28 January 2020
EY Regulatory Alert
Regulatory Alerts cover
significant regulatory news,
developments and changes in
legislation that affect Indian
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summaries to keep you on top of
the latest regulatory issues. For
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1 2
Press Release: 2019-20/1778 and RBI/2019-
20/151 A.P. (DIR Series) Circular No.19
Reserve Bank of India makes
certain relaxations in the
Voluntary Retention Route
(VRR) scheme and modifies
certain conditions for debt
investments (other than
VRR scheme) for Foreign
Portfolio Investors
Executive summary
This Regulatory Alert summarizes the following:
► Press Release and Circular1 dated 23 January 2020 issued by the Reserve
Bank of India (RBI), providing relaxations on certain aspects of the Voluntary
Retention Route (VRR) scheme for investments by Foreign Portfolio Investors
(FPIs) in Indian debt securities. The investment in the revised VRR scheme
shall be open for allotment from 24January 2020; and
► Circular2 dated 23 January 2020 issued by RBI modifying certain conditions
for debt investments (other than VRR scheme) for FPIs.
RBI/2019-20/150 A.P. (DIR Series) Circular No. 18
 Page 2

Background ► Given that as on 31 December 2019, approximately,

► Following its announcement in the Fourth Bi-Monthly
Monetary Policy Statement dated 5 October 2018,
the RBI on 1 March 2019 issued the ‘VRR’ scheme for
investment by FPIs in Indian debt markets3.
Subsequently, on 24 May 2019, the RBI has made
certain changes in the VRR scheme4.
► Based on further feedback received and in consultation
with the Government, RBI has now made further
relaxations in the VRR scheme to increase its
operational flexibility. The revised VRR scheme has
been notified vide Press Release and Circular1 dated 23
January 2020.
► Additionally, the RBI has made certain amendments in
the regulatory framework concerning investments by
FPIs in Indian debt securities (other than VRR scheme)
vide Circular2 dated 23 January 2020.
► This alert summarizes the key relaxations and
amendments made to the VRR scheme and
modification of certain conditions for debt investments
(other than VRR scheme).
VRR Scheme
INR 543 billion has been invested under the VRR
scheme, the investment limit available for fresh
allotment shall be INR 903.6 billion for VRR-
Combined category.
► Minimum retention period shall be 3 years.
► Investment limits shall be available on tap and shall
be allotted by the Clearing Corporation of India
Limited (CCIL) on ‘first come first served’ basis. The
application to CCIL should be made by FPIs through
their respective custodians.
► CCIL will separately notify the operational details of
application and allotment.
Debt Investment Limits
(other than VRR scheme)
► Currently, short-term investments5 by an FPI should
not exceed 20% of the total investments of such FPIs
either in Central Government securities (G-secs)
(including Treasury Bills) or State Development Loans
(SDLs) or corporate bonds.

The above short-term investment limit has now been

Relaxations in increased to 30%.
Criteria VRR Scheme
VRR Scheme
Eligible FPIs were not FPIs now
► Investment limit of 20% (now, 30%) in corporate
securities allowed to permitted to
bonds with residual maturity of upto 1 year and
for invest in units invest in units of
investor wise limits (50%) in any single issue by an FPI
investment of domestic domestic
including related FPIs shall not apply to the following
under VRR- mutual fuds Exchange Traded
securities:
Corp Funds investing
only in debt
instruments. - Security receipts and debt instruments issued by
Additionally, Asset Reconstruction Companies (ARCs); and
investment in
municipal bonds is - Debt instruments issued by an entity under the
now permitted. Corporate Insolvency Process (CIRP) as per the
Investment INR 750 billion INR 1,500 billion resolution plan approved by the National
Limits or higher or higher Company Law Tribunal under the Insolvency and
Transfer of Transfer of FPIs may, at their Bankruptcy Code, 2016.
investments investments discretion, transfer
from General their investments Hitherto, the above exemption applied only to
Category to made under the investment by FPIs in security receipts issued by
VRR not General Investment ARCs.
permitted Limit, if any, to the
VRR scheme.

Current Investment Window

► The current investment window for VRR shall be open

for allotment from 24 January 2020 and shall be kept
open till the limits are exhausted.

3 5
Refer our Alert dated 5 March 2019 for a summary of the key Short-term investments have been defined as investments
features of VRR with residual maturity of upto one year.
4
Refer our Alert dated 28 May 2019 for a summary of the
changes made to the VRR scheme
 Page 3

Comments
The RBI vide two separate circulars has announced a
set of measures with a view to increase debt
investments by FPIs in Indian markets.

The measures include relaxations for FPI investment in

the general category through an increase in the limit
of the short-term investments in both G-secs and
corporate bonds from 20% to 30%. Under the VRR
window, the doubling of the investment limit to
INR 1,500 billion as well as permission to transfer
investments from General Category to VRR Category
are important changes carried out based on the
feedback from market participants.

In order to give a boost to the corporate insolvency

resolution process, the RBI has exempted investments
in debt instruments issued by ARCs and any entity in
the CIRP.

Overall these incremental measures seem positive and

may encourage the flow of capital into Indian debt
markets.
 Page 4

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