1. Legal Definition and Nature

• A Nidhi Company is a type of Non-Banking Financial Company (NBFC) governed by Section 406 of the Companies Act, 2013.
  
• It is incorporated to promote thrift, savings, and financial discipline among its members.
  
• It operates as a mutual benefit society for its members only.
  
• It is regulated by the Ministry of Corporate Affairs (MCA), not the Reserve Bank of India.
  
• The term “Nidhi” means treasure or fund in Indian tradition.
  

2. Core Objectives and Operations

• The main objective is to accept deposits from members and lend to them for mutual benefit.
  
• It encourages savings habits and financial self-reliance.
  
• All transactions are confined strictly to members of the company.
  
• It operates within the framework of the Nidhi Rules, 2014.
  
• It cannot conduct banking business or deal with non-members.
  

3. Formation and Registration

• A Nidhi Company must be incorporated as a Public Company.
  
• It requires a minimum of 7 members and 3 directors at the time of incorporation.
  
• It must have a minimum paid-up equity share capital of ₹5 lakhs.
  
• It must include “Nidhi Limited” in its name.
  
• Registration is done under the Companies Act through the MCA’s SPICe forms.
  

4. Membership and Financial Norms

• A Nidhi Company must have at least 200 members within one year of incorporation.
  
• It must maintain a Net Owned Fund (NOF) of at least ₹10 lakhs.
  
• The ratio of NOF to deposits cannot exceed 1:20.
  
• It must invest at least 10% of its deposits in unencumbered term deposits with a scheduled bank.
  
• Only members can make deposits and avail loans from the company.
  

5. Restrictions and Regulatory Limits

• It cannot carry out activities such as chit funds, insurance, leasing, or hire purchase.
  
• It cannot issue preference shares, debentures, or any kind of debt instrument.
  
• It cannot advertise or solicit deposits from the public.
  
• It cannot open branches outside its state unless it fulfills specific criteria.
  
• It must follow all rules in the Nidhi Rules and the Companies Act.