What Happened
- The RBI has eliminated the Rs 2.5 trillion investment cap under the Voluntary Retention Route (VRR) for Foreign Portfolio Investors (FPIs) and merged it with the General Route framework, effective 1 April 2026.
- All existing VRR investments across government bonds, treasury bills, state development loans, and corporate bonds will transfer to the General Route without requiring unwinding or fresh approvals.
- Investors can now exit fully or partly after completing the minimum holding period, replacing the extended lock-in constraints they previously accepted under VRR.
- As of 5 February 2026, FPIs had already utilised over 80% of the VRR limit, with Rs 2.04 trillion allocated out of the Rs 2.5 trillion cap.
Static Topic Bridges
Voluntary Retention Route (VRR) for FPIs
The VRR was introduced by the RBI on 1 March 2019 as a dedicated channel for Foreign Portfolio Investors to invest in Indian debt markets with relaxed regulatory prescriptions. Under VRR, FPIs committed to retaining a minimum of 67% of their portfolio for a minimum period of three years, in exchange for exemptions from macro-prudential limits that applied to the General Route. The VRR comprised three categories: VRR-Govt (government securities), VRR-Corp (corporate debt), and VRR-Combined (both).
- Introduced: 1 March 2019
- Investment limit evolution: Rs 75,000 crore (2019) → Rs 1,50,000 crore (January 2020) → Rs 2,50,000 crore (2022)
- Minimum retention: 67% of committed portfolio size
- Minimum retention period: 3 years
- Categories: VRR-Govt, VRR-Corp, VRR-Combined
- Key benefit: exemption from macro-prudential and regulatory limits applicable under General Route
Connection to this news: The removal of the VRR cap and merger with the General Route effectively ends the dual-track system, signalling the RBI's confidence that FPI participation in Indian debt has matured sufficiently to operate under a unified, simplified framework.
FPI Investment in Indian Debt — Regulatory Framework
FPI investment in Indian government securities and corporate bonds is governed by a system of aggregate limits set by the RBI. Under the General Route, individual FPIs face both single-entity limits and aggregate investment ceilings. The Medium Term Framework (MTF) for FPI debt, revised periodically, sets the overall limit for FPI investment in government bonds as a percentage of the outstanding stock. India's inclusion in the JP Morgan Government Bond Index-Emerging Markets (GBI-EM) in June 2024 significantly boosted passive FPI inflows into Indian government bonds.
- India included in JP Morgan GBI-EM: June 2024 (phased inclusion over 10 months)
- Expected passive inflows from index inclusion: USD 25-30 billion
- FPI investment in Indian government securities: approximately 2% of outstanding stock
- General Route limits: subject to aggregate and single-entity caps
- Corporate bond limit: separate ceiling under the General Route
Connection to this news: The VRR-General Route merger simplifies compliance for FPIs who have already committed to long-term Indian debt exposure, particularly those who entered through VRR ahead of India's index inclusion. The unified framework makes Indian debt more attractive for benchmark-tracking funds.
Bond Market Deepening and Financial Market Reforms
The RBI has been pursuing a multi-pronged strategy to deepen India's bond market, including allowing FPI access to sovereign green bonds, introducing derivatives frameworks for corporate bond indices, and permitting total return swaps. These reforms aim to improve price discovery, enhance liquidity, and diversify the investor base beyond domestic banks and insurance companies that currently hold the bulk of government securities.
- India issued its first Sovereign Green Bonds in January 2023 (Rs 16,000 crore in FY23)
- Fully Accessible Route (FAR) securities: specified government securities with no FPI limit
- RBI's liquidity injection programme: USD 32 billion via government bond purchases and dollar-rupee swaps
- Proposed reforms: derivatives on corporate bond indices, total return swaps
Connection to this news: The VRR removal is part of the broader bond market deepening initiative, reducing regulatory friction for foreign investors and aligning India's framework with international norms as the country's weight in global bond indices increases.
Key Facts & Data
- VRR investment limit removed: Rs 2.5 trillion cap eliminated
- VRR utilisation as of 5 February 2026: Rs 2.04 trillion (over 80%)
- VRR introduced: 1 March 2019
- Merger effective date: 1 April 2026
- VRR minimum retention requirement: 67% of committed portfolio for 3 years
- India's JP Morgan GBI-EM inclusion: June 2024
- Expected passive FPI inflows from index inclusion: USD 25-30 billion