MUMBAI: The Reserve Bank of India plans to remove the limit of ₹2.5 trillion applicable to investments under the Voluntary Retention Route (VRR), a move seen to draw greater overseas investments.
“Investment through the VRR in each category of securities will be subject to the investment ceiling for the respective category under the general route,” RBI governor Sanjay Malhotra said on Friday.
Introduced in 2019, VRR is meant to encourage foreign portfolio investors planning long-term investments in India’s debt markets. Investments through VRR will be free of some regulatory norms provided FPIs voluntarily commit to retain a minimum percentage of their investments in India for a period.
This route gives FPIs more operational flexibility through a choice of instruments. Of the ₹2.5 trillion limit through VRR, ₹₹2.04 trillion had been allotted to investors as of 5 February, according to data from the National Securities Depository Ltd.
“Now, foreign investors who are willing to commit their funds for a minimum period can invest without worrying about the VRR quota getting exhausted,” said Venkatkrishnan Srinivasan, founder of financial advisory firm Rockfort Fincap LLP. “However, these investments will still remain within the existing overall limits applicable to government bonds, state loans and corporate bonds.”
No artificial caps
Srinivasan said the central bank is saying that it does not want to restrict stable, long-term foreign investors through artificial caps, while continuing to retain regulatory safeguards.
The RBI granted foreign investors greater freedom to buy Indian corporate bonds in May, giving them a chance to purchase more short-term paper. The central bank had then removed short-term investment and concentration limits from its rules governing foreign investments in corporate bonds.
Foreign investors have a lot of room for investments in Indian corporate bonds. As of 5 February, FPIs had utilized 14.2% of their aggregate corporate bond investment limit of ₹8.8 trillion, data from NSDL showed. This was at 14.6% on the same day last year.
