• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources

Group Sites

• The Hindu
• Business Line
• The Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Richa Mishra

New Delhi , Dec. 8

NIDHI companies could soon diversify into insurance broking, agency services and other advisory services if the Ministry of Company Affairs accepts the recommendations of an expert group set up to examine any lacunae in the existing norms governing such companies.

However, this suggestion comes with a rider that at least 80 per cent of the gross income should come from the core business of such entities.

The expert group headed by Mr A.R. Rao submitted its report recently. Currently, only mortgage and jewel loans are the accepted forms of lending by nidhis.

"The trade representatives have been envisaging interest in pursuing other related fee-based activities as it may not require heavy capital investment. Besides, once such entities followed all the regulatory norms, they would be forced to go into other related areas to improve their bottomline," a Ministry of Company Affairs official said.

The report has suggested that the nidhi companies that have adhered to all the regulations in force be permitted to pursue fee-based activities such as insurance broking. "However, the regulation should ensure that at least 80 per cent of the gross income of such companies should constitute income related to mortgage loans and jewel loans, which should constitute the core business of nidhi entities," the group has suggested.

Though nidhi concept was essentially one of mutuality, there was a need to revisit this concept in the context of diversification and in the changed economic scenario, the official said. While considering other lending activities of nidhis, the group also considered the feasibility of permitting such entities to grant loans to self-help groups (SHGs).

"In view of the non-existence of tangible security, which is the basic concept of lending by a nidhi, this may not be feasible," the export group opined.

As regards inspection and supervision of nidhi companies, the expert group has suggested that suitable steps be taken to strengthen the regulator for effective implementation of the norms and monitor the functioning of such entities. The task of supervision of nidhis should squarely vest with the Ministry. Stating that the existing norms were adequate, what was required was an effective system of supervision of implementation and a proper monitoring system, the group said.

On penalty provisions for non-compliance, the group said wherever there was a serious violation, the person in charge or the director should be punished by way of penalty or prosecution and this should be made explicit in the notification itself.

The group has suggested that the existing minimum threshold limit of Rs 10 lakh for being considered for the status of a nidhi company be retained.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

More Stories on : Financial Policy | NBFCs

Stories in this Section
`Fanoos' slows down, but sticks to charted course

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line