Govt exempts NBFCs, listed firms from debenture reserve requirements

The ministry of corporate affairs has amended the Companies (Share Capital & Debentures) Rules by removing debenture redemption reserve requirement for listed companies, NCFCs and HFCs.

The decision is in line with the finance minister Nirmala Sitaraman’s Budget announcements for 2019-20 and the government’s objectives of providing greater ‘Ease of Doing Business’ to companies in the country, as part of its 100-day action plan.
The amendments relating to creation of Debenture Redemption Reserve (DRR) will do away with 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 RBI and for housing finance companies registered with National Housing Bank (NHB) both for public issue as well as private placements.
For unlisted companies, DRR would be reduced from the present level of 25 per cent to 10 per cent of the outstanding debentures.
Hitherto, 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. 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 and all-India financial institutions on the other, which are already exempted from DRR.
The measure is expected to reduce the cost of capital raised by companies through issue of debentures and is expected to significantly deepen the bond market.
The rules, however, retained DRR requirement for unlisted companies, although at a reduced level, so as to safeguard interests of investors.