RBI Removes ₹2.5 Lakh Crore VRR Cap | VRR Merged with General Route

Circular no. RBI/2025-26/205 A.P. (DIR Series) Circular No. 21; Dated: 06.02.2026

The Reserve Bank of India (RBI) has announced further rationalisation of the Voluntary Retention Route (VRR) for Foreign Portfolio Investors (FPIs), with a view to enhancing operational flexibility and ease of doing business in the Indian debt markets.

1. Background of the Voluntary Retention Route

The VRR was introduced by the RBI in March 2019 as an additional investment channel for FPIs with long-term investment interests in Indian debt markets.

Since its introduction, the RBI has periodically recalibrated the VRR framework to respond to market developments and stakeholder feedback.

2. Removal of Separate VRR Investment Limit

The RBI has now decided to:

Remove the ₹2.5 lakh crore long-term investment limit prescribed under the VRR.

Going forward:

Investments under the VRR shall be subsumed within the overall investment limits applicable to FPIs under the General Route.

3. Treatment of VRR Investments Under the General Route

Accordingly, all FPI investments made through the VRR in the following instruments shall be reckoned under the respective General Route limits:

Central Government Securities, including Treasury Bills
State Government Securities (State Development Loans)
Corporate debt securities

This change eliminates the need for a separate VRR investment cap while retaining the route as a facilitative framework.

4. Exit Flexibility for FPIs Under VRR

To further enhance flexibility, the RBI has provided that:

FPIs that have availed retention periods longer than the minimum prescribed retention period
Shall have the option to liquidate their portfolio, either in whole or in part, and
Exit the VRR after the completion of the minimum retention period

This measure allows FPIs greater freedom in managing portfolio duration and exit timing.

5. Effective Date

These directions shall come into force from 1 April 2026.

FPIs and market intermediaries are required to align their investment monitoring and compliance processes accordingly.

6. Key Takeaway

The revised framework:

Integrates VRR investments seamlessly with the General Route
Removes quantitative constraints while retaining long-term investment discipline
Enhances exit flexibility for FPIs
Supports stable and sustained foreign investment in Indian debt markets