External Commercial Borrowings (ECBs) are loans taken by Indian companies from foreign lenders. They are an important source of funding, especially when companies want cheaper or larger financing than what is available in India. Earlier, the ECB framework in India was quite strict. It had many rules on interest rates, usage of funds, maturity, and limits. While these rules ensured control, they also made borrowing complicated and less flexible.
In February 2026, the Reserve Bank of India (RBI) introduced important changes to the ECB regulations. These changes aim to make the system simpler, more flexible, and more aligned with global practices. The new framework focuses more on market conditions and less on rigid rules. As a result, companies now have greater freedom in raising and using foreign funds.
Key Benefits of New ECB Regulations (2026):
| Sr. No. | Changed Introduced | Key Benefits |
| 1. | Change in currency of ECB | The ECB, once availed in any currency, may be changed to any other currency at a later stage.
For example: The ECB is availed in INR. However, if the borrower wants to make repayment of the principal amount or interest in USD, he may do so by making a simple application to the AD Bank with the consent of the lender. This facility of conversion of an INR ECB into FCY ECB was not permitted under old ECB Regulations. |
| 2. | Borrowing Limit | An eligible borrower may raise ECB up to USD 1 billion or 300% of its net worth whichever is higher (includes all existing ECBs and outstanding domestic borrowings).
For the calculation of this limit, the outstanding borrowings does not include non-fund-based facilities. |
| 3. | Average Maturity of ECB | The Minimum Average Maturity Period (MAMP) is now fixed at 3 years for all ECBs. Earlier, it depended on the purpose of the loan.
For Example: Under the old rules, ECB taken for working capital had a minimum maturity of 5 years, even for manufacturing companies. Now, it is reduced to 3 years. Also, manufacturing companies can now take ECB for 1 year (up to USD 150 million) for any purpose. Earlier, they could borrow only up to USD 50 million. |
| 4. | ECB from a Foreign Equity Holder | The concept of “Foreign Equity Holder” as defined under the old ECB regulations has been removed in the new framework. Earlier, specific conditions such as minimum 25% direct or 51% indirect holding were required to classify a lender as a foreign equity holder. Under the new regulations, ECB can be raised from any person resident outside India, without linking it to such shareholding thresholds.
For Example: An ECB can now be taken from a foreign shareholder even if they hold only 1% shares in the company. Earlier, the shareholder was required to hold at least 25% direct or 51% indirect shareholding. This restriction has now been removed. Now the ECB can be availed from any person/entity resident outside India without having any shareholding in the Borrower Company. |
| 5. | Interest Rate on ECB | No maximum limit is prescribed for the rate of interest on ECBs with a maturity of more than 3 years. The interest rate should be in line with prevailing market conditions.
For ECBs with an average maturity period of less than 3 years, the interest rate is capped at 6-month ARR plus 2.5%. |
| 6. | Debt-Equity Ratio | The requirement of maintaining the ECB liability–equity ratio has also been done away with. Earlier, a specific ratio (such as 7:1) was required to be maintained when borrowing from foreign equity holders, which involved detailed calculations and compliance. |
| 7. | Simplified Forms | The application for ECB is now required to be made in ‘Form ECB-1’, which is a simplified Excel-based form compared to the earlier ‘Form ECB’.
Further, unlike the old regulations, there is no requirement to get the form certified by a Practicing Chartered Accountant or Company Secretary. The form itself has also been simplified. As a result, the ECB application process has become easier, and if all documents are in order, the Loan Registration Number (LRN) is generally issued by the RBI within 2–3 days from the date of application. |
| 8. | Recognized Lenders | Under the old ECB regulations, borrowing was allowed only from lenders located in FATF/IOSCO compliant countries Under the new regulations, ECB can be raised from any person resident outside India.
For Example: ECB can be availed from the entities located in Iran or North Korea which are the FATF Blacklisted Entities. |
The new ECB regulations introduced in 2026 have made the borrowing framework much simpler and more practical for Indian companies. Earlier, the rules were strict and involved multiple conditions, which made the process complicated. Now, with fewer restrictions, clearer rules, and simplified procedures, companies can raise foreign funds more easily.
Key changes such as flexibility in currency, higher borrowing limits, simpler maturity rules, market-based interest rates, and easier documentation have significantly improved the ease of doing business. These changes also help companies manage costs better and plan their funding more efficiently.
Overall, the new ECB framework is more flexible, transparent, and aligned with global practices. It makes ECB a more attractive and convenient option for Indian companies looking to access international funding.
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