Rule 20 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 20 sets the prudential norms of a Nidhi: when income on a bad loan may be booked, how much provision a mortgage loan needs at each asset class, what must be disclosed in the notes and how gold and silver loans must be recovered. This article reads rule 20 as amended up to G.S.R. 413(E) dated 16 July 2024; later amendments should be checked. The workings come from the audited accounts, and Nidhis that need them prepared can use our books of accounts compliance support.
Rule 20 applies to mortgage loans and jewel loans. Income on a Non-Performing Asset is booked only when actually realised. Mortgage loan provisioning is nil, 10 per cent, 25 per cent and hundred per cent for Standard, Sub-standard, Doubtful and Loss Assets. A gold, silver or jewellery loan must be recovered or renewed within three months of the due date, no income is recognised after that, and the loan to value ratio must not exceed 80 per cent.
Rule 20(1): scope
"Every Nidhi shall adhere to the prudential norms for revenue recognition and classification of assets in respect of mortgage loans or jewel loans as contained hereunder." The asset classes are those defined in rule 3(1); see our article on rule 3.
Rule 20(2): income on non-performing assets
"Income including interest or any other charges on non-performing assets shall be recognised only when it is actually realised and any such income recognised before the asset became non-performing and which remains unrealised in a year shall be reversed in the profit and loss account of the immediately succeeding year."
Two effects: from the time the asset is non-performing, income is booked on realisation, not accrual; and income already booked before that moment, if still unrealised in a year, is reversed in the profit and loss account of the next year.
Rule 20(3): provisioning on mortgage loans
(a) The table. In respect of mortgage loans, the classification and provision are:
| Nature of asset | Provision required |
|---|---|
| Standard Asset | No provision |
| Sub-standard Asset | 10% of the aggregate outstanding amount |
| Doubtful Asset | 25% of the aggregate outstanding amount |
| Loss Asset | Hundred per cent of the aggregate outstanding amount |
The proviso: "a Nidhi may make provision for exceeding the percentage specific herein." A Nidhi may provide more than the table requires.
(b) Collateral. "The estimated realisable value of the collateral security to which a Nidhi has valid recourse may be reduced from the aggregate outstanding amount, if the proceedings for the sale of the mortgaged property have been initiated in a court of law within the previous two years of the interest, income or instalment remaining unrealised."
Read with the table, clause (b) lets a Nidhi reduce the aggregate outstanding amount by the estimated realisable value of the collateral to which it has valid recourse, where sale proceedings have been started in a court within the previous two years of the interest, income or instalment remaining unrealised. The rule does not give a method for estimating realisable value.
Rule 20(4): companies incorporated on or before 26 July 2001
Companies incorporated on or before 26 July 2001 were to make provisions in respect of loans disbursed and outstanding as on 31 March 2002 for income reversal and non-performing assets as per a table: for the years ended 31 March 2015, 2016 and 2017, the "un-provided balance on equal basis over the three years". The table's dates have passed. It is stated as printed and no conclusion is drawn about any company.
Rule 20(5): disclosures in the notes
(a) The Notes on the financial statements of a year shall disclose:
- (i) the total amount of provisions, if any, to be made on account of income reversal and non-performing assets remaining unrealised;
- (ii) the cumulative amount provided till the previous year;
- (iii) the amount provided in the current year; and
- (iv) the balance amount to be provided.
(b) Such disclosure continues until the entire amount to be provided has been provided for.
The format of Nidhi financial statements is the subject of our post on Schedule III Division III, linked for reference only.
Rule 20(6): loans against gold, silver or jewellery
G.S.R. 301(E) of 19 April 2022 inserted the words "or silver" after "gold" wherever it occurs in sub-rule (6). So the sub-rule now deals with loans against gold or silver or jewellery. The requirements:
- (a) Three months. "The aggregate amount of loan outstanding against the security of gold or jewellery shall either be recovered or renewed within three months from the due date of repayment."
- (b) Provision if not recovered. "If the loan is not recovered or renewed and the security is not sold within the aforesaid period of three months, the company shall make provision in the current year's financial statements to the extent of unrealised amount or the aggregate outstanding amount of loan including interest as applicable."
- (c) No income. "No income shall be recognised on such loans outstanding after the expiry of the three months period specified in (a) above or sale of gold or jewellery, whichever is earlier."
- (d) Loan to value. "The loan to value ratio shall not exceed 80 per cent."
Explanation. "Loan to value ratio" means the ratio between the amount of loan given and the value of gold or jewellery (and, after the 2022 insertion, silver) against which the loan is given.
The loan against gold, silver and jewellery under rule 15(4)(a) must also have a repayment period of not more than one year; see our article on rules 15 and 16.
Worked example: provisioning
Take Jyoti Nidhi Limited with a mortgage loan whose aggregate outstanding amount is ten lakh rupees (invented figures).
| Asset class | Provision | Amount on ten lakh rupees |
|---|---|---|
| Standard | Nil | Nil |
| Sub-standard | 10% | One lakh rupees |
| Doubtful | 25% | Two lakh fifty thousand rupees |
| Loss | Hundred per cent | Ten lakh rupees |
If the loan is Doubtful and the Nidhi began sale proceedings in a court within the previous two years of the interest or instalment remaining unrealised, and the estimated realisable value of the collateral is four lakh rupees, the aggregate outstanding amount for provisioning may be reduced by that value under clause (b): ten lakh less four lakh is six lakh, and 25% of that is one lakh fifty thousand rupees. The rule says the value "may be reduced", so this is permitted, not compulsory.
Gold loan. A member borrows against jewellery. The Nidhi lends 70 per cent of the value of the jewellery, within the 80 per cent limit. The due date passes. If the loan is neither recovered nor renewed and the jewellery is not sold within three months, the Nidhi must make provision in that year's financial statements and may not recognise income from then on.
Need help with prudential norms?
Classifying loan accounts, computing provisions and writing the required notes depend on clean loan-level records. Our books of accounts compliance team can build the classification and provisioning schedule for your auditor.
Key takeaways
- Rule 20 covers mortgage loans and jewel loans.
- Income on NPAs only when realised; unrealised income booked earlier is reversed in the next year's profit and loss account.
- Provisioning on mortgage loans: nil, 10%, 25% and hundred per cent; a Nidhi may provide more.
- Collateral value may be reduced from the outstanding amount where sale proceedings began in court within the previous two years.
- The 20(4) table is for companies incorporated on or before 26 July 2001, with dates that have passed.
- Gold, silver and jewellery loans: recover or renew within three months; provision if not; no income after three months or sale; loan to value ratio not above 80 per cent.
Read next
- Rule 3: definitions and asset classes
- Rules 15 and 16: loans to members
- Schedule III Division III: financial statements for Nidhi
- Annual compliance for Nidhi company
Disclaimer: Based on the Nidhi Rules, 2014 as notified (G.S.R. 258(E), 31 March 2014) and as amended by G.S.R. 467(E) of 2019, G.S.R. 81(E) and 114(E) of 2020, G.S.R. 301(E) of 2022, G.S.R. 35(E) of 2023 and G.S.R. 413(E) of 2024, as consulted on 3 October 2026. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.