Introduction
The success and survival of a Nidhi Company depends on deposits mobilised from its members. However, since Nidhis are mutual benefit societies, the law places strict limits on how much they can accept and under what conditions. Rule 11 of the Nidhi Rules, 2014, read with subsequent amendments, sets out the framework for acceptance of deposits.
The main principle is that deposits must always remain within safe, proportionate limits compared to the company’s Net Owned Funds (NOF). This ensures that Nidhi Company do not overextend itself and always retains financial strength to protect depositors’ interests.
The General Rule: 1:20 Ratio
As per Rule 11(1), a Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements.
Net Owned Funds (NOF) means the aggregate of paid-up equity capital and free reserves, minus accumulated losses and intangible assets.
This ratio of 1:20 means that for every ₹1 of NOF, the company can raise ₹20 as deposits. For example:
- If NOF = ₹10 lakh → Max deposits allowed = ₹2 crore.
- If NOF = ₹50 lakh → Max deposits allowed = ₹10 crore.
- If NOF = ₹1 crore → Max deposits allowed = ₹20 crore.
This proportionate limit ensures stability and prevents Nidhis from over-leveraging member funds.
Special Provision for Older Companies (Pre-2001)
For Nidhi Companies that were already functioning before 26th July, 2001, and had accepted deposits beyond the 1:20 limit, the law provided a phased approach to restore compliance.
Table for Restoration of Prescribed Ratio
| Ratio of NOF to Deposits (as on 31.03.2013) | Date by which 1:20 must be achieved |
| More than 1:20 but up to 1:35 | By 31.03.2015 |
| More than 1:35 but up to 1:45 | By 31.03.2016 |
| More than 1:45 | By 31.03.2017 |
Thus, older Nidhis were not required to instantly cut down deposits, but were given specific timelines to either:
- Increase NOF (by issuing shares or retaining profits), or
- Reduce deposits (by not renewing or repaying over-limit deposits).
No Fresh Deposits Beyond the Ratio
Rule 11(3) prohibits older companies, which were allowed temporary relaxation under Rule 11(2), from accepting fresh deposits or renewing existing deposits if such acceptance or renewal would further breach the ratio.
In simple words: until the Nidhi reduces its deposits to within the prescribed limit, it cannot take on new deposits or extend old ones.
Application to Incremental Deposits
Rule 11(4) further clarifies that the ratio applies not only to total deposits but also to incremental deposits. This means that whenever a Nidhi accepts fresh deposits, it must check that the acceptance does not push the overall ratio beyond 1:20.
Why the 1:20 Ratio is Important
This ratio acts as a financial safety net. If a Nidhi could freely accept deposits without any link to its NOF, it could become over-leveraged and vulnerable to defaults. Depositors would face a higher risk of losing their money.
By keeping deposits capped at twenty times of NOF, the law ensures:
- The company has a solid capital base.
- Deposits are backed by equity and reserves.
- The management is restricted from growing recklessly without proportionate capital.
Case Reference: MCA Crackdown on Errant Nidhis
In recent years, the Ministry of Corporate Affairs (MCA) has penalised several Nidhi Companies for accepting deposits without meeting prescribed requirements. For example, in Ajay Nidhi Ltd case (2023), the company was penalised for violations of Nidhi deposit rules, including breaching NOF to deposit ratios. The order highlighted that accepting deposits beyond permissible limits puts members at risk and is treated as a serious violation.
This case demonstrates that the 1:20 ratio is not a formality but a mandatory ceiling, and violations invite penal action.
Example Scenarios
Example 1: Compliance
- NOF = ₹25 lakh
- Permissible deposits = ₹25 lakh × 20 = ₹5 crore
- Actual deposits = ₹4.5 crore
Company is compliant.
Example 2: Non-Compliance
- NOF = ₹10 lakh
- Permissible deposits = ₹2 crore
- Actual deposits = ₹2.8 crore
Company is non-compliant and must either increase NOF or reduce deposits. It cannot accept fresh deposits until it brings ratio within limits.
Example 3: Older Company (Pre-2001)
- Ratio of NOF to deposits as on 31.03.2013 = 1:40
- It must achieve 1:20 by 31.03.2016.
- Until then, it cannot accept new deposits or renewals if doing so increases the ratio.
Legal Reference
- Section 406, Companies Act, 2013 – Regulation of Nidhis.
- Nidhi Rules, 2014 – Rule 11 on Acceptance of Deposits.
- Nidhi (Amendment) Rules, 2022 – Clarifications and stricter compliance.
- MCA Notifications & Orders – e.g., penalties on non-compliant Nidhis (Ajay Nidhi Ltd case).
Practical Implications for Nidhi Promoters
- Capital Planning – Before mobilising deposits, promoters must ensure adequate Net Owned Funds.
- Audit Check – Deposits must be calculated based on the latest audited financials.
- Renewals Restricted – If over-limit, deposits cannot be renewed until compliance is restored.
- Regulatory Filing – Compliance must be reported in NDH-1 annually.
- Penalties – Non-compliance attracts fines and possible restrictions on operations.
Conclusion
Rule 11 of the Nidhi Rules establishes a clear ceiling: deposits cannot exceed 20 times Net Owned Funds. This protects the financial stability of Nidhis and safeguards members’ savings. Older companies were given phased compliance timelines, but today, all Nidhis must strictly follow the ratio.
For promoters and directors, deposit compliance is non-negotiable. Mismanagement not only invites penalties but also erodes public trust, which is the lifeline of a Nidhi. Proper planning, annual filings, and conservative financial management are the keys to running a sustainable and legally compliant Nidhi Company.
Frequently Asked Questions (FAQs)
Q1. What is the maximum deposit a Nidhi Company can accept?
A Nidhi can accept deposits up to 20 times of its Net Owned Funds (NOF) as per the last audited balance sheet.
Q2. What is Net Owned Funds (NOF)?
NOF means paid-up equity capital + free reserves – accumulated losses – intangible assets. Preference share capital is not included.
Q3. Can an older Nidhi (before 2001) accept deposits above the 1:20 ratio?
Older Nidhis that already had deposits above the limit were given time to bring them down. Depending on their ratio as on 31.03.2013, they had until 2015, 2016, or 2017 to comply. After that, all must follow 1:20 strictly.
Q4. What if a Nidhi breaches the 1:20 limit today?
It cannot accept fresh deposits or renew existing ones. It must either increase NOF (by issuing shares or retaining profits) or reduce deposits by repayment.
Q5. What is meant by incremental deposits?
Even a single new deposit taken must be checked against the ratio. If the new deposit pushes the company above the 1:20 ratio, it cannot be accepted.
Q6. What are the penalties for violation of deposit limits?
Violations can attract penalties under the Companies Act, 2013, and MCA has imposed fines on several Nidhis. Both the company and officers in default are liable.
Q7. Why does the law link deposits to Net Owned Funds?
It ensures that deposits are backed by adequate capital, preventing over-leveraging and protecting depositors.
Q8. Can deposits be accepted from non-members?
No. Nidhis can accept deposits only from their members, and only within the limits of Rule 11.
Q9. How is compliance reported?
Nidhis must file Form NDH-1 annually with the Registrar of Companies, certified by a professional, confirming compliance with deposit limits.
Q10. What happens if deposits exceed limits due to interest accrual?
The company must still maintain overall compliance. It may need to increase NOF or reduce fresh acceptance to stay within 1:20.