RBI Notifications

Voluntary Retention Route (VRR) Scheme of RBI

Note4students

Mains Paper 3: Economy | Mobilization of resources

From the UPSC perspective, the following things are important:

Prelims level: FDI, FPI, VRR

Mains level: Liquidity management policy in India


News

  • The RBI’s decision to infuse rupee liquidity through long term foreign exchange swap, a first of its kind in liquidity management policy, is likely to boost investments by foreign portfolio investors under the voluntary retention route (VRR).

Voluntary Retention Route (VRR)

  1. RBI had announced a separate scheme called VRR to encourage Foreign Portfolio Investors (FPIs) to undertake long-term investments in Indian debt markets.
  2. Under this scheme, FPIs have been given greater operational flexibility in terms of instrument choices besides exemptions from certain regulatory requirements.
  3. The details are as under:
  • The aggregate investment limit shall be ₹ 40,000 crores for VRR-Govt and ₹ 35,000 crores for VRR-Corp.
  • The minimum retention period shall be three years. During this period, FPIs shall maintain a minimum of 75% of the allocated amount in India.
  • Investment limits shall be available on tap for investments and shall be allotted by Clearing Corporation of India Ltd. (CCIL) on ‘first come first served’ basis.

Benefits of VRR

  • The RBI will conduct dollar-rupee buy/sell swap action of $5 billion for a three-year tenor.
  • Such a swap route has been explored by various emerging market economies as an effective tool to manage liquidity.
  • Apart from liquidity infusion, the move will boost the country’s foreign exchange reserves and is likely to support the exchange rate.

Back2Basics

FDI and FPI

FDI and FPI in India, External Commercial Borrowings, Foreign Exchange Reserves in India

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments