Monday, 30th October 2017

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FPIs can invest more in debt

Investment cap via voluntary retention route doubled to Rs 1.5 lakh cr

  • Published 24.01.20, 1:19 AM
  • Updated 24.01.20, 1:19 AM
  • a min read
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The Reserve Bank of India (File photo)

The Reserve Bank of India (RBI) on Thursday doubled to Rs 1.5 lakh crore the investment limit for foreign portfolio investors (FPIs) in government securities and corporate bonds through VRR, a scheme that grants them some relaxations in rules provided they remain invested for a longer period.

In the monetary policy of October 2018, the RBI had announced a scheme called the ‘Voluntary Retention Route’ (VRR) to encourage FPIs to undertake long-term investments in the debt markets.

Under this scheme, the portfolio investors have been given greater operational flexibility in terms of instrument choices apart from exemptions from certain regulatory requirements, provided the FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a period.

Under the scheme, FPIs can invest in any government securities — central government dated securities (G-Secs), treasury bills as well as state development loans (SDLs). While investment under this route was capped at Rs 40,000 crore for government securities, it was set at Rs 35,000 crore for corporate bonds in March last year.

In a circular on Thursday, the central bank said that an amount of Rs 75,000 crore was offered for investment in two tranches so far and as on December 31, 2019, around Rs 54,300 crore has been invested under the scheme.

According to the RBI, the investment limits will be available ‘on tap’ and allotted on a ‘first come, first served’ basis. FPIs can apply for investment limits to the Clearing Corporation of India Ltd. (CCIL) through their respective custodians. The minimum retention period is for three years.

Apart from the VRR scheme, the current norms cap short-term investments by an FPI at 20 per cent of the total investment of that FPI in either government or corporate bonds. The short-term investment limit has now been increased from 20 per cent to 30 per cent, the RBI said in a circular.

Open-market operation

In the fourth special open market operation (OMO) auctions, the RBI bought Rs 10,000 crore worth of long-term securities and sold Rs 2,950 crore worth of short-term government bonds.

Last week, the apex bank had said it will simultaneously purchase and sell government securities under OMO of Rs 10,000 crore each.