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Investments in Debt Instruments by Non-residents

Reserve Bank of India (RBI) has issued directions on investments in debt instruments by non-residents.

What are the channels for investments in debt instruments by non-residents?

What are the directions for investments under the General Route?

  • Eligible non-residents – FPIs
  • Eligible instruments and investment limits –

Eligible instruments Investment limits
Central Government securities (including Treasury Bills), other than those included as ‘specified securities’ under the FAR 6% of the outstanding stock of Central Government securities other than those included as ‘specified’ securities’ under the FAR
State Government securities 2% of the outstanding stock of State Government securities
Corporate debt securities 15% of the outstanding stock of corporate bonds
  • Minimum residual maturity requirement – 
Central Government securities (including Treasury Bills) and State Government securities No minimum residual maturity requirement
Corporate debt securities Investment only in securities with original / residual maturity of above 1 year
  • Short-term investment limit – 
Central Government securities (including Treasury Bills) and State Government securities with residual maturity up to 1 year Shall not exceed 30% of the total investment of the FPI in each category
Corporate debt securities with residual maturity up to 1 year Shall not exceed 30% of the total investment of the FPI in the corporate debt securities
  • Security-wise / Issue-wise limit –
Central Government security In aggregate, shall not exceed 30% of the outstanding stock of the security
Corporate debt securities Shall not exceed 50% of any issue of the security
  • Concentration limit –
Central Government securities and State Government securities Shall not exceed 15% of prevailing investment limit for each category in case of long-term FPIs and 10% of prevailing investment limit for other FPIs
Corporate debt securities Shall not exceed 15% of prevailing investment limit in case of long-term FPIs and 10% of prevailing investment limit for other FPIs
  • Investments in municipal bonds shall be reckoned under the investment limit for State Government securities.
  • Long-Term FPIs shall mean Sovereign Wealth Funds, Multilateral Agencies, Pension / Insurance / Endowment Funds and foreign Central Banks.
  • Reinvestment of coupon by FPIs in Central Government securities and State Government securities shall be reckoned within the limit for investment stipulated for Central Government securities and State Government securities, as applicable. 
  • FPIs may reinvest the proceeds of any sale / redemption of Central Government securities and State Government securities within 2 working days from the date of sale / redemption (including the date of sale / redemption) irrespective of the availability of limits in the category. Any reinvestment beyond 2 working days shall be subject to availability of limits for that category.
  • Clearing Corporation of India Ltd. (CCIL) shall monitor the utilisation of investment limits for Central Government securities and State Government securities. 
  • Utilization of investment limits in corporate debt securities shall be monitored by the depositories registered with Securities and Exchange Board of India (SEBI).

What are the directions for investments under the Voluntary Retention Route (VRR)?

  • Eligible investors – FPIs
  • Eligible instruments –
    • Any instrument listed under Schedule 1 to Foreign Exchange Management (Debt Instruments) Regulations, 2019, other than units of domestic mutual funds or Exchange Traded Funds (ETFs) which invest less than or equal to 50% in equity, as specified at 1A(d) of that schedule, and partly paid debt instruments. However, investments shall be permitted in ETFs that invest only in debt instruments.
    • Repos and reverse repos, subject to the amount borrowed or lent under repo not exceeding 10% of the investments by an FPI under VRR. Repo and reverse repo shall have the same meaning as assigned to it in Section 45U of RBI Act, 1934 excluding repo conducted under the RBI’s Liquidity Adjustment Facility.
  • Investment limit – ₹2,50,000 crore 
  • Allocation of investment amount to FPIs shall be made on tap and allotted on a ‘first come, first served’ basis or through an auction mechanism. FPI may apply for investment limit online to CCIL through their respective custodians.
  • The maximum investment limit which can be allotted to an FPI (including its related FPIs) shall be 50% of the amount offered for each allotment by tap or through auction, in case of demand for more than 100% of amount offered.
  • An FPI shall invest at least 75% of its Committed Portfolio Size (CPS) within 3 months from the date of allotment and remain invested to a minimum extent of 75% of the CPS at all times during the committed retention period. CPS for a FPI shall mean the amount allotted to that FPI under the VRR.
  • The minimum retention period shall be 3 years. Retention Period shall mean the time period that an FPI voluntarily commits for retaining the CPS in India under the VRR.
  • An FPI may, at its discretion, transfer its investments made under the General Route, if any, to the VRR.
  • Income from investments through the VRR may be reinvested at the discretion of the FPI even if such investments are in excess of the CPS.
  • An FPI may, at the end of the retention period, opt to –
    • Liquidate its portfolio and exit; or
    • Shift its investments to the General Route, subject to availability of limit under the General Route; or
    • Continue to hold its investments until maturity or sale, whichever is earlier; or
    • Continue the investments for an additional identical retention period. 
  • An FPI desiring to exit its investments, fully or partly, under the VRR prior to the end of the retention period may do so by selling its investments to another FPI or FPIs. 
  • An FPI shall open one or more separate Special Non-Resident Rupee (SNRR) accounts for investments through the VRR. An FPI may open a separate security account for holding debt securities under the VRR.

What are the directions for investments under the Fully Accessible Route?

  • Eligible investors – FPIs, Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI).
  • Eligible instruments (‘specified securities’) –
    • All securities included under the FAR on the date of the directions
    • All new issuances of 5-year, 7-year and 10-year tenors by the Central Government
  • ‘Specified securities’, once so designated, shall remain eligible for investment under the FAR until maturity.

What are other directions?

  • FPI investment in unlisted corporate debt securities in the form of non-convertible debentures / bonds issued by public or private companies shall be subject to end-use restrictions on investments in real estate business, capital market and purchase of land.
  • An FPI may invest in ‘to be listed’ corporate debt securities. If the corporate debt security is not listed within such period prescribed by SEBI for the purpose, the FPI shall immediately sell the corporate debt security to the issuer or to a third party. 
  • A non-resident may undertake transactions in foreign exchange, interest rate and credit derivatives.
  • An FPI may participate in the Government securities market, both primary and secondary. 
  • AD Cat-I Banks may lend to FPIs for the purpose of placing margins with CCIL for the settlement of Government securities transactions by FPIs.
  • All Over-the-Counter (OTC) trades in Government securities undertaken by FPIs (except transactions undertaken using the NDS-OM web module) shall be reported to the NDS-OM platform on the trade date within 3 hours after the close of trading hours for the Government securities market.
  • OTC secondary market transactions in Government securities undertaken by FPIs may be settled on T+1 or on T+2 basis. However, transactions undertaken through the NDS-OM web module shall be settled only on a T+1 basis.
  • Amounts of investment in Central Government securities (including Treasury Bills), State Government securities and corporate debt securities shall be reckoned in terms of the face value of securities.
  • Any transaction / investment in breach of applicable investment limit shall need to be reversed.
  • Any violation by FPIs shall be subject to regulatory action as determined by SEBI. FPIs are permitted, with the approval of the custodian, to regularize minor violations immediately upon notice, and in any case, within 5 working days of the violation. 


References

Reserve Bank of India. (2025, January 07). 'Master Direction - Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12765&Mode=0


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