Govt removes debenture reserve requirement for HFCs

The government has removed the redemption reserve requirement for issuance of debentures by non-banking financial companies, housing finance companies and listed firms, a move aimed at reducing the cost for raising capital.

Under the companies law, these entities raising money had to create Debenture Redemption Reserve (DRR) and that requirement has now been done away with.

The corporate affairs ministry on Monday said the requirement for a DRR of 25 per cent of the value of outstanding debentures issued by listed companies, Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) has been removed.

The changes would be applicable for public issue as well as private placements.

In the case of unlisted companies, the DRR requirement has been reduced to 10 per cent from 25 per cent 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 the issue of debentures and is expected to significantly deepen the bond market," the release said.

The 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 issues 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," the release said.