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The Government has removed the Debenture Redemption Reserve, which was required before for Non-Banking Financial Companies {NBFCs}, Housing Finance Companies {HFCs} and Listed Companies. Also, the DRR requirement has been reduced to 10% of the outstanding debentures for Unlisted Companies.
A Debenture Redemption Reserve {DRR} is a provision which states that any Corporation / Organization that issues debentures must create a Debenture Redemption Service in order to protect the investors from the possibility of default from the company’s side/part.
A debenture is an unsecured loan certificate provided or issued by a company. It is a type of long term loans that a company can take. Normally, it is a type of loan that has to be paid in a specified period of time/date and comes with fixed interest rates.
The Securities and Exchange Board of India[1] {SEBI} have provided certain guidelines regarding Debenture Redemption Reserve. The focal point of these guidelines includes;
The changes that are made are as follows;
Recommended Article: Non-Banking Financial Company vs Micro Finance Institution.
The major reasons for making these changes by the government are as follows;
As an effect of the amendments in the Companies {Share Capital and Debenture} Rules the Listed companies, Non-Banking Financial Companies {NBFCs} and Housing Finance Companies {HFCs} do not need to create Debenture Redemption Reserve in any case, which was mandatory before. The government also reduced the DDR requirement in case of Unlisted companies to 10%, which was 25% before.
Also, Read: Difference Between Banks and NBFCs.
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