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Definition: Debenture Redemption Reserve
According to the amendment to the Indian Companies Act, 1956 in 2000, it is stipulated that Indian corporates who issue debentures must create a reserve to protect the investors against possible default by company. This reserve is known as Debenture Redemption Reserve.
It stipulates that an adequate amount must be transferred from the profits every year to Debenture Redemption Reserve until issued debentures are redeemed or mature. There have been subsequent changes in 2002 and 2013 in the amount that needs to be transferred from profits and it is different for different kinds of financial institutions.
Source: - moneylife
Also in addition to rules mentioned in the Companies Act, 2013, the Act also required companies publicly or privately placed to set aside or park on or before 30th April each year at least 15% of the amount of its debentures maturing on 31st March next year in following methods: -
• Deposits in some scheduled bank.
• In central or state government unencumbered securities.
• In unencumbered securities provided in clauses of Section 20 of Indian Trusts Act, 1882.
The money set aside can be used for payment of interest or redeemable debentures maturing during the year but in no event the money set aside cannot be less than 15%.
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