INSUBCONTINENT EXCLUSIVE:
What is VRR
It is a new channel of investment available to FPIs to encourage them to invest in debt markets in India over and above their
investments through the regular route
The objective is to attract long-term and stable FPI investments into debt markets while providing FPIs with operational flexibility to
manage their investments.
When was this route proposed
This new investment route was proposed by the central bank in October 2018 at a time
the rupee was weakening against the dollar very sharply
There were also talks of a special NRI bond scheme to attract more dollar funds into the economy and stabilise the rupee.
How are they
different from the regular FPI investments
Guidelines say that investments through VRR will be free of the macro-prudential and other
regulatory prescriptions 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 of their choice
But the minimum retention period shall be three years, or as decided by RBI.
How much money can an FPI invest through this route
Investments
under this route as of now shall be capped at Rs 40,000 crore for government securities and 35,000 crore per annum
But the limit could be changed from time to time based on macro-prudential considerations and assessment of investment demand
There will be separate limits for investment in government securities and investment in corporate debt.
Are there any other facilities for
investors through VRR
FPIs investing through this route will be eligible to participate in repos for their cash management, provided that
the amount borrowed or lent under repo were not to exceed 10 per cent of the investment under VRR
They will also be eligible to participate in any currency or interest rate derivative instrument, OTC or exchange-traded instrument to
manage their interest rate risk or currency risk.
When will this offer be operational
It will be open from March 11, 2019 until end-April.
