DMPQ- What is debenture redemption reserve and write down its significance?

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. This provision was tacked onto the Indian Companies Act of 1956, in an amendment introduced in the year 2000.

The debenture redemption service only applies to debentures that were issued after the 2000 amendment to Indian Companies Act of 1956. And companies falling under the following four categories are altogether exempt from DRR requirements:

  • All India Financial Institutions (AIFIs) regulated by Reserve Bank of India (RBI)
  • Other financial institutions regulated by RBI
  • Banking companies for both public and privately-placed debentures
  • Housing finance companies registered with the National Housing Bank

 

One of the recent measures taken by the government to boost the fear-ridden bond market was the decision to do away with the requirement for all listed companies, non-banking financial companies (NBFC) and housing finance companies (HFCs) to create a Debenture Redemption Reserve (DRR) for their outstanding bonds. The move, the Centre said, would improve ease of doing business and deepen the bond markets.

 

 

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