Voluntary Retention Route [VRR]

To entice Foreign Portfolio Investors (FPIs) in India, the Reserve Bank of India announced numerous revisions to the Voluntary Retention Route (VRR) proposed in March 2019.

For FPIs who committed to keeping their Indian bonds for a time of at least as specified by the RBI, the Voluntary Retention Route channel relaxed residual maturity as well as concentration requirements.

Voluntary Retention Route - Overview

The Reserve Bank of India launched Voluntary Retention Route in March 2019 as a separate channel for foreign institutional investors to invest in debt markets. The Reserve Bank of India (RBI) established the VRR to allow foreign institutional investors (FIIs) to participate in India's debt markets.

All investments made through this route are exempt from all macroprudential and other regulatory requirements that apply to FPI debt market investments. FPIs, on the other hand, must agree to keep a certain percentage of their assets in India for a specified amount of time.

The major goal of the Voluntary Retention Route (VRR) is to encourage long-term and steady FPI investments in India's mortgage market while allowing FPIs to manage their assets with operational flexibility.

Voluntary Retention Route Eligibility

Any entity registered as a Foreign Portfolio Investor (FPI) with SEBI is entitled to invest through this channel.

Benefits of Voluntary Retention Route

Investors who invest through Voluntary Retention Route are exempt from macroprudential and other regulatory requirements. These only apply to foreign institutional investors (FIIs) who invest in India's debt markets.

However, the central bank has set a time restriction of three years.

Time of Voluntary Retention Route

The current minimum investment period is three years, as determined by the Reserve Bank of India for each auction. The Voluntary Retention Route investment limit for FPIs has been enhanced to INR 1,50,000 from INR 75,000 crore. This channel's investments will be allocated on a first-come, first-served basis.

Impact of Voluntary Retention Route on Indian Currency

The Voluntary Retention Route affects the Indian currency in the following ways:

1. The higher the FPI influx, the more dollars will pour into the Indian economy, causing the Indian currency to appreciate versus the US dollar.
2. As the FPI outflow increases, the amount of dollars in the Indian economy decreases, causing the Indian currency to weaken versus the US dollar.
3. The voluntary Retention Route is distinct in India's mortgage market that draws long-term and steady FPI investments.

In 2019, the Reserve Bank of India (RBI) announced the Voluntary Retention Route (VRR) for debt investments by Foreign Portfolio Investors (FPIs), with a Rs 1,50,000 crore investment limit. So far, roughly Rs 1,49,995 crore has been made available in three tranches.

The Voluntary Retention Route investment ceiling has now been raised from Rs. 1,50,000 crore to Rs. 2,50,000 crore by the RBI.

FAQs on Voluntary Retention Route

Q.1. What is the term "Voluntary Retention Route"?

The Reserve Bank of India (RBI) established the Voluntary Retention Route (VRR) to allow foreign portfolio investors (FPIs) to invest in India's debt markets.

Q.2. What is included in the RBI's Voluntary Retention Route scheme?

On March 1, 2019, the Reserve Bank of India launched the Voluntary Retention Route (VRR) for investment by Foreign Portfolio Investors (FPIs). A total of 1,50,000 crore has been made available for investments through VRR in three tranches, with roughly 1,49,995 crore being used as of February 10, 2022.

Q.3. What are the Voluntary Retention Route scheme's limitations?

The Reserve Bank of India (RBI) launched the Voluntary Retention Route (VRR) for debt investments by Foreign Portfolio Investors (FPIs) in 2019 with an investment ceiling of Rs 1,50,000 crore, which the RBI has now increased to Rs 2,50,000 crore.

Q.4. When was the Voluntary Retention Route proposed?

The Voluntary Retention Route was proposed in the year 2019.

Q.5. What is the goal behind the Voluntary Retention Route scheme?

The major goal of the Voluntary Retention Route (VRR) is to encourage long-term and steady FPI investments in India's mortgage market while allowing FPIs to manage their assets with operational flexibility.