RBI’s ECB Reforms: Liberalising India’s External Commercial Borrowing Framework
Introduction
On 16 February 2026, the Reserve Bank of India (“RBI”) has issued the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (“Amended ECB Regulations”) thereby significantly amending the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (“Erstwhile ECB Regulations”).
The Amended ECB Regulations has inter alia: (i) raised borrowing thresholds; (ii) expanded eligible borrowers and recognized lenders; (iii) eased reporting requirements; and (iv) revamped permissible end-uses.
The Amended ECB Regulations have a prospective application only and existing ECBs (“External Commercial Borrowings”) will continue to be governed by the Erstwhile ECB Regulations. However, the reporting requirements for existing ECBs will be in accordance with the timelines mentioned under the Amended ECB Regulations.
In this update, we have provided a comparative overview of the key changes introduced under the Amended ECB Regulations vis-à-vis the Erstwhile ECB Regulations, in a tabular format along with our insights on the same.
Comparative Overview of Key Changes under Amended ECB Regulations vis-à-vis Erstwhile ECB Regulations
| Sr. No. | Heading | Erstwhile ECB Regulations | Amended ECB Regulations |
| 1 | Borrowing Limits | The borrowing limit for eligible category of borrowers is capped at USD 750 million or equivalent per financial year. | An eligible borrower may raise ECBs up to the higher of (a) outstanding ECB up to USD 1 billion; or (b) total outstanding borrowing (external and domestic) up to 300 per cent of net worth as per the last audited balance sheet of the borrower.
This borrowing limit will not be applicable to the eligible borrowers that are regulated by financial sector regulators. |
| 2 | Eligible Borrower | Eligible borrowers inter alia included the following: All entities eligible to receive FDI. Further, the following entities are also eligible to raise ECBs: (a) Foreign currency (FCY) denominated ECBs: (i) Port Trusts; (ii) Units in SEZ; (iii) SIDBI; and (iv) EXIM Bank of India. (b) INR denominated ECBs: Registered entities engaged in micro-finance activities, viz., registered not for profit companies, registered societies or trusts or cooperatives and non-government organizations. |
Eligible borrowers have been broadened to inter alia include the following: (i) A person resident in India (other than an individual) incorporated, established or registered under a Central Act or State Act may raise ECB, subject to the condition that it is permitted to borrow in terms of the applicable laws. |
| 3 | Recognized Lenders | (i) The lender should be a resident of the Foreign Action Task Force (FATF) or International Organisation of Securities Commission (IOSCO) compliant country, as defined in the ECB framework, including that on transfer of ECBs. (ii) Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognised lenders. (iii) Foreign equity holders, i.e., (a) direct foreign equity holder with minimum 25% direct equity holding in the borrowing entity; (b) indirect equity holder with minimum indirect equity holding of 51%, or (c) group company with common overseas parent. |
(i) A person resident outside India; (ii) A branch outside India of an entity whose lending business is regulated by the RBI; and (iii) A financial institution or a branch of a financial institution set up in International Financial Services Centre (IFSC). If an ECB has been availed from a related party, it shall be carried out on an arm’s length basis. |
| 4 | Restricted End Use | The list of ‘Restricted End Use’ inter alia included: (i) Investment in capital market including margin trading and derivatives; (ii) Equity investment; (iii) On-lending to borrowers for any of the ‘Restricted end uses’ except in case of NBFCs where such on-lending is undertaken in compliance with the relevant Minimum Average Maturity Period (MAMP) prescribed by the RBI; (iv) Agricultural or plantation activities; and (v) Real estate activity or construction of farm-houses. |
The following are inter alia the restricted uses: (i) Transacting in listed/unlisted securities, except for transactions undertaken for: merger, amalgamation, arrangement, or acquisition in accordance with the Companies Act, 2013, Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Insolvency and Bankruptcy Code, 2016. The Amended ECB Regulations clarifies that such borrowing must be for strategic purposes only, i.e., driven by long-term value creation and synergies, and not short-term financial gains. The Amended ECB Regulations also include a descriptive definition of ‘real estate business’ to mean purchase, sale or lease of land or immovable property with a view to earning profit and does not include purchase, sale and lease of land or immovable property for construction and development of industrial parks, integrated townships and SEZ; development of new industrial project, modernisation and expansion of existing units; any activity under ‘infrastructure sector’; construction-development project; commercial or residential properties for own use of the borrower; and real estate broking services. |
| 5 | Cost of borrowing requirements (All-in cost) | For FCY ECBs: The prescribed benchmark rate in addition to 500 bps spread.
For INR ECBs: The prescribed benchmark rate in addition to 450 bps spread. Pre-Payment Charges / Penal Interest Not more than 2% over and above the contracted rate of interest on the outstanding principal amount and will be outside the all-in-cost ceiling. |
The cost of borrowing shall be in line with prevailing market conditions. In case of ECBs with average maturity period of less than 3 years, the cost of borrowing shall be in compliance with cost ceiling specified for ‘Trade Credit’ under the Amended ECB Regulations.
In case of fixed rate loans, the floating rate plus spread of the corresponding swap shall not be more than the ceiling. Pre-payment charges or penal interest, if any, for default or breach of covenants shall be in line with prevailing market conditions. |
| 6 | Reporting Requirements | (i) The borrowers are required to report actual ECB transactions through ‘Form ECB 2’ every month, within seven working days from the close of the month to which it relates. In case there is no drawdown / debt servicing, borrowers were required to file NIL returns. (ii) Any changes made in the ECB parameters has to be reported in ‘Form ECB’ within seven days from the said change being made effective. |
(i) The ‘Form ECB 2’ shall be submitted only for the month in which a drawdown and / or debt servicing has taken place. The said Form is required to be submitted within seven calendar days from the end of the month in which the proceeds were received, or debt servicing was undertaken. (ii) The ‘Revised Form ECB 1’ for reporting changes in previously reported ECB parameters shall be submitted within seven calendar days from the end of the month in which such change was given effect. |
| 7 | Minimum Average Maturity Period (MAMP) | The MAMP for ECBs is 3 years. However, different MAMP have been provided for ECBs obtained for specific end uses or by specific borrowers.
However, a borrower engaged in manufacturing sector may raise ECBs with average maturity period between one year and three years, subject to the condition that outstanding of such ECBs shall not exceed USD 50 million or equivalent per financial year. |
The MAMP for ECBs shall be 3 years.
However, a borrower engaged in manufacturing sector may raise ECBs with average maturity period between one year and three years, subject to the condition that outstanding of such ECBs shall not exceed USD 150 million. Further, the MAMP is not required to be met in the following circumstances: |
Our Thoughts
The Amended ECB Regulations significantly liberalise and overhaul India’s current external commercial borrowing framework and has introduced several progressive reforms including a substantial increase in the borrowing threshold from USD 750 million to outstanding ECBs of up to USD 1 billion or 300% of net worth (whichever is higher), expansion of both the eligible borrower and recognised lender bases, streamlined reporting requirements with extended timelines, and a more flexible approach to permissible end-uses thereby allowing greater flexibility for real estate and agricultural activities and various M&A activities such as acquisition finance.
Notably, the introduction of arm’s length pricing requirements for related party transactions and market-driven cost of borrowing provisions demonstrate RBI’s commitment of balancing enhanced access to foreign capital with prudent risk management principles.
The Amended ECB Regulations marks a decisive shift towards liberalisation of the ECBs framework in India and provide the eligible borrowers with improved flexibility in raising offshore funds, thereby facilitating easier access to the international markets for business expansion and strategic initiatives in the country.
The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause.
