The Reserve Bank of India has decided to open a new window for foreign investors in government and corporate debt, in an attempt to draw in longer-term funds. The voluntary retention route, which was first suggested in October 2018 against the backdrop of a weakening Indian rupee, will be open for investors from March 11, 2019 until end of April.
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.RBI Notification
Foreign investors using the VRR scheme will get some operational freedom in return for locking funds into India for a period of three years.
Investments made through this route will not be subject to any minimum residual maturity requirement or concentration limits applicable to corporate bonds. The government, in May 2018, had removed residual maturity restrictions for government bond investments. As such, any benefit under the scheme would be mostly available in the corporate bond investments.
The RBI, in consultation with the government, has taken a number of steps in the last six months to ease flow of foreign funds into India. Apart from removing residual maturity restrictions on government debt, the RBI also recently removed a concentration limit imposed on investments of more than 20 percent in a single corporate bond. In addition, the RBI has also eased ECB rules to allow a larger set of companies to raise funds overseas.
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