What is Voluntary Retention Route?

Voluntary Retention Route: Voluntary Retention Route (VRR) is a channel introduced by the Reserve Bank of India (RBI) to enable FPIs to invest in debt markets in India.
Created On: May 11, 2020 21:02 IST
Modified On: May 11, 2020 21:20 IST
Voluntary Retention Route
Voluntary Retention Route

The Reserve Bank of India made several changes in the Voluntary Retention Route (VRR) mooted in March 2019 to allure the Foreign Portfolio Investors (FPIs) in India. The VRR channel has waived residual maturity and concentration norms for FPIs who committed to holding their Indian bonds for a minimum period as mentioned by the RBI. 

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What is VRR?

Voluntary Retention Route (VRR) is a channel introduced by the Reserve Bank of India (RBI) to enable FPIs to invest in debt markets in India. All the investments made through this channel are free of the macro-prudential and other regulatory prescriptions applicable to FPI investments in debt markets. However, FPIs must voluntarily commit to retaining a required minimum percentage of their investments in India for a period of their choice. 

What is the aim of VRR?

The main aim of the Voluntary Retention Route (VRR) is to attract long-term and stable FPI investments in India's debt markets while providing FPIs with operational flexibility to manage their investments.

Who are eligible under VRR?

Any entity registered as an FPI with SEBI is eligible to invest through this channel.

When was VRR introduced?

VRR was introduced in March 2019, by the Reserve Bank of India as a separate channel to enable FPIs to invest in debt markets in India when Indian Rupee was depreciating against the US Dollars.  

How VRR is beneficial for investors? 

Investments made by the investors through VRR are free of the macro-prudential and other regulatory prescriptions. These are only applicable to FPI investments in India's debt markets only. However, the time limit is 3 years as decided by the central bank.  

What is the minimum time period under this investment?

The minimum time period under this investment is currently three years or as decided by the Reserve Bank of India for each auction.

What is the maximum amount that can be invested by FPIs through VRR?

The investment limit by the FPIs under VRR has increased to INR 1,50,000 crore from earlier INR 75,000 crore. Investments made via this channel will be allotted on the first-come, first-serve basis. 

Does it have any impact on Indian currency?

Yes, VRR has an impact on Indian currency as mentioned below:

1- More the FPI inflow, more will be the dollars in the Indian economy which will appreciate the Indian currency against the US dollars.

2- More the FPI outflow, less will be the dollars in the Indian economy which will depreciate the Indian currency against the US dollars. 

Thus, to sum up, VRR is a separate channel which attracts long-term and stable FPI investments in India's debt markets. 

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