24.1 The Committee did not receive any suggestion for change in the provisions of Section 406 of the Act, under which Nidhis are regulated under the Act. However, the Committee felt that the earlier provisions under the Companies Act, 1956, which required the approval of the Central Government for declaration of a company as ‘Nidhi’, were more appropriate since they provided a centralized and more restrictive framework for regulation of such entities. It was also noted that since the nature of business of Nidhis were similar to those of NBFCs, it was more appropriate to regulate them at a central level in the Ministry, or through one or more Regional Directors.

Central regulation of Nidhis recommended to ensure restrictive oversight similar to NBFCs, with approval at ministry or regional level. No amendments to Section 406 were proposed, but the prior requirement of Central Government approval to declare a company a 'Nidhi' is preferred as a more centralized, restrictive regulatory approach; given the similarity of Nidhi activities to deposit-taking non-banking entities, central-level regulation by the Ministry or through Regional Directors is recommended to align oversight with their business character.