The Reserve Bank of India (RBI) introduced a scheme for Voluntary Retention Route (VRR) for investments by Foreign Portfolio Investors (FPIs) in debt markets in India on 1 March 2019. This scheme enables FPIs to invest in debt markets free of the macro-prudential norms and other regulatory norms applicable to FPI investments, provided FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a specified period of time. Participation through this route is entirely voluntary. The scheme first opened for investment on 11 March 2019 and remained operational till the end of April 2019.
The VRR scheme posed certain practical challenges inter alia in relation to its implementation, which were brought to the RBI’s notice by industry participants. RBI addressed such feedback and made necessary revisions in the directions vide its Circular dated 24 May 2019 as follows:
The revised VRR scheme opened for allotment on 27 May 2019.
The VRR scheme has been introduced to remedy the liquidity crunch faced by the Indian debt market and acts as a new and more favourable mode of investment for investors, provided the FPIs commit to stay invested for the minimum retention period, as stipulated. We believe that the revised directions will act as an impetus for foreign investors’ interest in the VRR scheme and one could expect an increase in the inflow of foreign investment by this route.
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