Nidhi Companies in India: The Deposit Restrictions, NDH-4 Trap, and When It Is Actually the Wrong Structure

The phrase “no RBI licence needed” is doing a lot of work on Nidhi Company registration pages.

It is technically true that a Nidhi is not required to obtain an NBFC registration from the Reserve Bank of India. It is also a dangerously incomplete way to sell the structure. A Nidhi is not a general lending business with a cheaper licence. It is a mutual-benefit company designed to accept deposits from its own members and lend to those same members, under a tightly prescribed framework administered through the Ministry of Corporate Affairs.

That framework is not a light-touch exemption. It is a different regulatory perimeter. Section 406 of the Companies Act, 2013 and the Nidhi Rules, 2014 restrict who can join, where money can come from, who can borrow, what security can be accepted, how much can be lent, and what the company must do before it can operate as a Nidhi at all.

The most important change for new applicants is the NDH-4 declaration. A company may be incorporated with “Nidhi Limited” in its name, but incorporation is not the same as being declared a Nidhi by the Central Government. For companies incorporated after the Nidhi (Amendment) Rules, 2022, Rule 3B requires an application in Form NDH-4 within 120 days, with at least 200 members, Net Owned Funds of at least ₹20 lakh, and fit-and-proper declarations from all promoters and directors. The older ₹10 lakh NOF figure still appears in the continuing requirements under Rules 5 and 9, which is one reason online explanations are often contradictory.

The decision is therefore not “Can I register a Nidhi cheaply?” It is whether you have a genuinely closed member community that fits a regulated mutual-benefit model.

What a Nidhi actually is — and is not

The statutory idea is narrow. The Nidhi Rules describe a Nidhi as a company incorporated with the object of cultivating thrift and savings among its members, receiving deposits from members, and lending to members only, for their mutual benefit, while complying with the rules made by the Central Government.

Section 406 of the Companies Act provides the legal basis for the Central Government to declare a company a Nidhi or Mutual Benefit Society and to prescribe modifications or exemptions for Nidhis. In practical terms, the company is a public company with a member-funded pool. The people who contribute to the pool are also the people eligible to borrow from it, subject to the rules and the company’s lending policy.

That gives a Nidhi three defining characteristics:

• It is member-only. The company cannot treat the general public as its customer base for deposits or loans.
• It is mutual-benefit oriented. The purpose is thrift and reciprocal access to finance among members, not open-market credit distribution.
• It is rule-bound. The company must stay within the Nidhi Rules even when a transaction looks commercially sensible.

A Nidhi is not a bank. It cannot accept deposits from the public, provide the full range of banking services, or use the word “bank” in a way that suggests it is one. It is not an NBFC, and the absence of an RBI NBFC licence does not give it the powers of an NBFC. It is not a chit fund, either: a Nidhi does not run rotating auctions or prize-based pooled schemes. The prohibited-business rules specifically prevent it from drifting into chit funds and several other finance activities.

The regulatory distinction matters because a founder may see the words “deposit” and “loan” and assume that the company can build a lending product around them. It cannot. A Nidhi’s deposit-and-loan loop is the business, not a permission to create an open platform around the loop.

The NDH-4 declaration: the step a registration page may bury

The NDH-4 process is where the “just incorporate it” narrative breaks down.

The Nidhi (Amendment) Rules, 2019 inserted Rule 3A and brought back a Central Government declaration requirement. For the post-2019 transitional framework, the application was filed after the first year of incorporation, with a 60-day window after that year or any permitted extension. The 2022 amendment created a separate Rule 3B for new public companies desirous of being declared as Nidhis. For a company incorporated on or after the 2022 amendment, the application must be made within 120 days of incorporation if the company satisfies the prescribed conditions.

The key Rule 3B tests are:

• At least 200 members.
• Net Owned Funds of ₹20 lakh or more.
• A fit-and-proper-person declaration for every promoter and director.
• Memorandum objects and actual operations consistent with the Nidhi framework.

Why do many articles still quote ₹10 lakh? Because ₹10 lakh remains the minimum NOF in the continuing Rule 5 and Rule 9 requirements for a Nidhi, and it was the familiar benchmark under the earlier regime. But a new applicant’s Rule 3B NDH-4 application is a separate gateway with a ₹20 lakh NOF requirement. Treating the two numbers as interchangeable is a serious planning error.

The Central Government is required to convey its decision within 45 days for the Rule 3B application; the rule provides for deemed approval if no decision is conveyed within that period. That does not make a weak application safe. The company still has to satisfy the statutory conditions, file the approval decision with the Registrar as required, and commence business only in accordance with the applicable declarations and approvals.

The NDH-4 file should therefore be built before incorporation, not after. Check the member plan, source of NOF, objects clause, director history, promoter relationships, proposed products, and member documentation in advance. “We will find 200 members later” is not a compliance plan. It is a reason the application may fail.

Deposit restrictions: the money is not yours to source freely

The deposit rules are designed to keep a Nidhi inside its member community.

Under the acceptance-of-deposits provisions, a Nidhi accepts deposits from its members, not from customers discovered through an online advertisement or a public investment campaign. Calling a depositor a “member” on paper does not cure a business model that is plainly public-facing. Membership has its own conditions, shareholding requirements, and records.

The types and periods of deposits are also controlled. Fixed deposits accepted by a Nidhi generally have a minimum period of six months and a maximum period of 60 months. Recurring deposits generally run for a minimum of 12 months and a maximum of 60 months, with a specific relationship between the recurring-deposit period and certain mortgage loans. A Nidhi cannot promise a short-term, instantly withdrawable product and then describe it as a normal Nidhi deposit.

Savings accounts have a particularly important ceiling: the maximum balance qualifying for interest at any time cannot exceed ₹1 lakh. The interest rate on that savings balance cannot exceed 2% above the interest payable on a savings bank account by a nationalised bank. Fixed and recurring deposit rates are also subject to the applicable ceiling in the rules, linked to the maximum rate that an NBFC may pay on public deposits. A brochure promising a rate simply because the company wants to attract deposits is not a substitute for checking the rule.

There is a liquidity reserve requirement as well. A Nidhi must keep unencumbered term deposits of at least 10% of outstanding deposits in its own name with a scheduled commercial bank, subject to the rule’s conditions. Temporary withdrawal for unforeseen commitments requires the prescribed approval and restoration conditions. This is not optional surplus cash; it is a compliance buffer intended to protect depositors.

The 1:20 NOF-to-deposit ratio is another fundamental brake. If the company has ₹10 lakh of qualifying NOF, it cannot accept deposits without limit. The company must also maintain the other member, reserve, and deposit conditions.

Loan restrictions: member-only, secured, and capped

Rule 15 says a Nidhi may provide loans only to its members. It also limits the amount that may be lent to an individual member based on the Nidhi’s total member deposits:

The deposit figure is taken from the last audited annual financial statements. If the Nidhi has not made profits continuously in the preceding three financial years, fresh loans are restricted to 50% of the normal maximums. A member who has defaulted on an earlier loan is not eligible for another loan.

These are not the same as a general underwriting policy. They are statutory ceilings. A board cannot approve a larger loan because the borrower has a strong credit score or because the collateral is worth more.

The security also has to fit the rules. Loans may be secured against gold, silver, and jewellery; immovable property; fixed-deposit receipts, National Savings Certificates, other Government securities, and insurance policies, subject to the relevant repayment and valuation conditions. Gold, silver, and jewellery loans generally have a repayment period not exceeding one year. For immovable property, the rules impose limits on the share of overall loans, the loan-to-value relationship, and the repayment period.

In other words, “we lend to members” is only the first test. The member, the amount, the security, the tenure, the deposit base, the profit history, and the records all have to line up.

Membership rules: 200 people is not a marketing number

A Nidhi must maintain at least 200 members under the applicable rules. A body corporate or trust cannot be admitted as a member, and a minor cannot be admitted as a member. Deposits can be accepted in a minor’s name only where they are made by a natural or legal guardian who is a member.

The company also has share-related obligations. A deposit holder generally must hold the minimum prescribed equity shares, while savings and recurring-deposit account holders have a specific lower share requirement. A member cannot transfer more than 50% of their shareholding during the subsistence of a loan or deposit and must retain the minimum number of shares required by the rules.

This means a list of 200 names is not enough. The company needs valid member applications, identity and address records, share allotments, registers, and deposit documentation. Buying dormant or nominee memberships just to cross the number can create a weak NDH-4 file.

The prohibited-business list

Rule 6 prevents a Nidhi from using its member pool as a launchpad for unrelated financial products. Among the prohibited activities are:

• conducting chit funds;
• hire-purchase finance or leasing finance;
• insurance business;
• acquiring or purchasing securities of another company, controlling another company’s board, or arranging a change in its management;
• vehicle finance; and
• raising loans from banks, financial institutions, or another source for the purpose of advancing loans to Nidhi members.

The last restriction deserves emphasis. A Nidhi is meant to intermediate members’ savings for mutual benefit. It is not meant to borrow wholesale money and re-lend it to members at a spread. A funding strategy built around bank borrowing is therefore not merely aggressive; it is inconsistent with the Nidhi model.

The prohibited list also explains why a Nidhi is a poor wrapper for a fintech product. A mobile app, public lead funnel, merchant loan product, vehicle-finance book, or external investor marketplace cannot be made compliant by inserting a membership screen at the front.

Where founders usually get it wrong

The first mistake is confusing incorporation with declaration. The Registrar may incorporate a public company, but that does not mean the Central Government has declared it a Nidhi. Until the relevant conditions and filings are satisfied, the company should not behave as though the Nidhi exemption is available.

The second mistake is treating NDH-4 as paperwork rather than a qualification test. A company may have the right name and a professionally drafted memorandum but still fail because it cannot demonstrate the member base, NOF, permitted objects, clean promoter history, or fit-and-proper declarations.

The third is expanding beyond members. “Members” obtained through public lead-generation campaigns, deposits from non-members, and loans to people who are not genuinely part of the member body are all warning signs. The mutual-benefit relationship has to be real in substance and records.

The fourth is quoting an attractive rate without checking the ceiling. A savings account balance above ₹1 lakh does not become fully interest-qualifying because the customer signed a form. The 2% spread over the relevant nationalised-bank savings rate is a cap, not a suggestion.

The fifth is opening branches too early. A Nidhi generally needs a three-year track record of net profits after tax and compliant filings before it can open branches, subject to the specific rules and permissions. The 2022 amendments also tightened branch-opening and branch-closing procedures, including NDH-2 applications and notices. A branch network is not a day-one growth strategy.

Ongoing compliance after NDH-4

Declaration is the beginning of the compliance calendar, not the end.

Form NDH-1 is the return of statutory compliances. It is filed within 90 days from the close of the first financial year after incorporation and, where applicable, the second financial year, and is certified by a practising company secretary, chartered accountant, or cost accountant.

Form NDH-2 is used for specified applications and intimations, including extension of time in the permitted circumstances and certain branch-related or deposit-related approvals. It is not a general waiver form. Missing a milestone and filing NDH-2 casually does not guarantee an extension.

Form NDH-3 is the half-yearly return of deposits. It gives the Registrar visibility into the deposit position and related compliance information. It must be prepared from reconciled books and member records, not from a spreadsheet maintained separately by the sales team.

Form NDH-4 is the declaration application for new companies and the status-updation form for relevant existing companies. Under the 2022 framework, a rejection stops the company from taking deposits or giving loans under the Nidhi Rules.

Alongside these forms, the company has normal public-company obligations: statutory audit, financial statements, annual return, meetings, registers, tax filings, deposit records, and loan documentation.

When a Nidhi is actually the right pick

A Nidhi can make sense where the community already exists and the mutual-benefit purpose is genuine. Examples might include a tightly defined professional association, a colony or employee community, an alumni network, or another closed group whose members want a regulated mechanism for saving and borrowing among themselves.

The fit is strongest when:

• the members know the community and are willing to remain members;
• the company can maintain 200 genuine members;
• the founders can support the required NOF and reserve discipline;
• loans will be secured and sized within the statutory limits;
• the business is comfortable with controlled, relationship-based growth; and
• the board is prepared for continuing MCA compliance.

The Nidhi’s value is not that it can do everything. Its value is that a suitable member community gets a defined structure for thrift and mutual credit without operating as a bank or an RBI-registered NBFC.

When it is the wrong structure

Do not use a Nidhi for an internet-facing lending platform. If the product is intended to source borrowers from the public, match lenders and borrowers, price risk algorithmically, or distribute loans through an app, the analysis belongs in the RBI-regulated NBFC and digital-lending framework. A P2P lending business requires an RBI P2P NBFC licence; it is not a Nidhi use case.

Do not use a Nidhi where the deposit-taking business is intended for non-member customers. Calling customers “members” after they arrive through a public investment funnel does not turn a public deposit product into a mutual-benefit structure.

Do not use a Nidhi when the real plan is to borrow from banks and re-lend. Rule 6 expressly restricts raising loans for advancing loans to members.

Do not use a Nidhi if you expect to raise external equity from venture capital or strategic investors as the main source of growth. A Nidhi’s member ownership and shareholding rules do not fit the normal venture-capital playbook. If the company needs a broad investor base, a different company structure and finance licence analysis is required.

Finally, do not choose a Nidhi just because an incorporation provider calls it the fastest route to a finance business. Incorporation speed is not regulatory permission.

Alternatives worth comparing

NBFC registration

An NBFC is the natural route for a genuine lending business serving customers beyond a closed member group. It is regulated by the RBI, has a heavier application and governance burden, and requires the prescribed minimum NOF. For many categories, the planning benchmark is ₹2 crore, but the applicable requirement depends on the category and current RBI rules.

Cooperative society

A cooperative society may be closer in spirit to a mutual-benefit model, especially where members share a common purpose and the activity is local or state-based. Registration, supervision, and permitted activities depend on the state law or the Multi-State Cooperative Societies Act. Compare Nidhi vs cooperative society using the internal key cooperative-society_nidhi before choosing.

Producer Company

A Producer Company is useful where the members are agricultural producers and the structure is intended to support production, procurement, processing, or marketing for those producer-members. It is not a general substitute for a lending licence, but it can be a much better fit than a Nidhi where the real purpose is a producer-owned business rather than a deposit-and-loan society.

For a direct comparison of the two structures most often confused in online searches, see NBFC vs Nidhi using the key nbfc_nidhi.

FAQ

Is Nidhi Company registration the same as getting an NBFC licence?

No. A Nidhi is regulated under Section 406 of the Companies Act and the Nidhi Rules through the MCA framework. It is not an RBI-registered NBFC and cannot conduct the broader lending activities an NBFC may be authorised to conduct.

Does a new Nidhi need to file NDH-4 within 120 days?

For a public company incorporated on or after the Nidhi (Amendment) Rules, 2022, Rule 3B requires Form NDH-4 within 120 days of incorporation if the company meets the rule’s conditions. Those include at least 200 members, NOF of at least ₹20 lakh, and fit-and-proper declarations from all promoters and directors. Older companies and transitional cases may have a different Rule 3A or Rule 23A timeline.

Is the minimum NOF ₹10 lakh or ₹20 lakh?

Both figures appear because they apply in different places. The continuing Rule 5 and Rule 9 framework refers to ₹10 lakh or more, while Rule 3B’s NDH-4 gateway for new post-2022 applicants requires NOF of ₹20 lakh or more. The company’s incorporation date and the provision being tested matter.

What happens if NDH-4 is rejected?

The company cannot continue accepting deposits from members or providing loans under the Nidhi Rules after the relevant rejection date. It cannot simply continue trading as though the declaration had been granted. A fresh legal and regulatory analysis is required before any further deposit or lending activity.

Can a Nidhi accept deposits from non-members?

No. Deposits are restricted to members. A public website, referral campaign, or app cannot be used to create an unrestricted public deposit base under a Nidhi label.

Can a Nidhi lend for vehicle purchase?

Vehicle finance is on the prohibited-business list. A Nidhi is also limited to the permitted security types, member-only lending rule, statutory loan ceilings, and repayment conditions.

Can a minor become a Nidhi member?

No. A minor cannot be admitted as a member. A deposit may be made in a minor’s name by a natural or legal guardian who is a member, subject to the rules.

What is the savings deposit limit?

The maximum balance in a savings deposit account qualifying for interest at any time is ₹1 lakh. The rate of interest cannot exceed 2% above the interest payable on a savings bank account by a nationalised bank.

Is a Nidhi suitable for peer-to-peer lending?

No. Peer-to-peer lending is an RBI-regulated NBFC activity. A Nidhi’s member-only mutual-benefit structure is not a substitute for an RBI P2P NBFC licence.

The honest conclusion

The attractive part of a Nidhi is also the limiting part: it lets a genuine member community save and borrow within a defined legal structure. It does not create a low-cost bank or public deposit product.

Before paying anyone for Nidhi Company registration, write down the proposed members, source of NOF, deposit product, lending security, maximum loan size, marketing channel, and first-year compliance calendar. Test every line against Section 406 and the Nidhi Rules, including the 2022 Rule 3B gateway.

If the community is real and closed, a Nidhi may be appropriate. If the business is public-facing, technology-led, externally funded, or designed to scale through non-member borrowers, choose the correct finance structure first. The cheapest incorporation is expensive when it leaves you with the wrong business.

For city-specific incorporation planning, see Nidhi Company registration, or compare the structure with a cooperative society before filing.