The Reserve Bank of India has finalized comprehensive amendments to the External Commercial Borrowing framework through the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026. These amendments incorporate several industry suggestions while maintaining strict safeguards on end-uses, compliance requirements, and enforcement mechanisms. The changes apply prospectively, meaning External Commercial Borrowings with Loan Registration Numbers obtained before the regulations take effect continue under prior rules, except for reporting which follows the new timelines.
Background
Indian companies raised 18.49 billion dollars in External Commercial Borrowings during the first half of FY26, marking a decline from 25.42 billion dollars in the comparable period of the previous year according to RBI data. This slowdown stemmed partly from the rupee weakening by over 6 percent against the dollar due to strong US currency demand, foreign portfolio outflows, and US tariffs on Indian goods. Steep hedging rates amid rupee depreciation posed the biggest challenge for overseas borrowing in 2025. Domestic rates eased only since February 2025 following the RBI’s cumulative 125 basis points cut in the repo rate. Notable borrowings included Tata Capital’s 400 million dollars in January 2025, Mumbai International Airport Ltd’s 750 million dollars in June 2025, and Sammaan Capital’s 300 million dollars in August 2025. The amendments address these headwinds by scrapping cost caps, raising borrowing limits, and clarifying uses for land and immovable property purchases with specified restrictions and exceptions. These measures enable corporates to access cheaper and more flexible overseas funding, supporting strategic needs in infrastructure and manufacturing while enhancing competitiveness against domestic rate dynamics and global volatility.
Key Highlights of the revised ECB Framework
1. Eligible borrowers under the revised Schedule I include any person resident in India except an individual, provided the entity is incorporated, established, or registered under a Central or State Act and permitted to raise External Commercial Borrowings under applicable laws. An eligible borrower under a restructuring scheme or corporate insolvency resolution process may raise External Commercial Borrowings only if the restructuring or resolution plan specifically permits it. An eligible borrower facing any investigation, adjudication, or appeal by a law enforcement agency for contravention of rules, regulations, or directions under the Foreign Exchange Management Act may still raise External Commercial Borrowings, but must disclose details in Form ECB 1 or Revised Form ECB 1 for existing External Commercial Borrowings. Recognized lenders comprise a person resident outside India, a branch outside India of an entity whose lending business is regulated by the Reserve Bank, or a financial institution or its branch set up in an International Financial Services Centre.
2. Eligible borrowers may raise External Commercial Borrowings denominated in foreign currency or Indian Rupees. Currency of the External Commercial Borrowing may change from one foreign currency to another foreign currency, foreign currency to Indian Rupees, or Indian Rupees to foreign currency at the exchange rate prevailing on the date of the agreement for change or at an exchange rate which does not result in higher liability than using the prevailing rate. External Commercial Borrowings take the form of any commercial borrowing arrangement involving agreed interest payment by whatever name and principal repayment. This includes issuance of Foreign Currency Convertible Bonds and Foreign Currency Exchangeable Bonds. Funds received from non-residents on or after April 30 2007 against issuance of preference shares or debentures not fully and mandatorily convertible to equity shares qualify as External Commercial Borrowings. The following do not count as External Commercial Borrowings: trade credit with original maturity up to three years, export advances under relevant regulations, investments under Foreign Exchange Management Debt Instruments Regulations 2019, investments through convertible notes under Foreign Exchange Management Non-Debt Instrument Rules 2019, and Foreign Venture Capital Investor debt under those rules.
3. Borrowing limits allow eligible borrowers to raise External Commercial Borrowings up to the higher of outstanding External Commercial Borrowings up to 1 billion dollars or total outstanding borrowing external and domestic up to 300 percent of net worth per the last audited standalone balance sheet. Outstanding borrowing excludes non-fund based credit and funds from securities mandatorily convertible to equity. Proposed External Commercial Borrowings except for refinancing count toward compliance checks. Financial sector regulator-supervised borrowers face no such limit. Eligible borrowers must raise External Commercial Borrowings with a minimum average maturity period of three years, computed as illustrated in Annex I. Borrowers in the manufacturing sector may raise External Commercial Borrowings with average maturity between one year and three years if the outstanding amount does not exceed 150 million dollars. Call and put options cannot exercise before completing the minimum average maturity period. This period requirement does not apply to conversion of External Commercial Borrowings including Foreign Currency Convertible Bonds and Foreign Currency Exchangeable Bonds to non-debt instruments, repayment using non-debt instrument proceeds received post-drawdown on repatriation basis, refinancing, lender debt waiver, or repayment for corporate actions like closure, merger, demerger, arrangement, acquisition of control, amalgamation, resolution, or liquidation. Cost of borrowing must align with prevailing market conditions. For External Commercial Borrowings with average maturity under three years, costs comply with trade credit ceilings; fixed rate loans use floating rate plus spread of corresponding swap not exceeding the ceiling. Prepayment charges or penal interest for default or covenant breach must align with market conditions. External Commercial Borrowings from related parties must occur on an arms length basis, meaning transactions as if parties were unrelated without conflict of interest.
4. Eligible borrowers draw down External Commercial Borrowing proceeds only after obtaining Loan Registration Number from the Reserve Bank through the designated Authorised Dealer Category-I bank. Proceeds for permitted Indian Rupee expenditure in India credit to an Indian Rupee account with the designated Authorised Dealer Category-I bank by the end of the succeeding month from receipt; pending use, funds may park in unencumbered fixed deposit up to one year tenor with that bank. Proceeds for permitted foreign currency expenditure may credit to a foreign currency account in India with the designated Authorised Dealer Category-I bank or a foreign currency account outside India under Foreign Exchange Management Foreign Currency Accounts by a Person Resident in India Regulations 2015; pending use, funds may invest outside India in unencumbered fixed deposit up to one year or unencumbered debt instrument with original maturity up to one year.
5. External Commercial Borrowings may secure by creating charge on immovable assets, movable assets, financial assets, intangible assets including intellectual property rights in favour of the non-resident lender or security trustee, or issuing guarantee in favour of the lender or security trustee under Foreign Exchange Management Guarantees Regulations 2026. Securing requires the borrowing agreement to contain a clause mandating such security, no objection certificate from existing Indian lenders for encumbered assets, and charge creation does not permit the overseas lender or security trustee to acquire the asset in India. Entities regulated by the Reserve Bank cannot issue any guarantee. On enforcement or invocation of security, the lender claim restricts to outstanding External Commercial Borrowing amount; asset or property transfer complies with the Act, rules, regulations, or directions thereunder; encumbered movable assets may export subject to no objection certificate from Indian lenders if any; if direct acquisition by lender is impermissible, sale proceeds from transfer to Indian resident may remit to lender to extinguish the claim.
6. Eligible borrowers may refinance existing External Commercial Borrowing in part or full by fresh External Commercial Borrowing, provided it does not cause failure to meet the original minimum average maturity period requirement or weighted outstanding maturity for multiple borrowings. An External Commercial Borrowing including matured but unpaid may convert to a non-debt instrument subject to Foreign Exchange Management Non-Debt Instruments Rules 2019. Conversion requires no additional costs to the lender, lender consent, and consent from or information exchange with other lenders if any. Prudential regulations including restructuring apply if the borrower has credit from Reserve Bank-regulated entities including foreign branches or subsidiaries. Conversion liability determines at the exchange rate on the agreement date or a rate not resulting in higher liability. Changes to parameters, terms, and conditions need lender consent and Schedule compliance; tenor extensions trigger prudential restructuring if Reserve Bank-regulated credit exists; designated Authorised Dealer Category-I bank changes require no objection certificate from the existing bank. Principal, interest, and other charges for compliant External Commercial Borrowings may remit; repayments for External Commercial Borrowings from NRO accounts credit only to NRO accounts.
7. New Regulation 3A restricts end-use of borrowed funds prohibiting utilization for chit funds; Nidhi companies; real estate business and construction of farmhouses; for construction-development projects, borrowers sell plots only after developing trunk infrastructure including roads, water supply, street lighting, drainage, and sewerage; for industrial parks, parks comprise minimum 10 units with no single unit over 50 percent of allocable area and minimum 66 percent area for industrial activity; allocable area excludes common facilities for plots, includes floor area for built-up space, or net site and floor area for combinations. Restrictions also cover agricultural and animal husbandry except floriculture, horticulture, vegetable and mushroom cultivation under controlled conditions via greenhouses or similar, seed and planting material development and production, animal husbandry including dog breeding, pisciculture, aquaculture, apiculture, and agro allied services. Plantation activity excludes tea, coffee, rubber, cardamom, palm oil tree, and olive oil tree plantations. Trading in transferable development rights stands prohibited. Transactions in listed or unlisted securities prohibit except for Indian entity corporate actions like merger, demerger, amalgamation, arrangement, or acquisition of control under the incorporating Act, SEBI 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; such borrowings pursue strategic long-term value via synergies not short-term Repayment of domestic Indian Rupee loans prohibits if the loan was for restricted end-use or classified as non-performing asset per prudential norms. On-lending prohibits for any purpose funds cannot borrow or utilize under the regulation.
8. Reporting requires eligible borrowers to submit Form ECB 1 through designated Authorised Dealer Category-I bank for External Commercial Borrowing details and Loan Registration Number. Revised Form ECB 1 reports changes in parameters within seven calendar days from month-end of effect or other prior information changes. Form ECB 2 reports proceeds receipt and debt servicing within seven calendar days from month-end of event; any transaction altering outstanding under Loan Registration Number reports in Form ECB 2. Non-adherence to timelines incurs late submission fee per RBI guidelines after completing reporting. Designated Authorised Dealer Category-I bank submits borrower applications with certification to Reserve Bank. Pending investigations reported in forms prompt the bank to share full borrowing details with concerned agencies. Banks may seek Reserve Bank cancellation of allotted Loan Registration Number pre-drawdown at borrower request. Borrowers with active Loan Registration Number become untraceable if failing specified returns for four consecutive quarters post-scheduled drawdown or servicing per last Form ECB 1, and bank confirms after documentation that borrower, auditors, directors, or promoters remain unreachable and non-operative at registered address. Untraceable post-drawdown status requires notification to Reserve Bank and Directorate of Enforcement.
9. Amendment to Regulation 6B further allows resident individuals to borrow in Indian Rupees from Non-Resident Indians or Overseas Citizen of India cardholder relatives for India utilization, received via inward remittance or debit to their NRE, NRO, FCNRB, or SNRR accounts, with interest and principal repayments only to NRO account on non-repatriation basis.
Conclusion
The RBI’s revised ECB framework, finalized following its October 2025 monetary policy overhaul, liberalizes access to foreign and rupee-denominated loans from non-resident lenders while retaining key restrictions to prevent misuse. Notable relaxations include removing the current account requirement for designated Authorised Dealer (AD) Category-I banks, explicitly permitting ECB funds for acquisition of control, and allowing RBI-regulated entities to on-lend to individuals (subject to end-use limits, excluding real estate). Operational clarifications cover convertible instruments, non-fund-based credit in outstanding calculations, minimum average maturity period (MAMP) computation, and procedures for untraceable borrowers; however, arms-length principles remain mandatory, and foreign venture capital investments in certain debt securities are excluded from ECB classification.
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