The Hindu Business Line : Nidhis may be allowed fee-based activities

Other changes
Penalty provisions for failure to comply with the norms
Tenure of directors in for change.
Rotation of auditors every 5 years on cards

New Delhi , March 26

The Ministry of Company Affairs has accepted most of the recommendations of the Rao committee on the functioning of nidhi companies and is all set to allow them to undertake fee-based activities such as insurance broking, agency services, and providing locker. However, this relaxation would come with a rider that at least 80 per cent of the gross income should come from the core business of such entities. The norms are also likely to permit nidhi companies to invest in post office schemes, small saving instruments of Government or RBI bonds, wherever permissible, provided investment is made in the name of the nidhi, and not individuals.

While relaxing certain provisions that would allow nidhis to diversify, the Ministry is also coming out with a separate notification stipulating penalty provisions for failure to comply with the norms..

The Ministry had set up an expert group headed by Mr A. R.Rao to examine any lacunae in the existing norms governing such companies.

Currently, only mortgage and jewel loans are the accepted forms of lending by the nidhi companies. However, nidhi companies have expressed interest in pursuing other related fee-based activities that may not require heavy capital investment, official sources told Business Line. This would also help the nidhi companies to improve their bottomline.

Revisiting the concept

Though nidhi concept was essentially one of mutuality, the Government felt that there was a need to revisit this concept in the context of diversification and in the changed economic scenario, the sources said.

At present, the system is of appointment of special officer who in turn takes over the management of the company when it violates regulations or fails to work according to memorandum or article of association.

Penal provisions

Now, the Ministry, through a notification, is going to spell out the penalty provisions. Besides, inspection under the Companies Act, both onsite and offsite, is also in the offing, official sources said.

As regards the tenure of directors, the revamped norms are likely to suggest that the present six months gap between two tenures would be replaced by two years. This in effect would mean that an individual who has been on the board of a nidhi could join the company only after cooling off for two years.

Besides, rotation of auditors every five years is also likely to be suggested, which in effect means that a five year cooling off period would be suggested for an audit firm or any associate of the same firm either in the same capacity or any other individual capacity.

Threshold limit

Moreover, the existing minimum threshold limit of Rs 10 lakh for being considered for the status of a nidhi is unlikely to be changed. The spread of interest rate is likely to be reduced to 5 per cent from the proposed 7.5 per cent by the committee.

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