A Nidhi company is one of the few company structures in India built entirely around a simple idea: a closed group of members saving together and lending to each other, with no outside depositors and no outside borrowers. It's a common choice in Tamil Nadu, Kerala, and other parts of South India, where community-based lending groups have long operated informally and now formalise into registered companies. This guide covers what a Nidhi company actually is, the current capital and membership rules, the registration process step by step, and the compliance obligations that keep it legally allowed to operate.
A Nidhi company is a type of non-banking financial company recognised under Section 406 of the Companies Act, 2013, formed with the specific purpose of cultivating savings habits among its members and lending to them for mutual benefit. Unlike a regular NBFC, a Nidhi company doesn't need a licence from the Reserve Bank of India to operate — it's governed instead by the Nidhi Rules, 2014, and the Ministry of Corporate Affairs (MCA) directly oversees its functioning.
The structure works well for community groups, professional associations, or family networks who want to formalise mutual lending — someone deposits savings with the company, another member borrows against gold, property, or fixed deposits as security, and the interest earned benefits the members as a group rather than an external investor. It's a genuinely different model from a bank, an NBFC, or a chit fund, and the rules are written specifically to keep it that way — a Nidhi company is legally barred from dealing with anyone outside its own membership.
The capital requirements for Nidhi companies were tightened significantly by the Nidhi (Amendment) Rules, 2022, and these are the figures that apply to any company incorporating today.
Net Owned Funds (NOF) is calculated as paid-up equity share capital plus free reserves, minus accumulated losses and intangible assets — it's essentially the company's own genuine capital base, not money raised from members as deposits.
Nidhi companies that were already incorporated before the 2022 amendment took effect were given 18 months from the amendment's commencement to bring their capital and NOF up to the new thresholds.
Rule 6 of the Nidhi Rules sets out a fairly strict list of prohibited activities, deliberately keeping Nidhi companies out of anything resembling banking or general financial services. A Nidhi company cannot:
A Nidhi company can: accept fixed, recurring, and other prescribed deposit types from members; grant secured loans to members against gold, immovable property, fixed deposits, or National Savings Certificates; and use member funds strictly for the mutual benefit of the membership base, with dividend payouts capped at 25% of profits in a financial year under the current rules.
Deposit ceiling. A Nidhi cannot accept deposits exceeding 20 times its Net Owned Funds, based on the last audited financial statement.
Deposit tenure. Deposits generally run for a minimum of six months and a maximum of five years.
Deposit interest rate. The interest paid on deposits is capped in line with the Nidhi Rules — broadly, it should not exceed the rate structure prescribed for scheduled commercial banks by more than a small margin, keeping Nidhi deposit rates in a similar band to bank fixed deposit rates rather than allowing aggressive rate wars to attract depositors.
Lending interest rate. The maximum interest a Nidhi can charge on a loan is capped at 7.5% above the highest rate of interest it offers on its own deposits — so a Nidhi offering 12% on deposits cannot lend at more than roughly 19.5%.
Security requirement. Every loan must be secured — typically against gold or jewellery, immovable property, or the member's own fixed deposits/NSCs held with the Nidhi.
Share transfer restriction. A member who has an outstanding loan or deposit with the Nidhi cannot transfer more than 50% of the shareholding they held at the time that loan or deposit was taken, for as long as it remains outstanding, and must retain at least 10 equity shares (or ₹100 worth of shares) throughout.
A Nidhi company cannot open branches freely — it must first have earned net profit after tax continuously for the three preceding financial years. Once eligible:
Once operational, a Nidhi company has a recurring set of filings on top of the standard company-law compliances (annual return, financial statements, board meetings, and so on):
Missing NDH-3 or NDH-1 filings isn't just a late-fee issue — the MCA has specifically flagged that companies with pending NDH-1 or NDH-3 filings cannot open new branches, and delayed compliance history has been cited as grounds for rejecting NDH-4 applications in several recent cases.
A few practical points have shifted in the last couple of years, and older guides on the internet haven't all caught up:
1. The "no Nidhi name before approval" practice is now firmly enforced. Registrars have been rejecting incorporation applications that include "Nidhi Limited" in the proposed name before NDH-4 approval, citing MCA direction. If you're incorporating today, plan your name and paperwork around a two-stage process — plain public company first, Nidhi suffix after declaration — rather than assuming the name is available from day one.
2. Courts are pushing back on arbitrary NDH-4 rejections. Through 2025 and into 2026, High Courts have set aside MCA/Regional Director orders rejecting NDH-4 applications where the company wasn't given a fair opportunity to respond to the stated deficiencies before rejection. This doesn't relax the underlying compliance requirements, but it does mean applicants who receive a rejection are increasingly able to seek — and get — a proper hearing rather than a final, unappealable no.
3. MCA continues to actively track NDH-3 filing compliance. Half-yearly reminders for NDH-3 filings (covering the October–March and April–September periods) have continued through 2026, and late or missing filings are treated as a live compliance flag, not a formality.
4. The consequences of non-compliance remain strict and immediate. If a Nidhi fails to get NDH-4 approved, or if an approved declaration is later found non-compliant, the company must stop accepting deposits and granting loans from that date. Any deposits taken outside of a valid Nidhi declaration are treated as public deposits under the general Companies Act framework — a materially stricter and riskier compliance position for the company and its directors.
Government fees for incorporating the public company itself are modest — the larger cost driver is professional assistance with drafting the Nidhi-specific Memorandum of Association, managing the NDH-4 application, and structuring the initial capital and membership base correctly the first time. Realistically:
Nidhi company registration has more moving parts than a standard private limited company — the two-stage name process, the 120-day capital and membership deadline, and the NDH-4 declaration all need to be sequenced correctly from the start. Our team at LegalDev handles the incorporation, drafts the Nidhi-specific MOA and AOA, guides you through reaching the 200-member and ₹20 lakh NOF thresholds, and manages the NDH-4 filing itself — along with the ongoing NDH-1, NDH-3, and annual ROC compliance once your Nidhi is operational.
Talk to our team about registering your Nidhi company, or get a free consultation to understand what your specific structure will need.
Incorporating the underlying public company usually takes 7–10 working days. Getting to the required 200 members and ₹20 lakh Net Owned Funds, filing Form NDH-4, and receiving government approval typically takes several months in total, since it depends on actually building membership and capital, not just filing paperwork.
No — and this trips up a lot of first-time applicants. Under current Registrar practice, "Nidhi" or "Nidhi Limited" is not permitted in the name at incorporation. You incorporate as a plain public company first, and the Nidhi suffix is added to the name only after your Form NDH-4 is approved by the Central Government.
₹10 lakh in paid-up equity share capital to incorporate. Within 120 days, the company must also have built its Net Owned Funds up to ₹20 lakh and reached 200 members.
Deposits collected from members are lent back out to members as secured loans — against gold, property, fixed deposits, or NSCs — subject to the loan-limit slabs tied to the company's total deposit base. The company cannot lend to, or accept deposits from, anyone who isn't a member.
Every loan must be secured. Common forms of security accepted include gold and jewellery, immovable property, and the member's own fixed deposits or National Savings Certificates held with the Nidhi.
Not freely. Branches can only be opened within the state where the registered office is located, and even then, more than three branches in a district — or any branch outside the district — needs prior Regional Director approval. A Nidhi cannot open branches, collection centres, or offices outside its home state at all.
It cannot accept deposits or grant loans to members from that point. Any deposits already collected are treated as public deposits under the Companies Act's general deposit provisions, which is a significantly stricter compliance framework than the one built specifically for Nidhi companies.
No. Nidhi companies are exempted from core RBI licensing and registration requirements under the Nidhi Rules, though the RBI retains the power to issue general policy directions applicable to non-banking financial companies, including Nidhis.