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

New Delhi: 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.