RBI framework for non-resident investment in debt instruments: Updated Master Direction explained

The Reserve Bank of India has overhauled and consolidated the regulatory regime for non-resident investment in Indian debt markets through the Master Direction – Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025, as further amended by A.P. (DIR Series) Circular No. 06 dated April 10, 2026.

This updated framework is anchored in the Foreign Exchange Management (Debt Instruments) Regulations, 2019 (FEMA 396) and provides a single, comprehensive set of instructions for non-resident participation in:

• Government securities
• Corporate debt securities
• Specified Government securities under the Fully Accessible Route
• Investments through the Voluntary Retention Route (VRR)
• Investment in Sovereign Green Bonds through the IFSC
• Use of eligible debt instruments as collateral for exchange-traded derivatives on recognised stock exchanges

The Directions are issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 and Section 45W of the **Reserve Bank of India Act, 1934`, and operate in addition to any other statutory approvals required under other laws.

Scope, commencement and coverage

Applicability of the Directions

• The Directions are titled Master Direction – Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025.
• They come into force with immediate effect from their issuance date.
• They govern all transactions in debt instruments undertaken by eligible non-residents, including:
  • Foreign Portfolio Investors (FPIs)
  • Non-Resident Indians (NRIs)
  • Overseas Citizens of India (OCIs)
  • Other persons resident outside India, where specifically allowed

Note: The April 10, 2026 circular primarily amends and consolidates earlier guidance relating to NRI investment in debt instruments and the use of such instruments as collateral in exchange-traded derivatives, by incorporating them within the Master Direction.

Key definitions under the Directions

The Master Direction provides a detailed set of definitions to ensure clarity and consistency. Some of the more significant terms are:

• “Corporate debt securities” – Covers instruments listed in sub‑paragraph A of paragraph 1 of Schedule 1 to the Foreign Exchange Management (Debt Instruments) Regulations, 2019, excluding Government securities and municipal bonds referred to in clause (a) and clause (k) of that sub-paragraph.
• “Committed Portfolio Size (CPS)” – The quantum of investment limit allotted to a particular FPI under the Voluntary Retention Route.
• “Default bonds” – Non-Convertible Debentures/bonds where there is a full or partial default in principal repayment, either on maturity or against instalments in the case of amortising instruments.
• “Foreign Portfolio Investor (FPI)” – As defined and registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019.
• “Long-Term FPIs” – Includes Sovereign Wealth Funds, Multilateral Agencies, Pension / Insurance / Endowment Funds and foreign Central Banks.
• “Minor violations” – Breaches that custodians reasonably assess as inadvertent, temporary, or beyond the FPI’s control, and which are rectified promptly after detection.
• “Non-resident” / “Person resident outside India” – As defined in section 2(w) of the Foreign Exchange Management Act, 1999.
• “Real Estate Business” – Has the same meaning as in note (6) to item no. 10.2 in the table in Schedule I to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
• “Recognised stock exchange” – As per section 2(f) of the Securities Contracts (Regulations) Act, 1956.
• “Repo” and “Reverse Repo” – As per Section 45U(c) and Section 45U(d) of the RBI Act, 1934, excluding transactions under RBI’s Liquidity Adjustment Facility.
• “Short-term investments” – Investments in debt with a residual maturity of up to one year.
• “Specified securities” – Certain Central Government securities notified periodically by RBI as eligible under the Fully Accessible Route.

Where a term is not specifically defined in the Directions, the meanings under FEMA 1999 or the RBI Act, 1934 apply.

Investment channels for non-residents in debt instruments

The framework categorises non-resident investment into four distinct channels, each with its own eligibility and conditionalities:

1. General Route
2. Voluntary Retention Route (VRR)
3. Fully Accessible Route (FAR)
4. IFSC Scheme for Sovereign Green Bonds

1. General Route – FPI investments in Government and corporate debt

Eligible investors

• Only Foreign Portfolio Investors can invest through the General Route.

Eligible instruments and macro limits

Under the General Route, FPIs can invest in:

Note:

• RBI separately notifies the absolute rupee values of these limits each financial year.
• Investments in municipal bonds are counted within the overall limit for State Government securities.

Government securities – FPI conditions

1. Minimum residual maturity

   • There is no minimum residual maturity requirement for FPI investment in Central Government securities (including Treasury Bills) or State Government securities.

2. Short-term investment cap

   • For each FPI, investment with residual maturity up to one year must not exceed 30% of that FPI’s total investment in:
     • Central Government securities (including Treasury Bills); and
     • State Government securities
   • These thresholds are checked on an end-of-day basis.

   The 30% limit is not applicable where:

   • The short-term holdings consist entirely of securities acquired on or before April 27, 2018; or
   • The short-term investments were made between July 08, 2022 and October 31, 2022 (both days inclusive).

3. Security-wise ceiling

   • Aggregate FPI investment in any single Central Government security cannot exceed 30% of the outstanding stock of that security.

4. Concentration limits by category

   • For each investment category (Central Government securities and State Government securities separately):
     • Long-term FPIs – cap of 15% of the prevailing category-wise limit.
     • Other FPIs – cap of 10% of the prevailing category-wise limit.
   • The limit applies on an aggregate basis for an FPI together with its related FPIs.