
To open branches outside the district or state, prior approval from the Regional Director (RD) is required. Also, no branches are allowed outside India.
Cannot Pay Incentives or Commissions
Nidhi Companies are prohibited from paying commission, incentive, or brokerage to attract deposits or for recruiting new members. This avoids mis-selling, fraud, and pyramid-like recruitment schemes.
Cannot Accept Deposits Payable on Demand
Unlike banks, Nidhi Companies cannot accept demand deposits (money that can be withdrawn without notice). All deposit schemes must follow a fixed period, ranging from 6 months to 5 years.
Starting a Nidhi Company is a smart, low-risk way to build a trusted financial network within your community. With simple rules, secure member-only transactions, and full government recognition, it offers both credibility and control. Follow the MCA guidelines, stay compliant, and unlock the full potential of collective growth through savings and lending. This blog provided detailed information on the rules and regulations of Nidhi company registration. Contact Online Legal India to get help and assistance in filing a Nidhi company registration from professional experts.