The government has removed the requirement for creation of Debenture Redemption Reserve (DRR) for issuance of Debentures by Non-Banking Financial Companies (NBFCs), Housing Finance Companies (HFCs) and Listed Companies.
Under the company law, these entities were required to create a DRR of 25% of the value of outstanding Non-Convertible Debentures issued by them.
As per the amendment, NBFCs, HFCs and listed companies are no longer required to create DRR. In case of Unlisted Companies, the DRR requirement has been reduced to 10% from 25% of the outstanding debentures.
Listed Companies had to create a DRR for both public issue as well as private placement of debentures, while NBFCs & HFCs had to create DRR only when they opted for public issue of debentures. It is aimed at creating a level-playing field between NBFCs, HFCs and listed companies on the one hand and also between them and Banking Companies & All India Financial Institutions on the other, which are already exempted from DRR.
The measure has been taken by the Government with a view to reduce the cost of the capital raised by companies through issue of debentures and is to deepen the Bond Market.
