External Commercial Borrowing Framework amended - Key takeaways

The Reserve Bank of India (‘RBI’) has issued the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (‘Amended Regulations’), effecting significant amendments to the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (‘Principal Regulations’), including modifications to eligibility criteria, end‑use restrictions, minimum maturity period, borrowing limits, cost of borrowing, and several other aspects.

Consolidation of regulations: ECB provisions were earlier dispersed across the Principal Regulations and the Master Direction on ECB and Trade Credits. The Amended Regulations consolidate these into a comprehensive, self‑contained framework for ECB and ECL in the Regulations. Pursuant to this consolidation, the RBI vide Circular dated 16 February 2026 has deleted ECB related provisions from the Master Direction.

Effective date: ECBs with LRNs obtained from 16 February 2026 will be governed by the Amended Regulations. 

ECBs with LRNs obtained before 16 February 2026 will continue to be governed by the unamended framework. However, reporting obligations going forward will be as per the Amended Regulations.

Notable changes in the Amended Regulations

1. Eligible Borrowers

Earlier: A borrower’s eligibility to raise ECB depended on its eligibility to receive Foreign Direct Investment (‘FDI’).

Now:The above condition now stands removed. Any person resident in India (other than an individual) incorporated, established or registered under a Central or State Act, is an eligible borrower provided it is permitted to avail ECB in terms of the applicable Act(s).

Impact: The definition of eligible borrowers has now been expanded to include LLPs, registered societies, cooperatives, non-government organisations, registered partnership firms, etc, subject to such entity being eligible to raise ECB under the respective governing statute. However, there is still uncertainty regarding the eligibility of trust structures to avail ECB as the recommendation to consider trusts as eligible borrowers has not been accepted by the RBI.

2. Recognized Lender

Under the Amended Regulations, a recognised lender includes any person resident outside India (including individuals), foreign branches of RBI‑regulated entities, and financial institutions or their branches in an IFSC. The requirement that lenders be residents of FATF or IOSCO-compliant countries has been removed. Further, a significant relaxation has been provided for individual lenders as it is no longer required for individuals to be shareholders of the borrowing company. 

3. Restricted End-Uses:

While the Amended Regulations retain restrictions on the utilization of borrowed funds for chit funds, Nidhi companies, real estate business, etc, there have been certain relaxations in the end uses:
 

1. Activities excluded from real estate business: The exclusions from the definition of ‘real estate business’ have been widened and now expressly exclude construction development projects and commercial or residential projects for the own use of the borrower.
    
2. Agricultural and plantation activities: The prohibitions relating to the utilization of ECB proceeds for agricultural and plantation activities have been relaxed and now the ECB proceeds can be utilized for the purposes for which 100% FDI is allowed.
    
3. Merger/amalgamation, demerger or acquisition: The ECB proceeds can now be utilized for corporate actions such as merger, demerger, amalgamation, arrangement or acquisition of control in an unlisted or listed entity in accordance with the Act under which the entity is incorporated/established, Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011  and Insolvency and Bankruptcy Code, 2016, as applicable. 
    
4. On-lending: The borrower can use the ECB proceeds for on-lending for non-prohibited purposes.
    
5. Repayment of rupee loan: The borrower can use the ECB proceeds for repayment of a domestic rupee loan, except rupee loan availed for restricted end-use or which is classified as NPA.
    

4. Borrowing Limits

Earlier: The borrowing limit for ECB was capped at USD 750 million (or equivalent) per financial year for all eligible borrowers. Further, start-ups had a separate limit of USD 3 million or equivalent per financial year. 

Now: Borrowing limit has been increased 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 standalone balance sheet of the borrower. Any non-fund based credit or funds raised through issuance of securities which are mandatorily convertible to equity are not to be included for the purposes of calculating the outstanding borrowing.

Further, the eligible borrowers regulated by financial sector regulators may borrow as per the guidelines of the respective regulatory authorities.

5. Currency of Borrowing

Earlier: ECB could be denominated in any freely convertible currency or in INR. Further, conversion of ECB from one freely convertible foreign currency to any other freely convertible currency as well as to INR was freely permitted. However, conversion of INR-denominated ECB to any freely convertible currency was not allowed.

Now: In addition to the above permissible conversions, an INR-denominated ECB can also be converted into foreign currency. All such conversions must be subject to the exchange rate prevailing on the date of the ECB agreement or an exchange rate which does not result in a higher liability. 

6. Minimum Average Maturity Period (‘MAMP’)

Earlier: Generally, a three (3) year MAMP was prescribed, with specific end‑uses requiring maturities ranging from one (1) to ten (10) years.

Now: MAMP is now standardized at three (3) years for all ECBs. Eligible manufacturing-sector borrowers may raise ECBs with a one (1) to three (3) year MAMP, subject to the outstanding amount of such ECB not exceeding USD 150 million.

Additionally, the MAMP does not need to be satisfied in the following circumstances: 

1. Conversion of ECB (including FCCB and FCEB) into non-debt instruments. 
    
2. Repayment of ECB using the proceeds from issuance of non-debt instruments on repatriation basis, provided the proceeds are received after the drawdown of the ECB.
    
3. Refinancing of ECB.
    
4. Waiver of debt by the lender.
    
5. Repayment of ECB, if required, for undertaking corporate actions such as closure, merger, demerger, arrangement, acquisition of control, amalgamation, resolution or liquidation by the lender or the borrower. 
    

While certain exemptions, such as conversion of ECB into non-debt instruments, were present in the unamended Principal Regulations, the Amended Regulations have carved out new exceptions such as waiver of debt by lender and early repayment triggered by corporate actions.

7. Cost of Borrowing:

The Amended Regulations replace the term ‘all-in-cost’ with the term ‘cost of borrowing’ defined as ‘rate of interest, other fees, expenses, charges, guarantee fees and export credit agency charges, whether paid in FCY or INR, but shall not include commitment fees and statutory taxes payable in India’

The Amended Regulations have removed the cap on ‘all-in-cost’. The removal of the ‘all‑in‑cost’ cap aligns the ECB framework with market realities, allowing borrowers and lenders to negotiate pricing more freely. However, the ECB raised from a related‑party must meet arm’s‑length standards.

8. Refinancing

Earlier, refinancing of the original ECB could be undertaken with a fresh ECB only if the ‘all-in-cost’ of the fresh ECB is less than the ‘all-in-cost’ of the original ECB and the outstanding maturity of the original ECB is not reduced.

The Amended Regulations remove the requirement for the fresh ECB to have a lower cost. Borrowers may refinance on commercially beneficial terms, so long as the original ECB’s MAMP is maintained.

9. Reporting requirements

Under the Amended Regulations, eligible borrowers are required to submit the following in view of the reporting requirements:
 

1. Form ECB 1 for providing the details of the ECB and obtaining LRN. 
    
2. Revised Form ECB 1 for any change in ECB parameters reported in ECB 1, within seven calendar days from the end of the month in which such change occurred. This may also be submitted to intimate any changes in any other information previously reported in Form ECB 1
    
3. Form ECB 2 for reporting receipt of ECB proceeds and debt servicing within seven calendar days from the end of the relevant month in which proceeds were received or debt servicing was undertaken. 
    

Therefore, unlike the requirement for monthly reporting as per the unamended Principal Regulations, borrowers now need to file Form ECB 2 only when a drawdown or repayment actually occurs. This change reduces the administrative burden on borrowers who do not have constant ECB activity. 

LKS Comments:

The RBI vide the Amended Regulations has significantly liberalised the ECB framework by expanding the scope of eligible borrowers, relaxing the end-use restrictions, removing cap on cost of borrowing, uniformity in MAMP, and rationalising the compliance procedures. 

These changes provide Indian entities with far greater flexibility in accessing and structuring international debt. The revised framework aligns more closely with global market practices and enhances the ability of Indian businesses to pursue diverse funding needs through offshore borrowing.