Reserve
Bank of India (RBI) vide
RBI/2018-19/135 A.P. (DIR Series) Circular No. 21 dated March 01, 2019 in
consultation with 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. These investments 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
brief gist of VRR Scheme is highlighted below:
1. Definitions
Committed Portfolio Size (CPS), General
Investment Limit, Related
FPIs, Retention
Period, Repo and Reverse Repo, VRR-Corp and VRR-Govt have been defined under
the scheme.
2. Eligible
investors
Any FPI registered with SEBI is
eligible to participate through this Route. Participation through this Route
shall be voluntary.
3. Eligible
instruments
· For VRR-Govt- Any Government Securities i.e.,
Central Government dated Securities (G-Secs), Treasury Bills (T-bills) and State
Development Loans (SDLs).
· For VRR-Corp- Any instrument listed under
Schedule 5 of FEM (Transfer or Issue of Security by a Person Resident outside
India) Regulations, 2017 dated November 07, 2017, other than dated Government securities/ treasury bills and Units of
domestic mutual funds.
· Repo transactions and Reverse
repo transactions
4. Features
- Investment through this Route shall be in addition to the General Investment Limit.
- Cap of Investment through this route for VRR-Govt is Rs.40,000 crore per annum and for VRR- Corp is Rs.35,000 crore per annum, or such higher amount, as may be decided by the Reserve Bank
- The mode of allotment, allocation to VRR-Govt and VRR-Corp categories and the minimum retention period shall be announced by the Reserve Bank ahead of allotment.
- 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.
- FPIs shall invest the amount allocated, called the Committed Portfolio Size (CPS) in the relevant debt instruments and remain invested at all times during the voluntary retention period, subject to the certain relaxations.
- The provisions for management of portfolio, other relaxations, hedging of exchange rate risk on account of investments made under the Voluntary Retention Route (VRR) have been provided in the circular
5. The provisions for management of
portfolio, other relaxations, hedging of exchange rate risk on account of
investments made under the Voluntary Retention Route (VRR) have been provided
in the circular[1].
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