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Our Bureau

Chennai , June 7

THE Centre has constituted a seven-member expert group to review the functioning of nidhi companies.

The review will cover the role of nidhi companies, their regulatory framework and steps to safeguard depositors.

(Nidhis or mutual benefit societies are a type of non-banking finance companies where a borrower will have to be a member of the nidhi.)

In an order, the Ministry of Company Affairs has said the expert group will submit its report within three months. The group may consult the Chamber of Nidhis, depositors' associations and experts to finalise its recommendations.

The expert group will have to examine the role and relevance of nidhi companies in the non-banking financial sector and review the adequacy of existing notifications and suggest modifications for improving the regulatory framework. It will also have to suggest measures for developing an effecting mechanism for inspection, supervision and monitoring of nidhi companies and suggest a system of penalties including criminal liabilities for non-compliance with the notifications.

According to the order, the expert group will have to suggest new regulatory measures for protecting the interest of depositors in nidhi companies and to examine the feasibility of evolving an insurance scheme for the depositors.

The group has also been asked to make recommendations on any other matter relevant to the functioning of nidhi companies keeping in view the emerging scenario in the banking and non-banking financial sector.

Mr A.R. Rao, former chairman, Income-Tax Settlement Commission, Chennai, will be the chairman of the expert group. Its members are: Mr Y.S. Malik, Joint Secretary, Ministry of Company Affairs; Mr A.V. Sardesai, Executive Director, Reserve Bank of India; Mr Arvind P. Datar, Senior Advocate, Chennai; Mr R. Anand, Vice- President - Corporate Affairs, Sundaram Finance Ltd, Chennai; Mr C.R. Vijayaraghavan, former Managing Director, State Bank of Mysore; and Mr C.D. Paik, Regional Director (Western & Southern regions), Ministry of Company Affairs, who will be the member-secretary of the group.

According to the order, nidhi companies have been playing an important role in various parts of the country in mobilising savings of households and providing loans to members for various purposes against different types of securities. The number of nidhis notified under the Companies Act has increased from 120 in 1991 to 244 now. The functioning of nidhis is regulated by various notifications issued by the ministry.

In view of the growing importance of nidhis and the experience gained in regulating them, the Ministry felt that it was necessary for a comprehensive review of their functioning.

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