RBI Monetary Policy: Good news for foreign investors, 'Voluntary Retention Route' unveiled; Investment in debt gets easier

The RBI governor Urjit Patel and MPC members decided to maintain a status quo in India's fourth bi-monthly monetary policy for FY19. With this, the country's policy repo rate now stands at 6.5%, reverse repo rate at 6.25%, whereas the marginal standing facility and the Bank Rate at 6.75%. Interestingly, in the midst of shocking experts and markets, RBI brought in good news for foreign investors! 

RBI has launched a new scheme called the Voluntary Retention Route (VRR) for investment by Foreign Portfolio Investors (FPIs). This route will boost investment in debt market for foreign investors for longer period of time. 

RBI said, "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. Several measures have been undertaken in recent times to facilitate FPI investment in debt."

It added, "To encourage FPIs willing to undertake long-term investments, a special Route called ‘Voluntary Retention Route’ (VRR) is being proposed."

Under the proposed Route, 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% of portfolio size, concentration limits, and caps on exposure to a corporate group (20% of portfolio size and 50% of a single issue). 

To be eligible to invest under this route, FPIs would need to voluntarily commit to retain 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. 

A discussion paper on the Route will be placed today on the Reserve Bank’s website for public consultation.