RBI Issues Master Direction on Non-Resident Investment in Debt Instruments, 2025

The Reserve Bank of India (RBI) has issued the Master Direction on Non-Resident Investment in Debt Instruments, 2025, consolidating the Foreign Exchange Management (Permissible Capital Accounts Transactions) Regulations, 2000, borrowing and lending regulation 2018, debt instruments regulation, 2019 and necessary directions in the form of A.P. (DIR Series) Circulars under the aforesaid regulations  to regulate non-resident investment in debt instruments in India.

The guidelines provide a comprehensive framework for non-resident investment activities, including those by Foreign Portfolio Investors (FPIs), Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs) and covers a broad spectrum of activities, including investment limits in government securities and corporate bonds, guidelines for derivative transactions, and specific provisions for Sovereign Green Bonds.

The RBI has established multiple routes for non-residents to invest in Indian debt instruments. These include the General Route, the Voluntary Retention Route (VRR), the Fully Accessible Route (FAR), and the Sovereign Green Bonds scheme.

• General Route: Non-residents can continue investing in government and corporate debt securities through this route, subject to established limits. The framework outlines specific limits for FPIs, including:

1. 6% of Central Government securities
2. 2% of State Government securities
3. Restrictions on short-term investments, with a cap on securities with less than a one-year maturity

• Voluntary Retention Route (VRR): The VRR allows FPIs to invest in Indian debt instruments by committing to retain their investments for at least three years. This route offers FPIs access to a larger pool of investments. The RBI has set a target investment limit of ₹2.5 lakh crore under VRR, with allocations made via an auction process or on a “first come, first served” basis.
• Fully Accessible Route (FAR): The FAR enables non-residents to invest in specific government securities without investment limits or restrictions. This route offers a significant opportunity for foreign investors to participate freely in the Indian debt market, particularly in new issuances of government bonds with maturities of 5, 7, and 10 years.
• Sovereign Green Bonds: To align with global sustainability goals, the RBI has introduced a framework for trading and settling Sovereign Green Bonds, which are eligible for investment in India’s International Financial Services Centre (IFSC). These bonds provide a unique opportunity for long-term sustainable investments.

RBI’s efforts to streamline regulations and increase transparency are expected to boost foreign investments, particularly in long-term and sustainable assets such as Sovereign Green Bonds. By making it easier for foreign investors to access the Indian debt market and ensuring a regulatory framework that promotes trust, India is positioning itself as a key player in the global financial landscape.