The Reserve Bank of India (RBI) has issued the Master Direction on non-resident investment in Indian debt instruments, consolidating a wide set of previously issued circular-based directions into a single framework with immediate effect. The directions apply to transactions by eligible non-residents and set out the operational rules for investment through the General Route, the Voluntary Retention Route (VRR), the Fully Accessible Route (FAR), and the scheme for trading and settlement of Central Government sovereign green bonds in the International Financial Services Centre (IFSC). Under the General Route, eligibility is limited to Foreign Portfolio Investors (FPIs) and the framework sets percentage-based investment limits of 6% of outstanding Central Government securities excluding FAR “specified securities”, 2% of outstanding State Government securities, and 15% of outstanding corporate bonds, alongside macro-prudential controls including short-term investment caps, concentration limits and issue or security-wise limits. Corporate debt investments are generally restricted to instruments with original or residual maturity above one year and exclude certain structures such as short-dated optionality and partly paid instruments, with specified exemptions (including for default bonds and certain securitisation-related instruments). The VRR is available to FPIs with an overall investment limit of INR 2,50,000 crore (or higher as notified), requires a minimum retention period of three years (or as announced per tranche), and obliges FPIs to invest at least 75% of their committed portfolio size within three months and maintain at least 75% throughout the retention period, while exempting VRR holdings from the General Route’s minimum maturity and certain macro-prudential limits. The FAR permits eligible non-residents (including FPIs, Non-Resident Indians and Overseas Citizens of India) to invest in designated “specified securities” without investment limits or macro-prudential controls applicable to General Route Government securities, and includes rules for OTC trading, reporting and settlement, as well as monitoring responsibilities split across the Clearing Corporation of India Ltd for Government securities and SEBI-registered depositories for corporate debt. The RBI will notify the absolute amounts corresponding to the percentage-based annual limits for each financial year, and VRR limits may be released in one or more tranches with allocation either on tap or via auction. FAR coverage may be expanded through future RBI notifications that add tenors or otherwise change the designation of new Central Government securities as “specified securities”.
Reserve Bank of India 2025-01-07
Reserve Bank of India issues master directions on non-resident investment in debt instruments and sets INR 2,50,000 crore Voluntary Retention Route limit
The Reserve Bank of India (RBI) has issued a Master Direction consolidating non-resident investment rules in Indian debt instruments, effective immediately. It outlines rules for investment through the General Route, Voluntary Retention Route (VRR), Fully Accessible Route (FAR), and trading of Central Government sovereign green bonds in the International Financial Services Centre. Key provisions include percentage-based investment limits, macro-prudential controls, and eligibility criteria for Foreign Portfolio Investors and other non-residents.