The Reserve Bank of India (RBI) has introduced a separate channel, namely ‘Fully Accessible Route’ (FAR), to enable non-residents to invest in specified government bonds with effect from April 1.
Fully Accessible Route (FAR)
- The move follows the Union Budget announcement that certain specified categories of government bonds would be opened fully for non-resident investors without any restrictions.
- Under FAR, eligible investors can invest in specified government securities without being subject to any investment ceilings.
- This scheme shall operate along with the two existing routes, viz., the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR).
Key Points
- ‘Specified securities’ shall mean Government Securities as periodically notified by the Reserve Bank for investment under the FAR route.
- The RBI has said that all new issuances of Government securities (G-secs) of 5-year, 10-year, and 30-year tenors will be eligible for investment as specified securities.
- Non Resident investors can invest in specified government securities without being subject to any investment ceilings.
- This scheme shall operate along with the two existing routes:
- The Medium Term Framework (MTF) for Foreign Portfolio Investment (FPI) in Central Government Securities (G-secs) and State Government Securities (SDLs) was introduced in October 2015.
- FPI consists of securities and other financial assets passively held by foreign investors.
- The Voluntary Retention Route (VRR) encourages Foreign Portfolio Investors to undertake long-term investments in Indian debt markets.
- The Medium Term Framework (MTF) for Foreign Portfolio Investment (FPI) in Central Government Securities (G-secs) and State Government Securities (SDLs) was introduced in October 2015.
Circular No. RBI/2023-24/81 FMRD.FMID.No. 04/14.01.006/2023-24,
Earlier, the RBI vide. Circular Dated 30.03.2020 notified Fully Accessible Route (FAR), through which certain specified categories of Central Government securities were opened fully for non-resident investors without any restrictions, apart from being available to domestic investors as well. The RBI has now decided to also designate all Sovereign Green Bonds issued by the Government in the fiscal year 2023-24 as ‘specified securities’ under the FAR
Earlier, vide circular dated 30.03.2020, the RBI has notified that all new issuances of Government securities of 5-year, 10-year and 30-year tenors from the financial year 2020-21 to be eligible for investment under the FAR as ‘specified securities’.
Later, through circular dated 07.07.2022 and circular dated 23.01.2023, Government securities of 7-year & 14-year tenors and Sovereign Green Bonds were included as ‘specified securities’ under the FAR.
Benefits of the Scheme
- This will ease the access of non-residents to Indian government securities markets.
- This would facilitate inclusion in global bond indices.
- Being part of the global bond indices would help Indian G-secs attract large funds from major global investors, including pension funds.
- This would also facilitate inflow of stable foreign investment in government bonds.
FAQs
What are Fully Accessible Route (FAR) bonds?
Fully Accessible Route (FAR) bonds are government securities that are open to both domestic and foreign investors. They are designed to make the Indian government bond market more accessible and attractive to international investors by providing a clear and straightforward investment route.
Why were FAR bonds introduced?
FAR bonds were introduced to increase foreign investment in Indian government securities, enhance market liquidity, and integrate India more deeply into the global financial system. This initiative also aims to provide additional funding sources for the government’s borrowing needs.