RBI for voluntary retention route for FPIs in debt

To be eligible, FPIs would need to voluntarily commit to retain in India a minimum required percentage of their investments for a period of their choice. “FPIs would apply for investment limits under the route through an auction process,” the RBI said.

Karthik Srinivasan, Group Head-Financial Sector Ratings, ICRA, said: “The proposed framework for voluntary retention route for investments by FPIs is positive as it is expected to reduce the volatility in the FPIs debt flows, even though the investors’ appetite for investments through this route remains to be seen as they will need to commit a portion of their total investments for specified period.”

“The regulatory framework for FPI investment in debt has evolved over the years, influenced by trade-offs in encouraging capital flows and attendant macro-prudential considerations. Several measures have been undertaken in recent times to facilitate FPI investment in debt,” the RBI said.

The RBI has also proposed to introduce a regulatory framework for financial benchmarks which will initially apply to benchmarks issued by the Financial Benchmarks of India Ltd to improve the governance of the benchmark processes. “The robustness and reliability of financial benchmarks are critical for efficient pricing and valuation of financial instruments. Ensuring the credibility of benchmarks promotes their wider adoption which, in turn, facilitates efficient transmission of price signals in the financial system,” the RBI said.

Following the controversy surrounding the London Inter-Bank Offer Rate (LIBOR) fixing, the International Organization of Securities Commissions (IOSCO) has laid down principles of financial benchmarks that provide the overarching framework to ensure robust and credible benchmarks. “Many regulators across jurisdictions have come up with regulations for financial benchmarks based on these principles,” it said.