RBI proposes VRR to attract long-term investment

The Reserve Bank of India, alongside the announcement of the bi-monthly monetary policy statement, proposed the introduction of a Voluntary Retention Route (VRR) to encourage Foreign Portfolio Investors (FPIs) willing to undertake long-term investments.

Under the proposed route, the RBI said FPIs will have more operational flexibility in terms of instrument choices as well as exemptions from regulatory provisions such as the cap on short-term investments (less than one year) at 20 per cent of the portfolio size, concentration limits, and caps on exposure to a corporate group (20 per cent of portfolio size and 50 per cent of a single issue).

"The regulatory framework for FPI investment in debt has evolved over the years, influenced by trade-offs in encouraging capital flows and attendant macro-prudential considerations," the RBI said in a statement.

To be eligible to invest under the VRR route, FPIs would need to voluntarily commit to retaining in India a minimum required percentage of their investments for a period of their choice. FPIs would apply for investment limits under the route through an auction process.

Furthermore, the Reserve Bank, in a bid to improve the governance of the benchmark processes, proposed to introduce a regulatory framework for financial benchmarks applicable initially to benchmarks issued by the Financial Benchmarks of India Ltd. (FBIL), in line with the recommendations submitted by the Committee on Financial Benchmarks.

The RBI said draft regulations regarding the regulatory framework for benchmarks will be issued by the end of October this year.