Prelims Syllabus : Economics- Capital Market Mains Syllabus : GS-III- Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
Why in News?
- The Centre has removed Debenture Redemption Reserve (DRR) requirement for listed companies, NBFCs and housing finance companies (HFCs).
Debenture redemption reserve (DRR):
- A debenture redemption reserve (DRR) is a provision stating that any Indian corporation that issues debentures must create a debenture redemption service in an effort to protect investors from the possibility of a company defaulting.
- In 2002, the then government said that for NBFCs registered with the Reserve Bank of India, the reserve had to be at least 50 percent of the value of debentures issued via public issuance.
- A 2013 revision brought this down to 25% of the value of publicly issued debentures
- A debenture redemption reserve is meant to protect the interests of retail bond holders in the event of a company going through financial stress. It was introduced in company law for the first time in 2000.
- The Corporate Affairs Ministry (MCA) has now amended its share capital and debenture rules to remove 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
- For unlisted companies, the DRR has been 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.