Indian Bonds – Let It Flow

Introduction:

The Reserve Bank of India ("RBI"), on 10 February 2022, increased limits under the voluntary retention route ("VRR") for foreign investment in domestic Rupee bonds, to provide additional liquidity to the Indian debt market.  

Change in Limit:

The VRR was introduced in 2019 to benefit foreign portfolio investors ("FPIs") and gives flexibility over instruments in exchange for a commitment to invest in Indian debt for 3 years. The earlier VRR limit, which was fully utilized, was Rs.1,50,000 crores (approx. US 20 billion). Now it has increased to Rs.2,50,000 crore (approx. US 33 billion) with effect from 1 April  2022. The limits will be auctioned by RBI over the coming months. Investment can be in corporate debt, Government bonds, repo, reverse repo or exchange traded debt funds.