Nidhi Company Registration in Kerala: Requirements, NDH-4 and Compliance

A Nidhi company is a public company formed to cultivate the habit of thrift and saving among its members, receiving deposits from them and lending to them for their mutual benefit. Nidhis are numerous in Kerala, where they have long served as a community-level alternative to banks for gold loans and small deposits.

Nidhis are governed by section 406 of the Companies Act, 2013 and the Nidhi Rules, 2014, which were substantially tightened in 2022. A company can no longer simply be incorporated and begin taking deposits; it must first obtain a declaration from the Central Government. This article explains the current requirements.

Key requirements at a glance

Requirement	Position under the Nidhi Rules
Form of company	Public limited company; the words “Nidhi Limited” can be added to the name only after the NDH-4 declaration
Minimum at incorporation	7 members, 3 directors, and paid-up equity share capital of ₹10 lakh
Within 120 days of incorporation	At least 200 members and net owned funds (NOF) of ₹20 lakh, and application in Form NDH-4 for declaration as a Nidhi
Commencement of business	Only after the NDH-4 declaration is granted
Deposits	Only from members; total deposits not more than 20 times NOF
Liquidity	At least 10% of outstanding deposits kept in unencumbered term deposits with a scheduled commercial bank or post office
Loans	Only to members, and only against specified security
Dividend	Not more than 25% in a year

Who should consider a Nidhi

A Nidhi suits a group of people who want to pool savings within a defined membership and lend to members against gold, property or deposits. It is not a general finance company. It cannot lend to the public, borrow from banks to fund its lending, or carry on chit fund, hire purchase, leasing or insurance business.

Where the plan is to lend to the public, run vehicle or personal loans, or raise funds from outside investors, the right structure is usually an NBFC registered with the RBI, or for local lending by individuals and firms, a licence under the Kerala Money-Lenders Act. See money lending licence in Kerala for a comparison of these routes.

Incorporation

A Nidhi is incorporated as a public company through the SPICe+ form on the MCA portal, in the same way as any other company, with Memorandum and Articles that reflect the Nidhi Rules. The main points are:

• Following the amendment to the Companies (Incorporation) Rules in 2024, the company is incorporated without the word “Nidhi” in its name. It can add “Nidhi Limited” to its name only after the Central Government declares it a Nidhi on the NDH-4 application. The objects must still be limited to the purposes permitted for a Nidhi.
• At least 7 subscribers and 3 directors are needed, with paid-up equity share capital of at least ₹10 lakh.
• Only individuals can be members. Body corporates and trusts cannot be members.
• The company can issue only equity shares. It cannot issue preference shares or debentures.
• Under the 2022 amendment, a person cannot be a director of five or more Nidhis or a promoter of three or more.

The general incorporation procedure is explained in company registration in Kerala.

The NDH-4 declaration

After the 2022 amendment, a newly incorporated Nidhi must, within 120 days of incorporation, have at least 200 members and net owned funds of ₹20 lakh, and apply to the Central Government in Form NDH-4 for declaration as a Nidhi. The application carries a declaration that the promoters and directors are fit and proper persons.

The Central Government is to decide within 45 days, failing which the application is deemed approved. The company can commence business, including accepting deposits and lending, only after the declaration, and it is only then that it can use “Nidhi Limited” in its name. In practice, NDH-4 applications are examined closely, and incomplete or inconsistent applications are often returned or rejected, so the membership records, capital and the fit-and-proper declarations should be in order before filing.

Deposits

• Deposits can be accepted only from members, in the form of fixed, recurring and savings deposits.
• Total deposits cannot exceed twenty times the net owned funds.
• Interest on deposits cannot exceed the maximum rate the RBI prescribes for NBFCs.
• At least 10% of outstanding deposits must be kept in unencumbered term deposits with a scheduled commercial bank (not a co-operative or regional rural bank) or with the post office.
• A Nidhi cannot advertise for deposits or pay brokerage for mobilising them.

Loans to members

A Nidhi can lend only to its members, and only against the following security:

• Gold, silver and jewellery: repayment period not more than one year.
• Immovable property: the loan cannot exceed 50% of the value of the property, the repayment period cannot exceed seven years, and loans against property (other than registered mortgages) are limited to 50% of total loans outstanding.
• Fixed deposits, National Savings Certificates, government securities and insurance policies: pledged with the Nidhi, with the loan period not beyond the maturity of the security.

The maximum loan to a single member depends on the Nidhi’s total deposits from members, as per its last audited financial statements:

Total deposits of the Nidhi	Maximum loan to one member
Less than ₹2 crore	₹2 lakh
₹2 crore to ₹20 crore	₹7.5 lakh
₹20 crore to ₹50 crore	₹12 lakh
More than ₹50 crore	₹15 lakh

A Nidhi that has not made a profit in each of the three preceding years can make fresh loans only up to half of these limits. Interest on loans cannot exceed 7.5% above the highest rate offered on deposits, calculated on the reducing balance. A Nidhi cannot borrow from banks or others to fund loans to members.

Branches

A Nidhi can open branches only within the State where its registered office is situated, and only after it has filed its financial statements and annual return. Under the Rules, branches can be opened after three consecutive years of profit, up to three within the district of the registered office; more branches need prior approval of the Regional Director. Opening or closing a branch requires a public notice in advance.

Ongoing compliance

Compliance	Requirement
NDH-1	Annual return of statutory compliance under the Nidhi Rules
NDH-3	Half-yearly return, within 30 days of the end of each half-year
NDH-2	Application to the Regional Director for extension or approval in the cases prescribed
Companies Act filings	AOC-4, MGT-7, auditor appointment and the other filings of a public company
Membership and shares	Each member to hold at least 10 equity shares (₹100); restrictions on transfer while a loan or deposit is outstanding

Defaults under the Nidhi Rules attract penalties on the company and its directors, and serious or repeated non-compliance can lead to loss of the Nidhi status, after which deposits are treated as deposits under the Companies Act.

Points specific to Kerala

• Advances made by a Nidhi to its members are excluded from the definition of “loan” under the Kerala Money-Lenders Act, 1958, so a Nidhi operating within its rules does not need a money-lending licence.
• Gold loans are the main business of most Kerala Nidhis. The pledge procedure, valuation, auction and record-keeping should be documented carefully, as these are the areas most open to disputes.
• Kerala companies come under the Registrar of Companies, Ernakulam, and the Regional Director (South-Western Region), Bengaluru, for Nidhi-related approvals and filings.

Frequently asked questions

What is the minimum capital to start a Nidhi?

Paid-up equity share capital of ₹10 lakh at incorporation, and net owned funds of ₹20 lakh within 120 days, along with 200 members.

Can a Nidhi accept deposits from the public?

No. Deposits can be accepted only from members, and a Nidhi cannot advertise for deposits.

Is RBI registration needed for a Nidhi?

No. A Nidhi is regulated by the Ministry of Corporate Affairs under the Companies Act and the Nidhi Rules, not by the RBI, although the RBI’s ceiling on deposit interest applies.

Can a Nidhi give personal or business loans without security?

No. Loans can be given only against the security permitted by the Rules.

Can an existing Nidhi convert into an NBFC?

A Nidhi cannot simply be converted. Becoming an NBFC requires a separate application to the RBI and compliance with its capital and regulatory requirements.

ചുരുക്കം (Summary in Malayalam)

അംഗങ്ങളിൽ നിന്ന് മാത്രം നിക്ഷേപം സ്വീകരിക്കുകയും അംഗങ്ങൾക്ക് മാത്രം വായ്പ നൽകുകയും ചെയ്യുന്ന പബ്ലിക് ലിമിറ്റഡ് കമ്പനിയാണ് നിധി കമ്പനി. കുറഞ്ഞത് 7 അംഗങ്ങൾ, 3 ഡയറക്ടർമാർ, ₹10 ലക്ഷം മൂലധനം എന്നിവയോടെ രജിസ്റ്റർ ചെയ്യാം. രജിസ്ട്രേഷൻ കഴിഞ്ഞ് 120 ദിവസത്തിനകം 200 അംഗങ്ങളും ₹20 ലക്ഷം നെറ്റ് ഓൺഡ് ഫണ്ടും ഉറപ്പാക്കി NDH-4 അപേക്ഷ നൽകണം. കേന്ദ്ര സർക്കാരിന്റെ അംഗീകാരം ലഭിച്ച ശേഷം മാത്രമേ നിക്ഷേപം സ്വീകരിക്കാനോ വായ്പ നൽകാനോ പാടുള്ളൂ. സ്വർണം, വസ്തു, നിക്ഷേപങ്ങൾ എന്നിവയുടെ ഈടിൽ മാത്രമേ വായ്പ നൽകാവൂ.

This article gives a general overview of the law on Nidhi companies under the Companies Act, 2013 and the Nidhi Rules, 2014. The Rules and MCA practice are revised from time to time; for accurate and current requirements, refer to the Rules as amended and the MCA portal. The article is not advice on any particular case.