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‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt

A. Background

  • The Reserve Bank, in consultation with the Government of India and Securities and Exchange Board of India (SEBI), introduces a separate channel, called the ‘Voluntary Retention Route’ (VRR), to enable FPIs to invest in debt markets in India.
  • Investments through the Route will be free of the macro-prudential and other regulatory norms applicable to FPI investments in debt markets, provided FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a period.
  • The investment limit under the VRR is increased to ₹2,50,000 crore from ₹1,50,000 crore and shall be applicable with effect from April 1, 2022.

B. Eligible Investors

Any Foreign Portfolio Investors (FPI) registered with SEBI is eligible to participate through this Route. However, participation through this Route shall be voluntary.

C. Eligible Instruments

  • Foreign Portfolio Investors (FPIs) will be eligible to invest in the following securities under VRR Govt:
    • Government Securities i.e., Central Government dated Securities (G-Secs)
    • Treasury Bills (T-bills) as well as State Development Loans (SDLs)
  • Foreign Portfolio Investors (FPIs) will be eligible to invest in the following securities under VRR Corp:
    • Any instrument listed under Schedule 1 to Foreign Exchange Management (Debt Instruments) Regulations, 2019 other than those specified at 1A(a) and 1A(d) of that schedule.
    • Investments in Exchange Traded Funds investing only in debt instruments shall be permitted
  • Repo transactions, and Reverse Repo transactions

D. Other Features

  • No FPI (including its related FPIs) shall be allotted an investment limit greater than 50% of the amount offered for each allotment by tap or auction in case there is a demand for more than 100% of amount offered.
  • The minimum retention period shall be three years, or as decided by RBI for each allotment by tap or auction.
  • FPIs may, at their discretion, transfer their investments made under the General Investment Limit, if any, to the VRR scheme.
  • Income from investments through the Route may be reinvested at the discretion of the FPI. Such investments will be permitted even in excess of the Committed Portfolio Size (CPS).

Himanshu Garg, Audit Associate, SW India

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