RBI’s Voluntary Retention Route (VRR) scheme to boost foreign investment in debt market

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Updated: March 2, 2019 3:41:00 AM

Investments through the VRR are capped at Rs 40,000 crore for government bonds and at Rs 35,000 crore for corporate bonds. Allocation of investment amount to FPIs under this route shall be made on tap or through auctions.

The products available for hedging purposes are forwards, options, cost reduction structures and currency swaps with rupee and one of the currencies.

The Reserve Bank of India (RBI) on Friday finalised the voluntary retention route (VRR) scheme to boost foreign investment in Indian debt markets. Investments through the route will be free of the regulatory norms applicable to FPI investments in debt markets, provided investors maintain a minimum share of their investments for a fixed period.

The scheme which was proposed on October 5, 2018, has a minimum retention period of three years where investors need to maintain a minimum of 75% of their investments in India. FPIs registered with Securities and Exchange Board of India (Sebi) are eligible to voluntarily invest through the route in government and corporate bonds.

Investments through the VRR are capped at `40,000 crore for government bonds and at `35,000 crore for corporate bonds. Allocation of investment amount to FPIs under this route shall be made on tap or through auctions.

At completion of the minimum retention period of three years, the FPI can opt to continue investing for another three years or opt to liquidate the portfolio and exit. “Investments made through the route shall not be subject to any minimum residual maturity requirement, concentration limit or single/group investor-wise limits applicable to corporate bonds”, said the RBI in a notification.

The RBI in a separate notification allowed authorised dealers to offer derivative contracts to participants under the VRR to let FPIs hedge the exchange rate risk on account of investments made under the route. The products available for hedging purposes are forwards, options, cost reduction structures and currency swaps with rupee and one of the currencies.

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