India: Voluntary Retention Route Relaxes Subscription Norms For Corporate Debt By Foreign Portfolio Investors

Last Updated: 12 March 2019
Article by Ran Chakrabarti

In the spring of 2018, the Reserve Bank of India (the "RBI") issued two circulars in late April1 and early May2 (together, the "Spring Circulars"), tightening up the regime for the subscription of corporate debt by foreign portfolio investors ("FPIs"), impacting foreign capital inflows into India through this route.

Although the Spring Circulars liberalised the minimum residual maturities for FPI subscriptions, they also introduced controversial concentration limits mandating a portfolio spread and further, made it impossible for a single FPI to subscribe for a particular corporate debt issue. 

Reflecting on some of the macro-economic consequences flowing from the Spring Circulars and feedback on a policy paper published in October 2018,3 the RBI announced a new voluntary retention route for FPI corporate debt subscriptions on March 1, 2019 (the "Voluntary Retention Route").4

We set out our thoughts on the Voluntary Retention Route below.


Any FPI registered with the Securities Exchange Board of India may participate in the scheme, which comes into effect on March 11, 2019. The Voluntary Retention Route sets out aggregate debt available under the scheme, of up to INR 40,000 Crores for government securities and INR 35,000 Crores for corporate debt (which is in addition to and separate from the corresponding limits under the existing policy and the general limits set out therein).

Available debt shall be made available on tap, or otherwise auctioned in tranches by the Clearing Corporation of India Limited until 30 April 2019, or otherwise, until the limits are exhausted (whichever occurs first).5

No FPI (including related FPIs) shall be permitted to subscribe for more than 50 per cent of the available debt under a particular allotment or auction in cases where there is demand for more than the amount offered.

The minimum investment period for FPIs under this route is three (3) years, or as otherwise decided by the RBI at the time of allotment or auction and the FPI shall remain invested in at least 75 per cent of the committed investment during the minimum investment period.

FPIs shall be required to commit 25 per cent of the allotted amount within one month and the outstanding 75 per cent within three (3) months of the date of allotment. 

The minimum retention period under the regime is 3 years (commencing, we assume from when the balance of the subscription under the allotment is received), during which period the FPI will be required to maintain a minimum of 75 per cent of its investment.

During the minimum retention period, FPIs wishing to liquidate their investment under this route may do so by selling their investments to another FPI or other FPIs, subject to the transferee complying with the regime.

Critically, subscriptions made under the Voluntary Retention Route are exempt from any minimum residual maturity requirements, concentration limits and the requirement for at least two subscribers for a single corporate debt issue, introduced by the Spring Circulars and restated in the RBI's circular on investment by FPIs in June 2018.6

The appendix to the Voluntary Retention Route sets out the process for the auction of available limits, which requires FPIs to bid on the basis of the retention period of their investment and the amount to be invested and it should be noted that those bids with higher retention periods will be allocated priority.

FPIs may also make multiple bids at a particular auction and the committed portfolio amount shall be reckoned for each bid separately.


The Voluntary Retention Route should go some way to re-calibrate debt inflows which were curtailed following the Spring Circulars, introducing controversial concentration limits, which required FPIs to diversify their investment spreads to ensure that no single investment exceeded 20 per cent of the portfolio.

Theoretically, this meant that an FPI had to have exposure to at least 5 subscriptions in order to comply with the requirement. The Voluntary Retention Route makes it clear that this no longer applies, as long as the other conditions are met.

Critically, the requirement of at least two (2) FPI subscribers for a particular corporate debt issuance is also suspended, for those FPIs subscribing under this route. This should provide FPIs with welcome flexibility in the context of their investment strategies.

Clarification, however, might be required in relation to the value of the portfolio committed during the minimum retention period.

On the one hand, the Voluntary Retention Route suggests that the FPI can liquidate 25 per cent of its committed portfolio during that period, yet on the other hand, the transfer regime seems to suggest that FPIs can transfer their entire holding to other FPIs, subject to the transferee complying with the terms of the regime.

The language in paragraph 6(d) of the Voluntary Retention Route seems to suggest that FPIs can transfer their entire committed portfolio size invested under the new regime.

However, we stress that this is an interpretation, based upon the absence of any qualifying language in paragraph 6(d) about the amount that can be transferred, or the continued requirement for the transferor to retain the minimum 75 per cent of its committed portfolio size.

While the Voluntary Retention Route should encourage debt inflows under this route, we would point out that FPIs generally look for regulatory stability and predictability over the course of their investment before committing funds; and the risks of continued periodic tinkering to the policy will, in all likelihood, remain. 






5  See paragraph (d) of the accompanying RBI press release below


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions