Mar 31, 2019

Voluntary Retention Route for Investments by FPIs

RBI has, by way of its circular dated March 1, 2019, announced a separate scheme called the Voluntary Retention Route (‘VRR’). Investments under the VRR scheme have been open for allotment from March 11, 2019. The aggregate investment limit by FPIs under this scheme is Rs 40,000 crores (approx. US$ 5.5 billion) for making investments in Government securities (G-Secs, treasury bills and state development loans) and Rs 35,000 crores (approx. US$ 5 billion) for making investments in corporate debt instruments. The minimum retention period for investment under VRR is three years, and during this period, the FPI must maintain a minimum of 75% of the allocated amount in India. The requisite investment amount is required to be adhered to on an end-of-day basis and can include cash holdings in the Rupee accounts used for VRR. Allocation of investment amount to FPIs under VRR must be made on-tap or through auctions. Subject to certain relaxations, FPIs are required to invest the amount allocated, referred to as the Committed Portfolio Size (‘CPS’), in the relevant debt instruments and remain invested at all times during the voluntary retention period. Successful allottees are required to invest 25% of their CPS within one month and the remaining amount within three months from the date of allotment. FPIs that wish to liquidate their investments through VRR prior to the end of the retention period may do so by selling their investments to another FPI. Investments made through VRR are not subject to any minimum residual maturity requirement, concentration limit or single/group investor-wise limits applicable to FPIs for making investments in corporate bonds under the general investor route. FPIs investing through VRR are eligible to participate in repos for their cash management subject to certain conditions. Additionally, FPIs investing under VRR are eligible to participate in any currency or interest rate derivative instrument, whether over-the-counter or exchange traded, to manage their interest rate risk or currency risk.

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