The Reserve Bank of Inia (RBI) has introduced a transformative shift in India’s external borrowing landscape with the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026. Effective February 16, 2026, these amendments move away from rigid, spread-based caps toward a principle-driven, market-aligned model.
By broadening the base of eligible borrowers and recognized lenders, the amended Regulations have made substantial changes to applicable end uses, minimum average maturity requirements, pricing norms, and other key issues. This framework significantly liberalizes access to global capital while streamlining the reporting and compliance process.
Comprehensive Comparison: Old vs. New ECB Framework
The following table provides a detailed breakdown of the regulatory transition:
| Key Features | Earlier Framework | Revised ECB Framework |
| Eligible Borrowers | Eligibility was generally restricted to entities permitted to receive Foreign Direct Investment (FDI), along with specified entities such as SEZ units, Port Trusts, SIDBI, and EXIM Bank, subject to prescribed conditions.
Entities under investigation could raise ECBs subject to appropriate disclosures.
Restructuring cases were dealt with under a specific regulatory framework.
Resolution applicants under the Insolvency and Bankruptcy Code, 2016 were permitted to raise ECBs under the approval route, except from foreign branches or subsidiaries of Indian banks, for repayment of the target company’s rupee term loans. |
Any person resident in India (other than an individual) incorporated or registered under a Central or State Act may raise ECBs, subject to compliance with the governing statute.
Additionally, the following are eligible:
(i) borrowers undergoing insolvency resolution or restructuring, where such borrowing is permitted under the approved resolution or restructuring plan; and (ii) borrowers with pending investigation or appeal for contraventions under the Foreign Exchange Management Act, 1999, who may raise ECBs without prejudice to the outcome of such proceedings, subject to disclosure in Form ECB-1 Now, Limited Liability Partnerships (LLPs) are categorised as eligible borrowers for raising ECBs. |
| Recognised Lenders | Recognised lenders were required to be residents of FATF or IOSCO-compliant countries, and included
✓ Multilateral and regional financial institutions ✓ Individuals, only if they were foreign equity holders ✓ Foreign branches/subsidiaries of Indian banks only for FCY ECB (excluding FCCBs and FCEBs) |
(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 the International Finance Service Centre. This is a significant change, as the earlier restriction that permitted individuals to be recognised as lenders only if they were foreign equity holders has been removed. Further, overseas branches of Indian banks are now permitted to extend External Commercial Borrowings (ECBs) in both Indian Rupees and foreign currency. Additionally, the earlier requirement that lenders must be from jurisdictions compliant with the Financial Action Task Force (FATF) or the International Organization of Securities Commissions (IOSCO) has also been dispensed with. |
| Minimum Average Maturity Period | The earlier regime prescribed multiple maturity categories depending on purpose and lender, as under
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The minimum average maturity period (“MAMP”) for ECBs has been standardised at 3 years, replacing the earlier multi-tiered structure under which certain end-uses, such as working capital, general corporate purposes and repayment of rupee loans, required longer MAMPs of up to 10 years.
Eligible borrowers in the manufacturing sector may raise ECBs with a MAMP of 1–3 years, subject to the outstanding amount of such ECBs not exceeding USD 150 million.
The Amended Regulations also clarify that MAMP requirements will not apply in cases of: (i) conversion of ECB into equity; (ii) repayment of ECB using proceeds of non-debt instruments issued on a repatriation basis, provided the proceeds are received after the ECB draw down; (iii) refinancing of ECB; (iv) waiver of debt by the lender; and (v) repayment of ECB pursuant to corporate actions such as merger, demerger or acquisition of control. These relaxations facilitate early closure of ECB facilities, as the above situations typically involve prepayment events |
| Prohibited End Uses | The earlier regime prohibited the utilisation of ECB proceeds for certain activities, including:
✓ Real estate activities ✓ Investment in capital markets and equity shares ✓ Working capital and general corporate purposes (except under longer maturity conditions) ✓ Repayment of INR loans is subject to restrictions ✓ On-lending except in specified cases, such as NBFC structures |
The revised framework introduces a clearly defined and consolidated negative list under which ECB proceeds cannot be used for:
✓ Chit funds and Nidhi companies ✓ Real estate business and construction of farmhouses ✓ Agricultural and animal husbandry activities (except specified permitted activities) ✓ Plantation activities except tea, coffee, rubber, cardamom, palm and olive oil ✓ Trading in Transferable Development Rights (TDRs) ✓ Investment in listed or unlisted securities, except for corporate restructuring transactions ✓ Repayment of INR loans classified as Non-Performing Assets (NPAs) or originally used for restricted purposes ✓ On-lending for prohibited activities. |
| Currency of Borrowing and Conversion | ECB could be raised in freely convertible foreign currency Orrin; however, currency conversion flexibility was limited, and INR to FCY conversion was not permitted. | ECBs may be raised in either foreign currency or INR. The revised framework also permits conversions between currencies, including FCY to FCY, FCY to INR, and INR to FCY, subject to applicable exchange rate safeguards.
Conversion of INR-denominated ECB into foreign currency ECB is now expressly permitted. |
| Borrowing Limits | Borrowers were permitted to raise ECB up to USD 750 million per financial year under the automatic route (temporarily enhanced to USD 1.5 billion). In certain cases, a 7:1 debt-to-equity ratio applied. | The borrowing limit has been increased to the higher of:
(a) outstanding ECB up to USD 1 billion; or (b) total outstanding borrowings (external and domestic) up to 300% of the borrower’s net worth as per the last audited balance sheet. Non-fund-based credit and funds raised through securities mandatorily convertible into equity are not to be included in the computation of borrowing limits. Further, the borrowing limits specified under the Amended Regulations do not apply to borrowers regulated by financial sector regulators. |
| Cost of Borrowing (All-in-Cost Ceiling) | The earlier frame work prescribed a benchmark-based all-in-cost ceiling linked to LIBOR/ARR plus a fixed spread of 450–550 basis points, and penal interest was capped at 2% above the contracted rate.
For Example: If the benchmark rate (say LIBOR/ARR) was 3%, the maximum permissible all-in-cost would be 3% + 450–550 basis points (4.5%–5.5%), i.e., 7.5% to 8.5% per annum.
Further, if the contracted interest rate was 8%, any penal interest for default could not exceed 2% above the contracted rate, meaning the maximum penal rate could be 10% per annum. |
The revised framework removes fixed spread ceilings and permits market-determined pricing, subject to certain safeguards.
For example, if an Indian company borrows USD 20 million from an overseas lender at 11% per annum, the borrowing may proceed at this rate even if it exceeds the earlier benchmark-linked ceilings, provided the pricing is commercially justified. However, where the ECB is structured as short-term trade credit (e.g., for import of goods or services), the interest cannot exceed the trade credit ceiling prescribed by RBI. For instance, if the ceiling is Benchmark Rate + 250 basis points, an importer raising USD 5 million cannot agree to a higher rate. Further, if the lender is a related party (such as a foreign parent lending to its Indian subsidiary), the interest rate must comply with the arm’s-length principle, i.e., it should be comparable to rates agreed between unrelated parties in similar circumstances. |
| Parking of ECB Proceeds | Unutilised portion of ECB proceeds can be parked abroad for foreign currency expenditure and invested in rated instruments. Domestically, for rupee expenditure, it can be invested in fixed deposits up to12 months, with temporary relaxations during exceptional periods. | Under the revised framework, drawdown of ECB is permitted only after obtaining the Loan Registration Number (LRN), and the funds must be credited to the designated INR or FCY account within the prescribed timeframe. Unutilised proceeds may be temporarily invested in unencumbered deposits or debt instruments for up to one year. |
| Reporting and Compliance | Borrowers were required to obtain an LRN through Form ECB and submit monthly ECB-2 returns, | The revised framework prescribes structured reporting through:
Form ECB 1 for LRN
This is significant, as reporting is now an event-based requirement rather than monthly. It is also worth noting that, while all other provisions of the Amended Regulations will apply prospectively, the new reporting timelines will also apply to existing ECBs. |
Conclusion:
The 2026 ECB framework reflects a mature regulatory stance, entrusting treasury management to the borrowers and lenders while maintaining oversight through tighter reporting. For Indian corporates, this means improved competitiveness and seamless integration with global capital markets.
Overall, the Amended Regulations indicate a clear shift towards a liberalised and market-driven ECB framework. Indian borrowers accessing overseas debt now have enhanced operational flexibility, while lenders benefit from a streamlined regulatory structure. The manner in which market participants leverage these relaxations, and how the RBI addresses any potential regulatory ambiguities or implementation issues, will become evident over time.
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