Introduction

Deposits form the backbone of a Nidhi Company’s operations. Since Nidhis are formed with the objective of promoting savings among their members and providing loans within that circle, deposits represent both the trust of members and the financial foundation of the institution. Because deposits involve public money, the Ministry of Corporate Affairs (MCA) has imposed strict regulations to ensure that Nidhis remain financially disciplined and depositor-friendly.

Rules 13 and 14 of the Nidhi Rules, 2014 lay down the legal framework on how deposits can be accepted, the tenure for which they may be kept, the interest that can be paid, and the minimum liquid reserve that must be maintained. These rules are not mere technicalities; they directly safeguard depositors and prevent Nidhis from overextending themselves.

Rule 13 – Regulation of Deposits

Period of Deposits

The law prescribes clear boundaries on the period for which deposits can be accepted. Fixed deposits must run for a minimum of six months and not more than sixty months. Recurring deposits are permitted for a slightly longer minimum period—twelve months—but again capped at sixty months. Where recurring deposits are connected to mortgage loans, the maximum period is aligned with the repayment term of the loan. These timelines are designed to strike a balance between providing flexibility to depositors and ensuring that the Nidhi maintains financial predictability.

Savings Deposits and Their Limitations

Unlike banks, Nidhis are not intended to operate as large deposit-taking institutions. This is why savings accounts are tightly restricted. The balance in a savings deposit account that qualifies for interest cannot exceed one lakh rupees. Further, the rate of interest is capped at two percent above the rate offered by nationalised banks. This dual restriction prevents Nidhis from competing aggressively with banks on savings accounts and keeps their focus on mutual benefit rather than profit maximisation.

Interest on Fixed and Recurring Deposits

The maximum rate of interest that a Nidhi may offer on fixed and recurring deposits is pegged to the Reserve Bank of India’s prescribed limit for Non-Banking Financial Companies (NBFCs) accepting public deposits. This link to RBI standards ensures that Nidhis remain in line with broader financial sector stability norms and do not attract depositors by promising unsustainably high returns.

Premature Repayment

Premature closure of deposits is often requested by depositors, but here again the rules aim to balance depositor needs with financial discipline. A Nidhi cannot repay any deposit within three months of acceptance. If repayment is made after three months but before six months, the depositor forfeits all interest. If repayment is made after six months but before maturity, the interest payable is reduced by two percent from the normal applicable rate. The law, however, makes a humane exception: in the event of the death of a depositor, the deposit can be repaid prematurely to the nominee, survivor, or legal heir, with normal interest for the actual period run.

Through these detailed provisions, Rule 13 ensures that deposits remain long-term and stable, thereby protecting both the company’s liquidity and the collective interests of its members.

Rule 14 – Unencumbered Term Deposits

The 10% Liquidity Requirement

Rule 14 requires every Nidhi to keep invested, at all times, at least ten percent of its outstanding deposits in the form of unencumbered term deposits. These must be maintained either with scheduled commercial banks (excluding co-operative and rural banks) or in post office deposits. The use of the term “unencumbered” is critical: these funds must not be pledged, charged, or used as collateral. They serve as a liquidity buffer that the Nidhi can rely on in times of stress.

Practical Illustration

Suppose a Nidhi has total outstanding deposits of ₹5 crore at the close of business on the last working day of the second preceding month. It must, therefore, keep at least ₹50 lakh invested in unencumbered term deposits. This ensures that, at any given time, the company has a portion of funds readily available to meet unexpected withdrawal demands from members.

Temporary Withdrawal with Approval

Recognising that emergencies can arise, the rules allow a Nidhi to temporarily withdraw from this 10% reserve to meet unforeseen commitments, but only with prior approval of the Regional Director (RD). The application must be made in Form NDH-2, and the RD may impose conditions or specify a timeframe within which the shortfall must be restored. This balance between flexibility and control ensures that liquidity is preserved as a principle, while still accommodating genuine contingencies.

Importance of Rules 13 and 14 in Corporate Governance

The combined effect of Rules 13 and 14 is that Nidhis cannot treat deposits casually. Rule 13 forces them to follow strict timelines, caps, and interest limits, while Rule 14 ensures that a safety cushion is always maintained. This framework has several governance implications:

• Depositor Protection: Members can be confident that their deposits are not being misused or locked into unsustainable commitments.
• Financial Stability: The 10% unencumbered deposit requirement ensures liquidity even in times of stress.
• Prudential Discipline: By linking interest rates to RBI standards and restricting premature withdrawal, the rules encourage conservative financial management.
• Regulatory Oversight: Since exceptions require approval from the Regional Director and intimation to the Registrar, regulators retain visibility into the financial practices of Nidhis.

Case Example – MCA Action on Non-Compliance

In several instances, the Ministry of Corporate Affairs has taken action against Nidhis for failing to maintain the 10% unencumbered deposit or for offering deposit schemes in violation of Rule 13. One notable case involved a Nidhi that promised depositors a rate significantly above the RBI-prescribed cap. The MCA imposed penalties and restricted the company from accepting new deposits until compliance was restored. The case served as a reminder that Nidhis are bound by law to operate within their prescribed limits and that violations are treated seriously.

Example Scenarios

Scenario 1 – Fixed Deposit:
A member places ₹1,00,000 in a fixed deposit for three years at 8% interest. If withdrawn after one year, the Nidhi must pay interest at 6% (reduced by 2%).

Scenario 2 – Savings Account:
A member maintains ₹1,20,000 in a savings account. Only ₹1,00,000 qualifies for interest, which may be capped at 2% above the nationalised bank rate.

Scenario 3 – Liquidity Reserve:
With outstanding deposits of ₹10 crore, the Nidhi must hold ₹1 crore in unencumbered deposits. If it faces large withdrawals, it may approach the Regional Director for permission to temporarily use part of this reserve.

Conclusion

Rules 13 and 14 represent the heart of deposit regulation in Nidhi Companies. While Rule 13 carefully controls the acceptance, tenure, and premature withdrawal of deposits, Rule 14 guarantees that a portion of deposits remain liquid at all times. Together, they create a safety framework that balances depositor convenience with the long-term stability of Nidhis.

For promoters, directors, and members, the message is clear: deposits are not just inflows of money but legally regulated obligations. Compliance with these rules is not optional; it is the very foundation of trust in the Nidhi model.

Rule 13 – Deposits: Summary Table

Type of Deposit	Minimum Period	Maximum Period	Special Conditions
Fixed Deposit (FD)	6 months	60 months	Premature withdrawal allowed with conditions
Recurring Deposit (RD)	12 months	60 months	If linked to a mortgage loan, max period = repayment term
Savings Deposit	N/A	Balance up to ₹1,00,000 qualifies for interest	Interest not more than 2% above rate of nationalised banks

Rule 13 – Interest & Premature Withdrawal

Situation	Repayment Permitted?	Interest Payable
Withdrawal before 3 months	Not permitted	Nil
Withdrawal between 3–6 months	Permitted	No interest payable
Withdrawal after 6 months but before maturity	Permitted	Interest rate reduced by 2% from contracted rate
Death of depositor (premature closure)	Permitted	Full normal interest up to repayment date

Rule 14 – Unencumbered Term Deposits

Requirement	Details
Minimum investment	10% of total outstanding deposits
Where to invest	Scheduled commercial banks (not co-op or RRBs) or post office deposits
Encumbrance	Must remain unencumbered (not pledged or charged)
Temporary withdrawal	Allowed only with prior approval of Regional Director (Form NDH-2)
Restoration	RD specifies conditions & time limit to restore 10% balance

Frequently Asked Questions (FAQs)

Q1. What is the maximum tenure for deposits in a Nidhi?
Fixed deposits and recurring deposits cannot exceed 60 months.

Q2. Can a Nidhi pay higher interest than banks?
No. The maximum interest is capped at the rate permitted by RBI for NBFCs.

Q3. Can deposits be withdrawn before maturity?
Yes, but not within 3 months. Between 3–6 months, no interest is paid. After 6 months, interest is paid at 2% lower than the contracted rate.

Q4. Why must Nidhis maintain 10% unencumbered deposits?
To ensure liquidity and protect depositors. This reserve acts as a safety buffer.

Q5. Can this 10% reserve be used by the company?
Yes, but only temporarily and with the approval of the Regional Director, and it must be restored within the time specified.