Government has removed Debenture Redemption Reserve(DRR) requirement for listed companies,Non banking financial companies (NBFCs) and Housing finance companies(HFCs).
At present,these companies have to set up a DRR to the tune of 25% of the value of their outstanding debentures.However,banking companies and financial institutions are already exempted from creating DRRs.
This move will make it cheaper for these companies to raise funds and deepen the bond market.It will also create a level-playing field between NBFCs and commercial banks.
Debenture is an instrument of debt executed by the company acknowledging its obligation to repay the sum at a specified rate and also carrying an interest.It is one of the methods of raising loan capital of the company.
Debenture redemption reserve(DRR) is a requirement imposed on Indian corporation that issue debentures where they must create a debenture redemption service to protect investors from the possibility of a company defaulting.
This rule offers investors a measure of protection because debentures are not backed by an asset or any other form of collateral.