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Voluntary Retention Route for FPIs investment in debt

‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt

Please refer to paragraph 3 of the Statement on Developmental and Regulatory Policies dated February 10, 2022 regarding enhancement of the investment limit under the Voluntary Retention Route (VRR).

2. Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the following regulations, as amended from time to time, and the relevant Directions issued under these regulations.

  1. Foreign Exchange Management (Permissible Capital Accounts Transactions) Regulations, 2000 notified vide Notification No. FEMA 1/2000-RB dated May 03, 2000;
  2. Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 notified vide Notification No. FEMA 3(R)/2018-RB dated December 17, 2018;
  3. Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No. FEMA. 396/2019-RB dated October 17, 2019; and
  4. Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 notified vide Notification No. FEMA 25/RB – 2000 dated May 03, 2000.

3. AD Category – I banks may also refer to A.P. (DIR Series) Circular No. 34 dated May 24, 2019, on ‘Voluntary Retention Route’ for Foreign Portfolio Investors investment in debt, read with A.P. (DIR Series) Circular No. 19 dated January 23, 2020.

4. The investment limit under the VRR is increased to ₹2,50,000 crore from ₹1,50,000 crore. The updated Directions are as given in the Annex.

5. These Directions shall be applicable with effect from April 1, 2022.

6. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.


Annex

‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment

Introduction

The Reserve Bank, in consultation with the Government of India and 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. Broadly, investments through the Route 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. Participation through this Route will be entirely voluntary. The features of the Route are explained below in detail.

2. Definitions

3. Eligible investors

Any FPI registered with SEBI is eligible to participate through this Route. Participation through this Route shall be voluntary.

4. Eligible instruments

5. Features

6. Management of portfolio

7. Other relaxations

8. Access to other facilities

9. Other operational aspects


Appendix

Auction process for allocation of investment amount under VRR

The auction process for allotment of investment amounts under VRR shall be as under:

  1. An FPI shall bid two variables – the amount it proposes to invest and the retention period of that investment, which shall not be less than the minimum retention period applicable for that auction.
  2. FPIs are permitted to place multiple bids.
  3. The criterion for allocation under each auction shall be the retention period bid in the auction.
  4. Bids will be accepted in descending order of retention period, the highest first, until the amounts of accepted bids add up to the auction amount.
  5. Allotment at margin (i.e., at the lowest retention period accepted), in case the amount bid at margin is more than the amount available for allotment, shall be as below:
    • The marginal bid shall be allocated partially such that the total acceptance amount matches the auction amount.
    • In case there are more than one marginal bids, allocation shall be made to the bid with the largest amount, and then in descending order of amount bid until the acceptance amount matches the auction amount.
    • In case the amount offered is the same for two or more marginal bids, the amount will be allocated equally.
  6. If an FPI has been allotted multiple bids in an auction, the CPS shall be reckoned for each bid separately.
  7. FPI which has got CPS allocated under an auction will be eligible to participate in subsequent auction as well.

Notification

Also Read:

  1. Master Circular on the Asset Reconstruction Companies
  2. Master Direction on Reserve Bank of India (Credit Derivatives) Directions, 2022
  3. Rupee Interest Rate Derivatives (Reserve Bank) Directions – Review

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