Rules and Regulation for Nidhi Company Registration

Rules and Regulations for Nidhi Company Registration

Online Legal India LogoBy Online Legal India Published On 05 May 2022 Updated On 24 Jun 2025 Category Nidhi Company

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.

What is a Nidhi Company?

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.

Rules and Regulations for Nidhi Company Registration

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:

  • Minimum 3 directors
  • Minimum 7 shareholders
  • The word "Nidhi Limited" must be part of its name.
  • The company is registered under the Ministry of Corporate Affairs (MCA) via the SPICe+ form available at the MCA portal.

2. Minimum Capital Requirement

  • A Nidhi Company must have a minimum paid-up equity share capital of Rs.10 lakhs at the time of incorporation.
  • The capital must be in the form of equity shares only, not preference shares.

3. Mandatory Compliance within One Year

Within 12 months of registration, the Nidhi Company must:

  • Add a minimum of 200 members
  • Maintain a Net Owned Fund (NOF) of at least Rs.10 lakhs
  • Ensure the ratio of Net Owned Funds to deposits does not exceed 1:20
  • Keep 10% of total deposits as unencumbered term deposits in a nationalised bank

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:

  • Issue preference shares, debentures, or any debt instruments
  • Open branches without prior approval (limited to specific rules)

Do businesses such as:

  • Chit funds
  • Hire-purchase
  • Leasing
  • Insurance
  • Asset financing
  • Advertise to the public for deposits (general public participation is not allowed)

5. Rules for Loans and Deposits

  • Loans can only be provided to registered members, and the amount is based on the company’s deposit base.
  • Interest on loans must follow the maximum rate set by the Nidhi Rules.
  • Deposits must be held for a minimum of 6 months and can be maintained for up to a maximum of 5 years.
  • The interest on savings should not exceed 2% above the rate offered by nationalised banks.

6. Branch Operations

  • A Nidhi Company can open up to 3 branches within the district after 3 years of continuous profitability.
  • Opening branches outside the district or state requires the Regional Director’s approval.
  • Branches cannot be opened outside the state where the registered office is located unless prior permission is granted.

7. Annual Compliance

After registration, a Nidhi Company must regularly comply with the following:

  • NDH-1: Return of statutory compliances (within 90 days of FY closure)
  • NDH-2: Application for extension (if unable to meet member/capital conditions)
  • NDH-3: Half-yearly return on branches and financial activities
  • Annual filings with MCA: Like MGT-7 (Annual Return) and AOC-4 (Financial Statement)

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.

Step-By-Step Registration Process

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.

  • Apply through authorised providers (eMudhra, Sify, etc.)
  • Valid for 1–2 years
  • Required for SPICe+ form submission

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.

  • The name must include “Nidhi Limited”
  • The name should not resemble any existing company
  • You can check availability of the name on the MCA website

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:

  • PAN and Aadhaar of directors
  • Address proof (Electricity bill or Rent Agreement)
  • Passport-size photos of directors
  • MOA (Memorandum of Association)
  • AOA (Articles of Association)
  • Proof of registered office

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:

  • CIN (Company Identification Number)
  • PAN & TAN
  • Official incorporation date

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:

  • Member count
  • Net owned funds
  • Deposit ratio

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:

  • Reach at least 200 members
  • Maintain Rs. 10 lakh net owned funds
  • Ensure the deposit to NOF ratio is not more than 1:20
  • Keep 10% of total deposits in a nationalised bank as term deposits

If unable to meet these, file NDH-2 for an extension.

Step 10: Ensure Regular Compliance

  • File NDH-3: Half-yearly return
  • File MGT-7: Annual Return
  • File AOC-4: Financial Statement
  • Hold AGM and Board meetings as per the rules
  • Maintain records and books of accounts properly

Benefits of Registering a Nidhi Company

The following details include some of the benefits of registering a Nidhi company:

  • Encourages Savings and Financial Discipline

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.

  • Simple and Low-Cost Registration

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.

  • Member-Only Structure Offers Security

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.

  • Ideal for Small Lending Businesses

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.

  • No External Interference from RBI

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.

  • Better Trust and Community Engagement

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.

  • Easy to Manage and Operate

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)

  • Eligible for Opening Branches

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.

Restrictions on Nidhi Companies

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:

  • Preference shares
  • Debentures
  • Bonds
  • Convertible shares or any other financial instruments

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:

  • Chit funds
  • Hire-purchase
  • Leasing
  • Insurance
  • Asset financing
  • Trading in securities or shares

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:

  • Up to Rs. 2 lakhs for deposits under Rs. 2 crores
  • Up to Rs. 7.5 lakhs for deposits between Rs. 2–20 crores
  • Up to Rs. 15 lakhs for deposits above Rs. 20 crores

These limits ensure that lending stays within safe financial boundaries.

Cannot Open Branches Without Conditions

A Nidhi Company can only:

  • Open 3 branches within the same district
  • Only after completing 3 years of profitable operations

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.


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