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

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  • Last Updated on 9 February, 2026

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RBI removes VRR investment limit

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
Click Here To Read The Full Circular

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied