Lending Power of Nidhi Company

Nidhi Company:

A Nidhi Company is a company that has the power to lend money on the funds that it has accepted from its members. Under Section 406 of the Companies Act, 2013 it recognized and defined as a company in the Non- Banking Finance sector. It is regulated by the mentioned act and governed by the Ministry of Corporate Affairs in India.

Limit for loans provided by Nidhi Company:

A Nidhi Company has the power to lend loan that is 10% of its total deposits. This limit is being stated and provided by the mandated statutes and laws. The details related to the limits of loan amount are as follows-

  1. Two Lakh loan limit if the deposits in the Nidhi Company are less than Rs. Two Crore.
  2. Seven Lakh and Fifty Thousand if the deposits are more than Rs. Two Crore but less than Rs. Twenty Crores.
  3. Twelve Lakhs if the total deposits of the company are more than Rs. Twenty Crore but less than Rs. Fifty Crores.
  4. Fifteen Lakhs if the total deposits are more than Fifty Crore in the company.

Securities against which loans can be provided by the Nidhi Company:

The disbursement of loan by the Nidhi Company has certain restrictions about the securities against which it can be provided. It cannot provide loans that are unsecured. These securities as mandated under the law are-

  1. Loan against the security of immovable property- A Nidhi Company can provide loans against the immovable property. The repayment period of this loan cannot exceed seven years in total. Also, the repayment funds cannot be more than 50% on the overall loan amount.
  2. Loan against Gold, Silver and valuable jewelry- It is one the most popular way of availing loans in the society. It is also known as Gold Loans. The total loan amount to be advanced cannot exceed the 80% value of the gold or silver jewelry. Also, the period of repayment of loan must not exceed timeline of a year.
  3. Loans against the securities of Fixed Deposits- Loans advanced on Fixed Deposits are very uncommon or rare. Also, the period of loan cannot exceed the date of maturity of the fixed deposits.
  4. Loans against Insurance Policies- This concept is actually new. members of a Nidhi Company can now actually avail loan amounts against the insurance policies they have as per the law.
  5. Loans against Government Securities and National Saving Certificate- Nidhi Company also advances loans on the securities of Government Securities and the National Saving Certificate of the members or loan applicant. Since, these securities are government based and approved they are extra secured for providing loans.

Loans that cannot be provided by the Nidhi Company:

A Nidhi Company in India cannot provide certain types of loans as per the law. These loans are-

  1. Small Credit Loans cannot be provided to Micro Financed companies by a company having Nidhi Company Registration in India.
  2. They are restricted from providing finances for the vehicles.
  3. Personal loans have taxability and creditability that cannot be provided by it. They just can provide loans against some kind of securities.
  4. Hiring purchases have been restricted for the Nidhi Companies in India.
Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.