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Govt removes requirement of DRR by NBFCs, HFCs to reduce cost of raising capital
Aug-20-2019

With an aim to reduce cost of raising capital, the government has removed the redemption reserve requirement for issuance of debentures by Non-Banking Financial Companies (NBFCs), Housing Finance Companies (HFCs) and listed firms. Under the companies law, these entities raising money had to create Debenture Redemption Reserve (DRR) of 25% of the value of outstanding debentures and that requirement has now been done away with.

The changes would be applicable for public issue as well as private placements. On the other hand, in the case of unlisted companies, the DRR requirement has been reduced to 10% from 25% of the outstanding debentures. 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 corporate affairs ministry has amended the Companies (Share Capital & Debentures) Rules to effect the changes. Till now, listed companies had to create a DRR for both public issue as well as private placement of debentures. In the case of NBFCs and HFCs, they had to have DRR when they opted for public issue of debentures. The amendments are 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.

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