Acceptance of Deposits by Nidhi Company – Rule 11 & 13 of Nidhi Rules, 2014
Acceptance of deposits is the only reason why Nidhi Company is created by any person, so the rule 11 and 13 automatically becomes the most important rules of Nidhi Rules, 2014. Further, these rules should be followed properly to avoid any hindrance in the business due to any legal case. Before discussing the rules relating to deposits, let us first understand the maximum ceiling limit on Deposits.
Maximum Deposits: A Nidhi Company shall not accept deposits exceeding twenty times of its Net Owned Funds as per last audited Financial Statement.
A Nidhi Company can accept deposits in proportion to its net owned Fund (create this as Hyperlink). Net owned Funds means the total capital invested into the business. The ceiling limit on deposits is the twenty time of Net Owned Funds. Let us understand this by the table below:
|NET OWNED FUNDS||MAXIMUM CEILING LIMIT ON DEPOSITS|
|1 CR||20 CR|
|10 CR||200 CR|
|20 CR||400 CR|
|50 CR||1000 CR|
Let us understand the deposit rules as written in rule 13 of Nidhi Rules, 2014.
- The fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months.
Analysis: Nidhi Company can accept fixed deposits like bank/NBFC and can offer a lucrative interest to attract the rational investor/member. However, unlike Bank and NBFC, Nidhi Company is not allowed to accept funds for more than 5 year (60 Months).
Loophole: However, the important point is that Nidhi can renew the Fixed Deposit for next five year on choice of depositor. Rule does not put any restriction on renew nor it states anywhere that the funds are have to be refunded back.
- Recurring deposits shall be accepted for a minimum period of twelve months and a maximum period of sixty months.
Analysis: This is one of product which Nidhi Companies uses a lot. Nidhi Companies really provides the lucrative deals for its members to open the recurring account with the Nidhi Company. The maximum limit for recurring deposit is 5 years (60 months).
Loophole or sales pitch: Practically, once the recurring account is closed. The money is automatically stands transferred to the regular saving accounts. So will be the case with Nidhi Company as well. Nidhi Company can again offer the recurring account facility to the same member and the bulk money can be invested in fixed deposit on the choice of the customer. The above is more a sales pitch rather than a loophole.
- In the case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.
Analysis: This point is very simple but still complicated. We must understand this by ways of an example. Suppose ABC Nidhi Limited lends a mortgage loan to Member X for a repayment period of 7 years. Member X also opens a recurring account with Nidhi Company for 7 years. Can he do it?
Yes, because in case, of Mortgage loans, the maximum period of recurring deposit can be equal to repayment period of such loans. However, it is important to note that this limit is applicable to mortgage loans only and for other loans point no. 2 shall be applicable.
- The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time and the rate of interest shall not exceed two per cent above the rate of interest payable on savings bank account by nationalized banks.
Analysis: Nidhi Company can also offer saving account services to its members like bank/NBFC subject to a condition that maximum balance of account shall not exceed one lakh.
However, if any saving account with zero interest will not be subject to above limit.
Maximum Rate on Saving Account:
The maximum ceiling limit for Nidhi Company to offer on saving account if two percent above the rate offer by nationalized bank. Let us understand this by example
INTEREST OFFERED BY BANKS AND NIDHI
|SBI||PNB||HSBC||Max. Ceiling Limit|
|4%||4.5%||4%||4.5% + 2 = 6.5%|
|3%||4%||6%||4% +2 = 6%
(HSBC is not a nationalized bank)
- A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non Banking Financial Companies can pay on their public deposits.
Analysis: The maximum interest rate offered on Fixed Deposit and Recurring deposit will always be floating and it is always important to look at the RBI polices towards the Interest rate.
Whatever RBI decides for NBFC about the rate of interest, the same will be applied directly to the Nidhi Companies.
The law is changing very fast. Everything is working in a dynamic environment. Hence, laws become obsolete in a span of months sometimes days. Hence, it is always advice to consult a professional before committing to any work. In the case of any doubt or feedback, please contact us.