Nidhi companies' desperate appeal to Govt.

By C. R. L. Narasimhan

CHENNAI, FEB. 22.Nidhi companies, some of them more than a century old, are hoping against hope that the Central Government through its Department of Company Affairs will modify immediately a few key nidhi rules that were made applicable to them from November last.

In a letter dated February 18, the Chennai based Chamber of Nidhis has urged Dr. Sanjeeva Reddy, the newly appointed Secretary, Department of Company Affairs, to immediately modify the rules regarding acceptance of savings deposits by nidhis.

In the November notification there was a blanket ban on nidhis accepting deposits less than six months, which meant that they could not operate even savings deposits.

The nidhi representatives have suggested that by permitting them to take savings deposits the Government will be giving them ``a life-saving drug''. This is because a number of their customers use the nidhis' savings facility in conjunction with their term deposits /recurring deposit accounts.

To prevent some nidhis from abusing this facility and mobilise huge funds by offering high interest rates, the nidhis say they will show restraint and are willing to pay less on these deposits.

They will not seek permission to operate short-term fixed deposits, say for 45 days or three months, but would like savings bank deposit facility to be restored. By prohibiting SB deposits the Government is effectively choking them to a certain death, they say.

When two previously high-flying nidhis - Alwarpet Benefit Fund and RBF - failed, there was a felt need to regulate the nidhis as much as the felt need to regulate non-banking financial companies earlier.

However, the failures among the nidhis have been in the few which were anything but a nidhi in character. For instance, as subsequent developments show, RBF seems to have been hijacked by the Balaji group.

Even employees of the Balaji group seem to have been showered with largesse in the form of RBF loans with no security at all, which a newly constituted board of directors and a Special Officer are manfully trying to recover. The point is only a handful of nidhis seem to have strayed from the nidhi character but they have brought a bad name to the century old institution in the South.

A turnaround in the nidhis' fortunes can happen only when they are seen as having access to cash - to be seen as liquid in other words. In this context, the nidhis have asked the Government to permit them to seek refinance of properties pledged to them.

If banks, housing companies and others can grant loans on the securities held by the nidhis, of course, with all the safeguards, most of them will recover from the present crisis. It ought to be mentioned here that the most noteworthy nidhi characteristic apart from their local area concentration, is the fact that they could lend only against houses (against a registered mortgage), gold loans and against their own deposits.

The nidhi representatives have also requested that the State governments concerned should exempt nidhis from the operation of the Pawn Brokers Act as even the Department of Company Affairs has allowed it in a few cases.

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Section  : Business
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