Introduction
Nidhi organizations and Non-Banking Financial Companies (NBFCs) are two distinct categories of financial organizations that operate in India. While both Nidhi Companies and NBFCs are within the Non-Banking Financial Sector, there are several notable differences between them in India about their functions, membership prerequisites, advertising rules, service charges, and branch operations. Understanding these distinctions is essential for anybody searching for financial services or considering investing options. In this post, we will look at the differences between Nidhi Companies and NBFCs in India.
What Nidhi Companies Mean?
Before we talk about how Nidhi Companies differ from NBFCs in India, let us take a closer look at the concept behind them. Nidhi, a mutually beneficial organisation that was established to encourage its members to conserve money and utilise it wisely, is a part of the Indian finance industry. Nidhi Company is registered as a Public Limited Company under The Company Act 2013 and is governed by the Nidhi Rules 2014. Only members of the organization can donate and ask for loans because of the organization’s structure.
This is the primary driver behind people’s decision to work for such a company. Members of this club save and provide money, which is then utilised to lend money to other members at reasonable interest rates.
These loans are typically used for building or repairing homes and for weddings. The primary goals of Nidhi Company are to facilitate loans for mutual benefit and to assist members in forming the habit of saving. The company solely communicates with its members.
Restrictions and requirements for Nidhi Enterprises
The criteria and constraints for Nidhi businesses are as follows:
- The Companies Act of 2013 mandates that it be a public company.
- A minimum of Rs 5,00,000 is required for equity share capital.
- No preference shares may be distributed. Preference shares that were issued before this act’s passage must be redeemed in line with the terms mentioned therein.
- The principal aim is to incentivize members to save money and facilitate the process of receiving and lending deposits for mutual benefit.
- The company name must include “Nidhi Limited.”
- Within a year following the laws’ implementation date, each Nidhi Company must have 200 members.
- At least Rs. 10,00,000 must be the company’s net-owned funds.
- Opening a current account with a member is not allowed.
- Lending and depositing are only available to members.
- Assets promised by members are not transferable to another party.
- Publications of deposit ads are prohibited.
- It is forbidden to employ partnership agreements for borrowing or lending.
- The broker cannot be compensated for money lent to members.
Non-Banking Financial Company
A non-bank financial company (NBFC) is a company that deals in lending and advances, buying stocks, bonds, debentures, and other securities issued by the government or local authority, leasing, hire-purchase, insurance, and chit business. NBFC registration includes businesses that are involved in equipment leasing, hire-purchase, lending, and investment.
However, it does not include businesses whose main operations are in the trade of goods or services, manufacturing, farming, or the construction, purchasing, or selling of real estate. A major component of the Indian financial sector are non-banking financial organizations, or NBFCs. They take deposits under several schemes and contracts, which can be made all at once or gradually. They are supervised by the Reserve Bank of India, and their main objective is to accept deposits.
The Limitations and Requirements for NBFCs in India
The requirements and restrictions for NBFCs are as follows:
- The NBFC must register, as per RBI regulations.
- To form an NBFC, a minimum net-owned fund of Rs. 200 lakhs is required.
- The registration application and the necessary documentation must be submitted to the RBI in the manner prescribed.
- Following clearance, the RBI will provide a certificate of registration.
- Only NBFCs with a valid certificate of registration are permitted to receive public deposits.
- Public deposits may be made for a minimum of 12 months and a maximum of 60 months, respectively.
- Regarding the refund of deposits, the RBI offers no assurances.
- The prerequisite for NBFCs is an investment-grade credit rating.
- They are prohibited from giving depositors presents or other benefits.
- We do not take deposits that need to be returned right away.
How Do NBFCs and Nidhi Companies Differ From One Another?
The key differences between NBFCs and Nidhi Companies in India are as follows:
Meaning
Non-banking financial companies (NBFCs) and banking institutions are the two categories into which all businesses in India fall. It is not an NBFC like the others in that it does not accept deposits from the public or provide loans to them. One of the most significant differences between NBFCs and Nidhi Companies is this.
Functions
A further contrast between Nidhi Companies and NBFCs is that the former are not allowed to engage in specific business activities such as chit-fund operations, hire purchase financing, leasing finance, insurance, or the purchase of assets issued by corporate organizations. On the other hand, non-bank financial companies, or NBFCs, are financial institutions that carry out a range of activities such as lending, advances, buying stocks or shares issued by the government or local authorities, leasing, hire-purchase, and insurance.
Membership
They are only able to lend or take deposits from active members or shareholders. Consequently, you have to join a Nidhi Company to transact with them. However, NBFCs may accept public deposits for a minimum of 12 months and a maximum of 60 months. This represents yet another important way that NBFCs and Nidhi Companies differ from one another.
Advertisement
Nidhi Companies are also not allowed to advertise their deposit-accepting services. Notwithstanding, non-bank financial businesses (NBFCs) possess the authorisation to advertise their lending, depositing, and other financial transaction services.
Service Charges
Nidhi Companies are not permitted to charge any kind of service charge to members in return for joining or issuing shares. However, they can charge processing fees for loans. Interest rates that are greater than the Reserve Bank of India’s ceiling cannot be charged by NBFCs.
Branches
A Nidhi Company cannot create branch offices unless it has demonstrated three years of continuous profitability. NBFCs, however, are exempt from these restrictions and can open branches without any trouble at all.
Final Thoughts
Therefore, it is critical to understand the many ways in which NBFCs and Nidhi Companies differ from one another. By focussing on providing financial services exclusively to its members or owners, Nidhi Companies promote a close-knit community approach. But NBFCs are more accessible, offering a wide range of financial services to the general population. In situations like these, NBFCs step in to save the day.
