Quick answerA Nidhi company is a public company formed under section 406 of the Companies Act, 2013 to encourage thrift and savings among its members, accept deposits from them and lend to them. It is incorporated with at least seven members, three directors and ₹10 lakh paid-up equity capital, with a name ending in "Nidhi Limited". Under the Nidhi Rules, 2014 as amended in 2022, it must apply in Form NDH-4 for declaration as a Nidhi before it starts accepting deposits.
- Law
- Section 406, Companies Act 2013; Nidhi Rules 2014
- To incorporate
- 7 members, 3 directors, ₹10 lakh capital
- Regulator
- Ministry of Corporate Affairs
- Declaration
- Form NDH-4
What a Nidhi company is
Nidhi companies, sometimes called mutual benefit funds, are a long-standing form of community finance, common in parts of South India and now found across the country. Members buy shares, deposit savings and borrow against security, and the profits stay within the member community.
A Nidhi is technically a non-banking financial company, but the RBI has exempted Nidhis from its core NBFC provisions, and they are regulated by the Ministry of Corporate Affairs under the Nidhi Rules. RBI retains the power to issue directions on deposits, and the interest a Nidhi pays on deposits cannot exceed the maximum rate RBI allows NBFCs to pay. Unlike an NBFC, a Nidhi needs no RBI certificate and far less capital, but it can deal only with its members and only in the ways the Rules permit.
Requirements for incorporation and declaration
| Requirement | Rule |
|---|
| Form of company | Public company limited by shares |
| Members at incorporation | Minimum 7 |
| Directors | Minimum 3, with at least one resident in India |
| Paid-up equity capital | Minimum ₹10 lakh at incorporation |
| Name | Must end with "Nidhi Limited" |
| Before declaration | Under the 2022 amendment, at least 200 members and net owned fund of ₹20 lakh within 120 days of incorporation |
| Declaration | Application in Form NDH-4 to the Central Government; the company may accept deposits only after it is declared a Nidhi |
The 2022 amendment also introduced fit-and-proper conditions for promoters and directors and tightened the declaration process, after many companies had used the Nidhi label without meeting the requirements. Before incorporating, founders should have a realistic plan to enrol at least 200 genuine members quickly.
Incorporation and declaration process
- Founders and plan: at least seven founding members and three directors, with a membership and deposit plan for the first year.
- Name and DSC: a name ending with "Nidhi Limited", and digital signatures for directors.
- Drafting: memorandum with the sole object of cultivating thrift and savings among members and lending to them, and articles in line with the Nidhi Rules.
- SPICe+ filing: incorporation as a public company with ₹10 lakh paid-up equity capital.
- Membership drive: enrol members by allotting shares, keeping KYC and share records in order.
- NDH-4: once the membership and net owned fund conditions are met, apply to the Central Government in Form NDH-4 for declaration as a Nidhi, with the auditor's certificate and other attachments.
- Declaration: once declared, the company may begin accepting deposits from members.
Operating rules a Nidhi must follow
- Accept deposits from and lend only to its members. It cannot deal with the public.
- Maintain a ratio of net owned fund to deposits of not more than 1:20.
- Keep at least 10% of outstanding deposits in unencumbered term deposits with a scheduled bank or post office.
- Give loans only against security permitted by the Rules, such as gold or silver jewellery, immovable property, fixed deposits, government securities and life insurance policies. Unsecured loans are not allowed.
- Charge interest on loans of not more than 7.5% above the highest rate offered on deposits, calculated on reducing balance.
- Not carry on chit fund, hire purchase, leasing, insurance or acquisition of securities, and not issue preference shares, debentures or other debt instruments.
- Not open branches except as permitted by the Rules, which require a record of profits.
- Not pay brokerage or incentives for mobilising deposits or advertise for deposits.
Breaching these rules can lead to penalties on the company and directors and to the Central Government refusing or withdrawing Nidhi status.
Returns and annual compliance
| Filing | Purpose |
|---|
| NDH-1 | Return of statutory compliances, filed after the end of the financial year with the auditor's certificate |
| NDH-3 | Half-yearly return giving details of members, deposits, loans and branches |
| NDH-4 | Application for declaration as a Nidhi and updating of status |
| AOC-4 and MGT-7 | Financial statements and annual return under the Companies Act |
In addition, the company holds board meetings and an annual general meeting, gets its accounts audited, complies with KYC norms for members and files income-tax returns. Our ROC annual compliance service covers these together with the Nidhi-specific returns.
Mistakes that lead to trouble
- Accepting deposits before declaration: after the 2022 amendment, a company cannot accept deposits until the Central Government declares it a Nidhi. Doing so exposes the company and its directors to action.
- Paper members: enrolling names only to reach 200 members, without genuine KYC and share allotment, is easy to detect and can lead to rejection of NDH-4.
- Dealing with non-members: taking deposits from or lending to people who are not members, or making someone a member only at the moment of a loan without proper allotment, breaches the Rules.
- Agents and commissions: using commission agents to collect deposits is prohibited and is a common feature of schemes that end in collapse.
- Ignoring prudential ratios: the 1:20 ratio and the 10% unencumbered deposits must be maintained at all times, not only on the date of the return.
Several companies calling themselves Nidhis have been refused declaration or faced proceedings because of these practices. A Nidhi run within the Rules is a sound and useful institution; one run outside them puts members' savings at risk.
Is a Nidhi the right choice?
A Nidhi suits a community, professional group or locality whose members want to save and borrow among themselves, run by founders who can manage a deposit-taking business carefully. It is not a vehicle for lending to the general public, raising money from outsiders or running a commercial lending business. For those, look at an NBFC or, for small loans to the poor, a microfinance company. Because a Nidhi holds members' savings, its directors carry real responsibility, and the Rules hold them to it.
Costs
The ₹10 lakh paid-up capital stays in the company. Other costs are DSCs, MCA fees and stamp duty linked to authorised capital (stamp duty varies by state), professional fees for incorporation and the NDH-4 application, and the audit fee. We give a written quote covering incorporation and the declaration.
Documents you need
For founders, directors and the registered office:
- PAN card and Aadhaar of each founder member and director
- Recent bank statement or utility bill as address proof
- Passport-size photographs
- Registered office proof and no-objection letter from the owner
- Proof of payment of ₹10 lakh share capital (after incorporation)
- Members' register and KYC for the NDH-4 application
- Auditor's certificate for the NDH-4 application
How we handle it for you
Feasibility call
We check whether a Nidhi fits your group and whether 200 members are realistic.
Incorporation
Name, DSC, memorandum, articles and SPICe+ filing as a public company.
Membership setup
Share allotment, KYC and member records set up for the declaration.
NDH-4 application
Declaration application prepared and filed, with replies to any queries.
Compliance
NDH-1, NDH-3 and ROC filings managed on a yearly calendar.
Why clients choose ProudLegal
Advocates who appear in courtYour matter is drafted and argued by enrolled advocates, not call-centre staff.
Company and tax filings in-houseCompany secretaries and tax professionals handle registrations and returns.
Fees agreed in writingYou receive a written fee quote before any work begins.
Updates on WhatsApp and emailEvery hearing date, filing and document is shared as it happens.
Please note: this page explains the law and procedure in general terms as on 30 October 2026. Fees, limits and timelines change, and the facts of each case matter, so take advice on your own papers before acting.
Frequently asked questions
How many members are needed to start a Nidhi company?
At least seven members and three directors to incorporate. Before applying for declaration under the amended Rules, the company must have at least 200 members.
What is the minimum capital for a Nidhi company?
A Nidhi is incorporated with a minimum paid-up equity share capital of ₹10 lakh.
Does a Nidhi company need an RBI licence?
No. Nidhis are exempt from RBI registration and are regulated by the Ministry of Corporate Affairs, though RBI caps the interest rate payable on deposits.
When can a Nidhi company start accepting deposits?
Only after the Central Government declares it a Nidhi on its application in Form NDH-4.
Can a Nidhi company lend to non-members?
No. A Nidhi can accept deposits from and lend only to its members.
Can a Nidhi company give unsecured loans?
No. Loans must be secured by gold, silver jewellery, property, deposits, government securities, insurance policies or other security allowed by the Rules.
What is NDH-3?
It is the half-yearly return giving details of members, deposits, loans and branches, filed with the Registrar.
Can a Nidhi company open branches?
Only as permitted by the Nidhi Rules, which require the company to have earned profits for the prescribed period, and with approval in some cases.
