{"id":24881,"date":"2019-09-21T19:00:30","date_gmt":"2019-09-21T13:30:30","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=24881"},"modified":"2020-06-26T12:32:42","modified_gmt":"2020-06-26T07:02:42","slug":"removal-of-debenture-redemption-reserve-requirements","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/removal-of-debenture-redemption-reserve-requirements\/","title":{"rendered":"Government Removed the Debenture Redemption Reserve Requirements for Listed Companies, NBFCs and HFCs"},"content":{"rendered":"<p class=\"has-drop-cap\">The\nGovernment has removed the Debenture Redemption Reserve, which was required\nbefore for Non-Banking Financial Companies {NBFCs}, Housing Finance Companies\n{HFCs} and Listed Companies. Also, the DRR requirement has been reduced to 10%\nof the outstanding debentures for Unlisted Companies. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is Debenture Redemption Reserve?\n<\/h2>\n\n\n\n<p>A Debenture\nRedemption Reserve {DRR} is a provision which states that any Corporation \/\nOrganization that issues debentures must create a Debenture Redemption Service\nin order to protect the investors from the possibility of default from the\ncompany&rsquo;s side\/part. <\/p>\n\n\n\n<p>A debenture\nis an unsecured loan certificate provided or issued by a company. It is a type\nof long term loans that a company can take. Normally, it is a type of loan that\nhas to be paid in a specified period of time\/date and comes with fixed interest\nrates.<\/p>\n\n\n\n<p>The <strong>Securities and Exchange Board of India<\/strong><sup><a href=\"https:\/\/www.sebi.gov.in\/\">[1]<\/a><\/sup> {SEBI} have provided certain guidelines regarding Debenture Redemption Reserve. The focal point of these guidelines includes;<\/p>\n\n\n\n<ul><li>Every company needs to create Debenture Redemption Reserve {DRR} in case it issues debentures, redeemable after a certain period of time and more than 18 months from the date of issue<\/li><li>The creation of Debenture Redemption Reserve {DRR} is compulsory only for non-convertible debentures and a non-convertible portion of partly convertible debentures<\/li><li>Also, withdrawal is permissible from Debenture Redemption Reserve only after 10% of the debenture liability has already been reduced by the company<\/li><li>A company should create DRR which is equivalent to at least 50% of the amount of the debenture issue before starting the redemption of the debenture<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Case Scenario: What are the Changes?<\/h2>\n\n\n\n<p>The changes that are made are as follows;<\/p>\n\n\n\n<ul><li>The requirement for the Debenture Redemption Reserve is removed for <a rel=\"noreferrer noopener\" aria-label=\"Non-Banking Financial Companies (opens in a new tab)\" href=\"https:\/\/enterslice.com\/nbfc-registration\" target=\"_blank\"><strong>Non-Banking Financial Companies<\/strong><\/a> {NBFCs}, Housing Finance Companies {HFCs} and Listed Companies<\/li><li>For the&nbsp; Unlisted Companies, the DRR requirement has been reduced to 10% from 25% of the outstanding debentures<\/li><li>The Ministry of Corporate Affairs {MCA} has amended the Companies {Share Capital and Debenture} Rules and made the changes effective<\/li><li>Under the companies law, these type of entities, raising the money needed to create DDR and that requirement has now been removed<\/li><li>&nbsp;The changes are applicable to both public issues as well as private placements<\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Recommended Article:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/difference-between-nbfcs-and-mfis\/\" target=\"_blank\" rel=\"noopener noreferrer\">Non-Banking Financial Company vs Micro Finance Institution<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">The Reason for Taking Such Step by the\nGovernment <\/h2>\n\n\n\n<p>The major\nreasons for making these changes by the government are as follows;<\/p>\n\n\n\n<ul><li>The changes will make it easier for NBFCs and listed companies to raise funds and deepen the nation&rsquo;s bond <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Market&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;A market is a structured environment, either physical or virtual, where buyers and sellers convene to trade goods and services. This trading hub operates based on the principles of supply and(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/market\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>market<\/a> as stated by the government. In other words, the aim of making these changes is to reduce the cost taken for raising capital<\/li><li>Also, the move will create or generate more level-playing fields between NBFCs and commercial banks. <\/li><li>The aim of the amendments is &ldquo;creating a level-playing field between NBFCs, HFCs and listed companies on the other hand and also between them and banking companies and all India financial institutions on the other, which are already exempted from DRR&rdquo;<\/li><li>Earlier, these entities were required to create a Debenture Redemption Reserve {DRR} on behalf of the money they raise, now after effect of the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Amendment&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;An &amp;quot;amendment&amp;quot; refers to the formal change or correction of a legal document, often involving additions, variations, or deletions to address irregularities or clarify points in an agreement.(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/amendment\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>amendment<\/a> there is no such requirement<\/li><li>Till now listed companies needed to create a DRR for both the public issues and the private placements of debentures. Additionally, in the case of NBFCs and Housing Finance Companies needed to have DRRs when they opted for public issues of debentures. Now there are no such requirements<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>As an effect\nof the amendments in the Companies {Share Capital and Debenture} Rules the\nListed companies, Non-Banking Financial Companies {NBFCs} and Housing Finance\nCompanies {HFCs} do not need to create Debenture Redemption Reserve in any\ncase, which was mandatory before. The government also reduced the DDR\nrequirement in case of Unlisted companies to 10%, which was 25% before.<\/p>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/difference-banks-nbfcs\/\" target=\"_blank\" rel=\"noopener noreferrer\">Difference Between Banks and NBFCs<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>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. What is Debenture Redemption Reserve? A Debenture Redemption Reserve {DRR} is a provision which states [&hellip;]<\/p>\n","protected":false},"author":17,"featured_media":24882,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[6],"tags":[1016,35,233,2181],"acf":{"service_id":"57"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Removal of Debenture Redemption Reserve Requirements for Companies<\/title>\n<meta name=\"description\" content=\"The Government has removed the Debenture Redemption Reserve, which was required before for Non-Banking Financial Companies, HFCs and Listed Companies.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/removal-of-debenture-redemption-reserve-requirements\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Removal of Debenture Redemption Reserve Requirements for Companies\" \/>\n<meta property=\"og:description\" content=\"The Government has removed the Debenture Redemption Reserve, which was required before for Non-Banking Financial Companies, HFCs and Listed Companies.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/removal-of-debenture-redemption-reserve-requirements\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2019-09-21T13:30:30+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-06-26T07:02:42+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/09\/Removal-of-DRR-for-listed-companies-NBFCs-and-HFCs.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"630\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Tanya Verma","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/07\/IMG-20190703-WA0001__01.jpg","authorDescription":"Tanya is working as writer &amp; editor from past 2 years with experience in covering startup and technology related topics.","postViews":547,"readingTime":3,"nextPost":{"id":24906,"slug":"conversion-of-dormant-company-into-active-company"},"prevPost":{"id":24873,"slug":"highlights-from-the-37th-gst-council-meet"},"featuredMediaUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/09\/Removal-of-DRR-for-listed-companies-NBFCs-and-HFCs.jpg","postTerms":"NBFC","_links":{"self":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/24881"}],"collection":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/comments?post=24881"}],"version-history":[{"count":0,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/24881\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media\/24882"}],"wp:attachment":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media?parent=24881"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/categories?post=24881"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/tags?post=24881"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}