The Group concluded that there was need for regulating the affairs of Nidhis or Mutual Benefit Societies so that their activities were carried on in a professional manner. There was consensus that any Nidhi or Mutual Benefit Societies, which would come into existence henceforth should adhere to the regulation already notified by the Government. The Group took note of a very strong apprehension by the existing Nishi or mutual benefit societies that they were not mentally prepared for the changes prescribed in the DCA notification of July 26, 2001 giving effect to the recommendations of the Sabanayagam Committee. The Chambers of Nidhis and Nidhi Companies, concerns related to following prudential norms, maintenance of net owned funds as a percentage of deposits.

    The Group has recommended extension of time for Nidhis for compliance of the July, 2001 notification to change their present mindset and to implement the various requirements contained therein . It has also recommended dilution of certain norms prescribed for the Non-Banking Financial Companies (NBFCs) in respect of Nidhis as these companies cater to the needs of middle class and lower middle class persons, who are all the members of the Nidhis generally. These companies also operate in a small local areas and members are very often known to each other. The Group has recommended general extension of time for complying with the requirements of the impugned notification. The Group has also recommended balancing of conflicting interests of the depositors, borrowers and shareholders in Nidhis.

    The Group has recommended that the existing nidhi companies as well as the potential nidhi companies may be allowed to continue with the existing capital structure without any variation in the face value of the equity shares to maintain status quo. However, the new companies to be incorporated after the said notification may be insisted upon to have equity shares of the face value of Rs. 10 each as contemplated therein.

    In regard to preferential allotment of shares, the Group recommended modification in the existing norm with a suitable proviso that the restriction should not apply to allotment of share upto the face value of Rs. 100 to new deposit holders and borrowers and in respect of qualifying shares to be held by directors.

    In the area of prepaid interest warrants, the Group concluded that the existing restriction relating to issue of prepaid warrants may be retained. In matter of exclusion of preference share capital from net owned fund, the Group recommended that the Government may give time upto December 31, 2003 by which time these companies may either redeem or convert the preference share capital into equity share capital. The Group further recommended that till December 31, 2003 preference share capital may be included in the computation of net owned fund.

    In the matter of ratio of net owned funds to deposits, the Group has recommended extended period for companies with deposits below 25 times of net owned funds as on December 31,

    2001 till December 31, 2004, companies with deposits between 26 times and 40 times of net owned funds as on December 31, 2001 till December 31, 2005, companies with deposits between 41 times and 80 times of net owned funds as on December 31, 2001 till December 31, 2006 and companies with deposits exceeding 80 times of net owned funds as on December 31, 2001 till December 31, 2007. The Group, however, did not find the representation tenable in respect of the fixed deposit account of Nidhis. The Group further recommended a minor modification in the existing norm to provide that in the case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits may exceed 60 months. In the area of saving deposit account, the Group has recommended the restriction of the existing provision of 2 per cent above rate of interest offered by the nationalized banks with bench mark rates being reckoned on the rate on savings bank accounts offered by State Bank of India if the rates offered by nationalized banks varied.

    As for format of application form to contain various details about the companies, the Group has recommended that the deposit application forms of Nidhis should also carry an abridged version of the latest balance sheet of the company as an additional disclosure. In the matter relating to issue of minimum Rs. 100 worth of share to every member, the Group recommended that the existing companies should continue with their present set up subject to their allotting a minimum number of shares having a total face value of Rs. 100 to all newly opened deposits and renewed deposits. The Group recommended exemption to savings bank account holders and recurring deposits account holders from this provision.

    The Group has recommended that all the Nidhis or Mutual Benefit Societies should maintain as on December 31, 2002 unencumbered term deposits with a scheduled commercial bank of 2 per cent of the total liability deposits outstanding as on October 31, 2002 and the same may be increased to 5 per cent by December 31, 2003 and then increased to 10 per cent by December 31, 2004. It also recommended incorporation of a provision for regulating the withdrawals from the deposit accounts in cases of unforeseen commitments. In the matter of loan against immovable properties, the Group recommended that registered mortgage loans may be

    exempted from the ceiling limit of 50 per cent. The Group also recommended extension of time limit of the immovable property loans to 7 years. The Group has further recommended that the tenure of loan against fixed deposits may correspond to the remainder period of fixed deposits. It has recommended that margin of interest on loans should not exceed 7.5 per cent and be increased from the existing 5 per cent to 7.5 per cent. In regard to tenure of directors, the Group has recommended continuation of the existing restriction. In regard to undisbursed dividend, the Group has recommended continuation of the existing restriction. As for prudential norms, the Group has recommended some modifications relating to 10 per cent of the aggregate outstanding amount of substandard asset, 25 per cent of the aggregate outstanding amount on doubtful asset and 100 per cent of the aggregate outstanding amount on loss asset. Similarly, adequate time for compliance of income recognition, classification of assets and provisioning for mortgage loans outstanding have been recommended for extension from March 31, 2000 to March 31, 2005, March 31, 2001 to March 31, 2006 and March 31, 2002 to March 31, 2007. It has also recommended application of the norms to all the mortgage loans sanctioned from April 1, 2002 onwards. As for loan against jewelry, it has recommended recovery of aggregate outstanding amount of loan or its renewal within next three months after the due date of repayment specified at the time of grant of such loans. In the case of non-recovery, there should be provision for 100 per cent against current year profit and loss account to the extent of unrealized amount. No income should be recognized on such loans outstanding after the expiry of three months period or sale jewelry.

    The Group’s recommendations have endeavoured to ensure that the loopholes plugged by the Sabanayagam Committee on Revamping of Nidhis and objectives sought to be achieved are not diluted. It has recognized the interest of the depositors, their practical difficulties and the need for proper developments of the Nidhis. The recommendations also aim at ensuring that the Nidhis in the long run are run professionally by following a set of norms so that they can serve the society better.