Tenets of VRR or, Voluntary Retention Route

Tenets of VRR or, Voluntary Retention Route

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

On March 1, 2019, the Voluntary Retention Route (VRR) was implemented by the Reserve Bank of India (RBI) for investments made by Foreign Portfolio Investors (FPIs) in India's debt markets. If FPIs voluntarily agree to keep at least a certain percentage of their investments in India for a predetermined amount of time, this scheme allows FPIs to invest in debt markets without having to comply with the macro-prudential and other regulatory requirements that apply to FPI investments. Participation in this manner is entirely up to the individual. On March 11, 2019, the scheme became available for investment for the first time, and it was in operation until the end of April 2019.

The VRR or, the Voluntary Retention Route (VRR) plan has the following key features:

1. Under VRR, any FPI that is registered with SEBI is eligible to participate. Participation is up to you.

2. Any Government Securities (VRR-Govt) and instruments listed in Schedule 5 of FEMA 20(R) (VRR-Corp) are eligible for investment.

The VRR-Govt's and VRR-Corp's annual investment caps will be set at Rs.40,000 crore for VRR-Govt and Rs.35,000 crore for VRR-Corp, respectively—or a higher amount as determined by the RBI and distributed in one or more tranches—in addition to the GIL.

4. Under this Route, the investment amount will be distributed to FPIs via auction or tap. If there is a demand for more than 100% of the amount offered, no FPI shall be granted an investment limit greater than 50% of the amount offered for each allotment by tap or auction.

5. For each tap or auction allotment, the minimum retention period is three years, or whatever the RBI decides.

6. The FPI is required to invest the Committed Portfolio Size (CPS) and remain invested throughout the voluntary retention period, with a minimum investment of 75% of the CPS, including cash in the Rupee accounts utilized for this route.

7. Within one month of the allocation date, a minimum of 25% of the CPS must be invested, and the remaining amount must be invested within three months. The day the limit is allocated will mark the beginning of the retention period.

8. By notifying its custodian prior to the end of the committed retention period, FPI may continue investments in this manner for an additional identical retention period.

9. In the event that a FPI chooses not wish to go on under VRR toward the finish of the maintenance time frame, it might sell its portfolio and exit or it might move its speculations to the GIL, dependent upon accessibility of cutoff thereunder.

10. If an FPI wishes to sell its investments prior to the end of the retention period, it can do so by selling them to another FPI, subject to the selling FPI's terms and conditions.

11. SEBI will take regulatory action if the terms of this scheme are broken. The custodian of the FPI can regularize minor violations within five working days. The custodian is responsible for informing SEBI of all non-minor violations and minor violations that have not been regularized.

12. The minimum residual maturity requirement, concentration limit, and single/group investor-wise limits on corporate bonds will not apply to investments made this way. The FPI has the option of reinvested income from such investments that is greater than the CPS.

13. As long as the amount borrowed or lent does not exceed 10% of the FPI's investment, FPIs will be able to participate in repos for the purpose of cash management. To manage their interest or currency risk, they are also eligible to participate in any OTC currency or interest rate derivative instrument.