RBI raises FI cap under voluntary route

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RBI raises FI cap under voluntary route
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The Reserve Bank of India (RBI) issued a circular to raise the investment limit for foreign portfolio investors (FPIs) under the voluntary retention route (VRR) to INR2.5 trillion (USD32.93 billion). The earlier limit was INR1.5 trillion, and the increase in investment cap will be effective from 1 April.

The RBI, on 1 March 2019, had introduced the VRR to enable FPIs to invest in debt instruments such as government bonds and corporate debt securities. The earlier limit of INR1.5 trillion was offered to FPIs in three tranches. But as of 10 February, investments of INR1.49 trillion had already been made through this route.

Investments made through the VRR route are not subject to macro-prudential and other regulatory norms applicable to FPI investments in debt markets, provided that FPIs keep a minimum percentage of their investments in India for at least three years.

Those FPIs registered with the Securities and Exchange Board of India have been allowed to invest in the VRR from three options. These are VRR-Corp, where FPIs can invest in corporate debt instruments, VRR-Govt, under which investments would be in government securities, and VRR-Combined, where investment can be made in both the above-mentioned plans.

Investments made under the VRR shall be in addition to the general investment limit and will be capped at INR2.5 trillion or higher. The amount to be distributed will be decided by the RBI from time to time. The investment limit shall be released in one or more tranches.

No FPI will be allotted an investment limit greater than 50% of the amount offered for each allotment, by tap or auction method, in case there is a demand for more than 100% of the amount offered.

FPIs will invest the amount allocated, called the committed portfolio size, in the relevant debt instruments and remain invested at all times during the voluntary retention period subject to certain relaxations.

To meet their cash management, FPIs can tap the repo window to borrow or lend within 10% of their investment under the VRR.

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