The Reserve Bank of India has notified the “Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026” vide Notification No. FEMA 3(R)(5)/2026-RB dated 9th February 2026 effective immediately upon publication in the Official Gazette.
The Reserve Bank of India hereby makes the following amendments to the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Notification No. FEMA 3(R)/2018-RB dated December 17, 2018) (hereinafter referred to as the ‘Principal Regulations’).
Here are the key changes that every CFO, treasury professional and FEMA practitioner needs to know:
1. Who Can Now Borrow? — Wider Borrower Universe
The eligibility criteria have been meaningfully broadened. Any resident entity (other than an individual) that is incorporated, established, or registered under a Central or State Act is now an eligible borrower provided ECB is permissible under the laws governing that entity. Notably, Limited Liability Partnerships (LLPs) are now expressly within the fold. The earlier FDI linkage as a pre-condition has been done away with.
2. How Much Can Be Raised? — Revised Borrowing Limits
The erstwhile USD 750 million annual cap has been replaced with a far more accommodative ceiling. Eligible borrowers can now raise ECB up to the higher of:
- Outstanding ECB of USD 1 Billion, or
- Total outstanding borrowings (both external and domestic) up to 300% of net worth as per the last audited standalone balance sheet
This effectively gives well-capitalised entities significantly greater leverage headroom. Note that this ceiling does not apply to entities regulated by financial sector regulators such as RBI, SEBI, IRDAI or PFRDA.
3. What Does It Cost? — Market Driven Pricing
The all-in-cost ceiling that was pegged to a benchmark spread is gone. Borrowing costs must now be in line with prevailing market conditions on an arm’s length basis for related-party ECBs. For ECBs with an average maturity of less than three years, the cost must remain within the Trade Credit cost ceiling prescribed under these regulations.
4. Tenor Norms — Sector Specific Relaxations
The standard Minimum Average Maturity Period (MAMP) remains 3 years. However, entities in the manufacturing sector can now raise ECBs with MAMP between 1 and 3 years, subject to an aggregate outstanding cap of USD 150 million under such shorter-tenor borrowings.
5. What Can the Funds Be Used For? — A Defined Negative List
In a significant structural shift, the broad capital markets restriction has been replaced with a precisely enumerated negative list. Funds cannot be deployed for:
- Chit funds or Nidhi companies
- Real estate business or farmhouse construction (with specified exceptions for industrial parks, construction-development projects, infrastructure activities, and own-use properties)
- Agricultural and animal husbandry (exceptions exist for controlled-condition cultivation, seed development, aquaculture, and allied services)
- Plantations other than tea, coffee, rubber, cardamom, palm oil, and olive oil
- Trading in Transferable Development Rights (TDRs)
- Transactions in listed or unlisted securities except for strategic corporate actions (mergers, demergers, amalgamations, IBC resolution) by Indian entities
- Repayment of domestic INR loans that were taken for restricted end-uses, or those already classified as Non-Performing Assets (NPAs)
- On-lending for any of the above restricted purposes
The securities exception is particularly noteworthy borrowing for M&A and IBC linked restructurings now has an express, codified pathway, but the purpose must be strategic (long term value creation), not speculative.
6. Reporting — Event Based, Not Monthly
Form ECB has been renamed Form ECB 1. The monthly Form ECB 2 filing obligation has been rationalised; it is now event based reportable only in the month in which a drawdown or debt servicing actually occurs under the LRN. Changes to previously reported parameters must be filed via a Revised Form ECB 1 within 7 calendar days from the end of the month in which the change took effect.
Non-compliance with reporting timelines attracts a Late Submission Fee (LSF) regime that continues unchanged.
7. Transitional Treatment
ECBs for which a Loan Registration Number (LRN) was obtained before these regulations came into force will continue to be governed by the earlier framework except for reporting which shall be undertaken as per the amended regulations.
8. Other Noteworthy Provisions
- ECB proceeds received for INR-denominated expenditure must be credited to an INR account in India by the end of the succeeding month from receipt; pending deployment, funds can be parked in unencumbered fixed deposits for up to one year.
- An express pathway for conversion of ECB into non-debt instruments (equity) has been codified, subject to FEMA NDI Rules, 2019 compliance.
- Entities regulated by RBI are prohibited from issuing any form of guarantee in relation to ECBs.
- Borrowers under investigation or adjudication proceedings can still raise ECB, subject to disclosure in Form ECB 1.
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Disclaimer-
The above is a summary for informational purposes only and does not constitute legal or regulatory advice. Readers are advised to refer to the official gazette notification and consult their FEMA counsel for transaction-specific guidance.
Thank You,
CA. Harshita Dhariwal
Email- harshita.dhariwal@jainshrimal.in
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