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- 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.
