In my earlier blog post, I discussed RBI’s Proposed Voluntary Retention Route, facilitating FPIs to undertake long-term investment in the Indian debt markets. RBI notified this proposal yesterday vide A.P. (DIR Series) Circular No. 21 titled ‘ Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors.
RBI has brought in this scheme by effecting amendments to the Foreign Exchange Management (Permissible Capital Accounts Transactions) Regulations, 2000 vide Gazette Notification No. G.S.R. 162(E) dated February 26, 2019; FEM (Borrowing and Lending) Regulations 2018 vide Gazette notification no. G.S.R. 163(E) dated February 26, 2019; FEM(TISPRO) Regulations 2017 vide Gazette notification no. G.S.R. 164(E) dated February 26, 2019; and the FEM(Foreign Exchange Derivative Contracts) Regulations 2000 vide Notification no. G.S.R 161(E) dated February 26, 2019.
Portfolio: FPIs need to maintain a minimum of 75% of the allocated amount in India during the retention period. Investment limits would be allotted by the Clearing Corporation of India Ltd. (CCIL) on first come first serve basis. This allotted amount would be called the respective FPI’s Committed Portfolio Size (“CPS“) in respective debt instruments. The minimum investment of an FPI during the retention period has to be 75% of the portfolio and has to be adhered to on an end-of-say basis. Income derived from investments made through this route can be reinvested at the discretion of the FPI, even in excess of the CPS.
Investments made through this route will not be subject to any minimum residual maturity requirement, concentration limit or single/group investor-wise limits applicable to corporate bonds as specified in paragraphs 4(b), (e) and (f) respectively of A.P. (DIR Series) Circular No. 31 dated June 15, 2018.