MCA fixes debt to capital, free reserves ratio for certain cos

Ministry of Corporate Affairs has notified the debt to capital and free reserves ratio for government companies that are into housing finance activities.

The ratio provides an indication of a company's financial strength.

The Ministry has now fixed the debt to capital and free reserves ratio for government companies that are into non-banking finance and housing finance activities.

As per a recent notification, "the debt to capital and free reserves ratio shall be 6:1 for government companies within the meaning of clause (45) of section 2 of the Companies Act, 2013 which carry on non-banking finance institution activities and housing finance activities".

Under the Companies Act, 2013, the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back should not be more than twice the paid-up capital and its free reserves.

The Ministry has powers to notify a higher ratio of the debt to capital and free reserves for a class or classes of companies.

Meanwhile, in recent times, the Ministry has come out with changes to various norms under the Companies Act, 2013.

Among others, a new rule has been put in place whereby entities can take into consideration unaudited accounts -- that have been subject to limited review by auditors -- while making calculation for buy-back offers.

Earlier this month, the government introduced in the Lok Sabha a bill to further amend the Companies Act as part of efforts to address difficulties faced by stakeholders and improve the the ease of doing business in the country.