VRR Full Form

What is the full form of VRR?

The full form of VRR is Voluntary Retention Route (VRR). The Reserve Bank of India has launched Voluntary Retention Route (VRR) as a channel to encourage foreign investment in Indian debt markets. The Reserve Bank of India introduced this scheme in coordination with the Indian Government and the Securities and Exchange Board of India(SEBI). Investments made through this channel will not be subject to the regulatory requirements for Foreign Portfolio Investment (FPI) in the debt markets. This is conditional on investors keeping a certain minimum portion of their assets for a specific amount of time.

This Story also Contains

1. What is the full form of VRR?
2. Overview of VRR
3. Conditions for investment through VRR
4. Impact of VRR on the Indian economy
5. Recent changes in VRR limit

Overview of VRR

The Voluntary Retention Route (VRR) scheme was introduced in March 2019, in order to provide foreign institutional investors (FII) with a different route through which they can participate and invest in India's debt markets. As the name illustrates, participation through this route is entirely voluntary

The long-term objective of the Voluntary Retention Route channel is to attract steady, long-term FPI investments into the debt markets while giving FPIs the operational freedom to manage their holdings.

A huge advantage of the VRR scheme is that all macroprudential and other regulatory requirements that apply to FPI debt market investments are not applicable to any investments made through this route.

Conditions for investment through VRR

The following conditions apply for investment through Voluntary Retention Route (VRR):

• Investments made via this route are not included in the FPI investment limits (General Investment Limit) set forth in the Medium Term Framework, as amended from time to time.

• The total amount invested through VRR will be listed separately as VRR- Govt, and VRR-Corp. VRR-Govt or Government securities include Central Government securities as well as State Development Loans while VRR Corp refers to corporate debt.

• FPIs will be individually allocated a portion of the total investment amount that is under VRR-Govt. Similarly, the total investment amount under VRR-Corp will also be separately allocated.

• The retention time put forth by the FPI in the bid will be used as the auction's criterion for allocating investment amounts to each FPI (known as the Committed Portfolio Size, or CPS).

• For each auction, the required minimum retention period is three years unless RBI determines otherwise.

• Following the allocation via the auction, successful FPIs must invest the Committed Portfolio Size in debt securities and maintain their investment throughout the optional retention term. A minimum of 67% of the total committed portfolio size must be invested during the voluntary retention term.

• Investment amounts must be expressed in terms of the face value of the securities.

Impact of VRR on the Indian economy

The Voluntary Retention Route (VRR) will have the following impact on the Indian Economy:

• With an increasing influx of Foreign Portfolio Investment, more dollars will flow into the Indian economy. As a result, the Indian rupee will appreciate and be valued more in relation to the US dollars.

• By bringing long-term and reliable FPI to India's debt markets, the VRR channel will independently work to improve the country's economy.

Recent changes in VRR limit

Till recently, a total of 1,50,000 crore was made available for investment under VRR in three installments. Of this amount, a total of about 1,49,995 crore had been availed by investors as of February 10, 2022. The Voluntary Retention Route (VRR) scheme has been hugely successful and thus The Reserve Bank of India has decided to increase the investment limits permitted under the VRR. This was done after considering customer investor feedback and consulting with the Government.

The increased investment limits will become available for allocation on April 1, 2022. The details of the same are as follows:

• The investment cap under VRR has been raised to Rupees 2,50,000 crore. The minimum retention period will be three years.

• The investment limit that may be made available for new allocations is Rupees 1,04,800 crore (net of previous allocations and changes); this amount will be allotted under the VRR-Combined category.

• The investment limit will be available 'on tap' and will be distributed on a 'first come, first served” basis.