Why in news?
India’s Ministry of Corporate Affairs has tightened regulations for Nidhi companies to prevent misuse of public funds. New rules require promoters to register within 120 days and obtain a licence before accepting deposits.
Background
Nidhi companies are non‑banking financial entities that operate on the principle of mutual benefit. They are formed to cultivate the habit of thrift and savings among members. Members pool their funds and can take loans from the collective, often at lower rates than banks. These companies are governed by Section 406 of the Companies Act 2013 and the Nidhi Rules 2014.
Operational features
- Membership: Nidhi companies can accept deposits and provide loans only to their members, ensuring that funds circulate within a closed group.
- Deposit mobilisation: They accept recurring, saving and fixed deposits. Interest rates are regulated to protect members from exploitation.
- Lending restrictions: Loans are provided for purposes like house construction, education or emergencies. Speculative activities and microfinance‑type loans are prohibited.
- Regulatory compliance: Unlike cooperatives, Nidhi companies must comply with corporate governance norms, file annual returns and maintain statutory reserves.
Recent changes
- Provisional licence: New companies must apply for a licence within four months of incorporation and meet criteria like minimum paid‑up capital and member count.
- Fit and proper criteria: Directors and promoters must satisfy suitability standards to prevent persons with dubious backgrounds from managing public money.
- Increased oversight: The regulator can bar companies from taking deposits if they fail to comply, and members can file grievances through a dedicated portal.
Conclusion
Nidhi companies can play a useful role in fostering community savings when properly managed. Stronger regulation seeks to protect depositors and uphold trust in these mutual benefit societies.
Source: Ministry of Corporate Affairs