What is a Nidhi Company?
Understand the legal definition, compliance boundaries, and operational guidelines under Section 406.
A Financial Institution Driven by Mutual Benefits
Nidhi Companies are created under Section 406 of the Companies Act 2013. The primary objective of such companies is to cultivate a habit of systematic saving and thrift among its members.
They operate exclusively on a member-to-member basis, accepting deposits and lending funds purely to their shareholders. Because of their localized, community-driven nature, the risk of default is low, and the safety of depositors is high.
Nidhi Companies do not require a formal license from the Reserve Bank of India (RBI) under the core NBFC regulations, but they are fully regulated by the Ministry of Corporate Affairs (MCA), ensuring strong consumer protection.
Key Operations Allowed under MCA
- Accepting Fixed Deposits, Recurring Deposits, and Savings Accounts from registered members.
- Lending secured loans (Gold Loans and Property Mortgage) strictly within the member network.
- Issuing shares with a face value of ₹10 to qualify individuals as active voting members.
- Exempt from traditional financial TDS rules on interest earned under Section 194A.
MCA Regulatory Prohibitions
To safeguard member funds, the Ministry of Corporate Affairs strictly forbids Nidhi companies from executing high-risk commercial operations.
No Public Advertising
Nidhi Companies cannot solicit deposits from the general public. Advertising must be restricted exclusively to internal members.
No Current Accounts
Nidhi Companies are barred from opening Current Accounts for commercial business transactions under Section 406 Rules.
No Unsecured Loans
All lending actions must be strictly secured by collateral (Gold, property deeds, or fixed deposit receipts). No personal or unsecured loans are permitted.