‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt - আরবিআই - Reserve Bank of India
‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt
RBI/2018-19/135 March 01, 2019 To Madam / Sir ‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt 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.
2. A reference is also invited to the discussion paper on ‘Voluntary Retention Route’ (VRR) for investments by Foreign Portfolio Investors (FPIs) released by the Reserve Bank on October 05, 2018. The VRR scheme has been finalized after taking into consideration the comments and views received, and attached as Annex. 3. Suitable amendments have been made to regulations under the Foreign Exchange Management Act, 1999 (Act 42 of 1999) to enable FPIs participating in the VRR scheme to hedge their interest rate and exchange rate risks related to their investments under the scheme and to undertake repo/reverse repo transactions to meet their liquidity requirements. A copy of the following amendments notified in the Official Gazette is enclosed.
4. A reference is also invited to A.P. (DIR Series) Circular No. 22 dated March 01, 2019 on hedging of exchange rate risk by Foreign Portfolio Investors under Voluntary Retention Route, issued today (March 01, 2019). 5. These directions shall be applicable with immediate effect. 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. Yours faithfully (T. Rabi Sankar) ‘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 i. ‘Committed Portfolio Size’ (CPS), for an FPI, shall mean the amount allotted to that FPI. ii. ‘General Investment Limit’, for any one of the three categories, viz., Central Government Securities, State Development Loans or Corporate Debt Instruments, shall mean FPI investment limits announced for these categories under the Medium Term Framework, in terms of A.P. (DIR Series) Circular No. 22 dated April 6, 2018, as modified from time to time. iii. ‘Minor violations’ shall mean violations that are, in the considered opinion of the custodians, unintentional, temporary in nature or have occurred on account of reasons beyond the control of FPIs, and in all cases are corrected on detection. iv. ‘Related FPIs’ shall mean ‘investor group’ as defined in Regulation 23(3) of SEBI (Foreign Portfolio Investors) Regulations, 2014. v. ‘Repo’ shall have the same meaning as defined in Section 45U (c) of RBI Act, 1934; and for the purpose of this regulation excludes repo conducted under the Liquidity Adjustment Facility and the Marginal Standing Facility. vi. ‘Retention Period’ shall mean the time period that an FPI voluntarily commits for retaining the CPS in India. vii. ‘Reverse Repo’ shall have the same meaning as defined in Section 45U (d) of RBI Act, 1934; and for the purpose of this regulation excludes reverse repo conducted under the Liquidity Adjustment Facility and the Marginal Standing Facility. viii. ‘VRR-Corp’ shall mean Voluntary Retention Route for FPI investment in Corporate Debt Instruments. ix. ‘VRR-Govt’ shall mean Voluntary Retention Route for FPI investment in Government Securities. 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 a. Investment through this Route shall be in addition to the General Investment Limit. Investment under this route shall be capped at Rs.40,000 crore for VRR-Govt and Rs.35,000 crore for VRR- Corp per annum, or such higher amount, as may be decided by the Reserve Bank from time to time. The investment limit shall be released in one or more tranches. b. Allocation of investment amount to FPIs under this Route shall be made on tap or through auctions. Details of the auction mechanism are given in Appendix. c. The mode of allotment, allocation to VRR-Govt and VRR-Corp categories and the minimum retention period shall be announced by the Reserve Bank ahead of allotment. d. No FPI (including its related FPIs) shall be allotted an investment limit greater than 50% of the amount offered for each allotment by tap or auction in case there is a demand for more than 100% of amount offered. e. The minimum retention period shall be three years, or as decided by RBI for each allotment by tap or auction. f. FPIs shall invest the amount allocated, called the Committed Portfolio Size (CPS) in the relevant debt instruments and remain invested at all times during the voluntary retention period, subject to the following relaxations:
g. Amounts of investment shall be reckoned in terms of the face value of securities. 6. Management of portfolio
7. Other relaxations
8. Access to other facilities
9. Other operational aspects
Auction process for allocation of investment amount under VRR The auction process for allotment of investment amounts under VRR shall be as under: a. 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. b. FPIs are permitted to place multiple bids. c. The criterion for allocation under each auction shall be the retention period bid in the auction. d. 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. e. 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:
f. If an FPI has been allotted multiple bids in an auction, the CPS shall be reckoned for each bid separately. g. FPI which has got CPS allocated under an auction will be eligible to participate in subsequent auction as well. |