In a landmark move aimed at streamlining and expanding the participation of foreign investors in India’s debt markets, the Reserve Bank of India (RBI) released the Master Direction – Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025. Issued under the Foreign Exchange Management Act (FEMA), 1999, and Section 45W of the RBI Act, 1934, this comprehensive directive consolidates and clarifies the regulatory framework governing debt investments by non-residents in India.
Why This Matters
With India’s increasing integration into the global financial system and its recent inclusion in major global bond indices, attracting stable and long-term foreign capital into the Indian debt market has become a key policy objective. The Master Direction 2025 facilitates this by offering clear investment routes, diverse instruments, and transparent operational norms for Foreign Portfolio Investors (FPIs) and other eligible non-residents.
Key Investment Routes for Non-Residents
The Directions provide five distinct investment pathways:
General Route: For FPIs investing in government securities and corporate bonds within specified limits (6% for Central Government Securities, 2% for State Government Securities, and 15% for corporate debt).
Voluntary Retention Route (VRR): Designed for long-term investors willing to commit to a minimum three-year holding period, VRR offers flexibility in limits and exemptions from certain macro-prudential norms.
Fully Accessible Route (FAR): Allows unrestricted investment in selected Central Government securities, with no cap on holdings. This route is open to all non-resident investors, including NRIs and OCIs.
Sovereign Green Bonds in IFSC: Foreign investors in the International Financial Services Centre (IFSC) can invest in India’s Sovereign Green Bonds, aligning capital inflow with sustainable development goals.
Special Rupee Vostro Account (SRVA) Route: Non-residents maintaining SRVAs can now invest their surplus rupee balances in Government Securities, further boosting rupee internationalisation.
What’s New and Noteworthy?
No Minimum Maturity: FPIs can now invest in government securities with no minimum residual maturity.
Relaxed Short-Term Investment Norms: FPIs can allocate up to 30% of their portfolio to short-term instruments (≤1 year maturity).
Stricter Concentration Limits: FPIs must stay within 10–15% of prevailing limits, preventing excessive exposure in individual securities.
Repo Access Under VRR: Repos and reverse repos are now available under VRR, with specific safeguards.
Inclusion of ‘Default Bonds’: Investment in stressed assets, such as defaulted bonds, is now permitted under defined disclosures.
Flexibility in Reinvestment: Reinvestment of coupons and redemptions is allowed without limit within two working days.
Compliance and Monitoring
The Clearing Corporation of India Ltd. (CCIL) and SEBI-registered custodians are tasked with tracking investment limits and ensuring compliance. Custodians are also empowered to regularize minor violations within five working days, while non-minor breaches are reported to SEBI for enforcement.