The Ministry of Corporate Affairs has amended the Companies (Share Capital & Debentures) Rules by removing Debenture Redemption Reserve requirement for Listed Companies, NBFCs and HFCs.
As per the current provisions, listed companies had to create a DRR for both public issue as well as private placement of debentures, while NBFCs and HFCs had to create DRR only when they opted for public issue of debentures.
However, on Monday, The government removed the requirement of ‘Debenture Redemption Reserve’ (DRR) for listed companies, non-banking financial companies (NBFCs) and housing finance companies (HFCs).
A statement by the Corporate Affairs Ministry said that the decision has been taken in pursuance of the budget announcements for 2019-20 by Finance and Corporate Affairs Minister Nirmala Sitharaman and the government’s objectives of providing greater “ease of doing business” to companies in the country, as part of its 100 Days Action Plan.
The measure has been taken by the Government with a view to reducing the cost of the capital raised by companies through issue of debentures and is expected to significantly deepen the Bond Market.
The provisions relating to creation of DRR have been revised as per the amendments with the objective of:
• Removing the requirement for creation of a DRR of 25 per cent of the value of outstanding debentures in respect of listed companies, NBFCs registered with the RBI and for HFCs registered with National Housing Bank (NHB) both for public issue as well as private placements.
• It also aims to reduce DRR for unlisted companies from the present level of 25%to 10% of the outstanding debentures, so as to safeguard interests of investors.
The latest amendment 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.