I. INTRODUCTION
On February 16, 2026, the Reserve Bank of India (“RBI”) introduced reforms to India’s external commercial borrowing (“ECB”) framework by notifying the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (“Amendment”). The Amendment revises the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (“Principal Regulations”) and introduces changes to the regulatory landscape governing ECBs.
The Amendment read with the Principal Regulations now constitute the governing legal framework for ECBs with effect from February 16, 2026. All earlier co-existing RBI master directions and FAQs applicable to ECBs are now withdrawn.
The revised framework alters eligibility criteria for borrowers and lenders, minimum maturity norms, pricing restrictions, borrowing limits, permissible end-uses, and reporting requirements.
This article examines the key changes introduced under the revised regime.
II. CHANGES INTRODUCED BY THE AMENDMENT
1. Eligible Borrower
Under the Amendment, any person resident in India (other than an individual) incorporated under a Central or State Act is eligible to raise ECBs, subject to such borrowing being authorised under the relevant governing legislation. Notably, limited liability partnerships can now avail ECBs. Entities undergoing restructuring or insolvency proceedings may raise ECBs only if their approved plan allows it. Additionally, borrowers facing investigation, adjudication, or appeal under the Foreign Exchange Management Act, 1999 may still access ECBs, but must disclose details of such proceedings in Form ECB-1. The Amendment has broadened the pool of eligible borrowers as earlier only entities eligible to receive foreign direct investment (FDI) could raise ECBs.
2. Recognized Lenders
Under the revised framework, a recognized lender may be any person resident outside India. This marks a notable departure from the earlier regime, under which individuals residing outside India could qualify as “recognized lenders” only if they were foreign equity holders of the borrowing company and satisfied the prescribed equity holding criteria. The condition that the recognized lenders must be residents in FAFT (Financial Action Task Force) or IOSCO (International Organization of Securities Commissions) compliant jurisdictions under the erstwhile regime is also removed. Further, the Amendment expressly permits overseas branches of Indian banks to extend ECBs in both Indian Rupees and foreign currency.
3. End-Use Restrictions
The Amendment introduces an important relaxation in relation to the permitted use of ECB proceeds. Under the earlier regime, ECBs could not be used for equity investments. The Amendment now allows ECB funds to be utilized for transactions in listed or unlisted securities where the transaction results in the acquisition of control of a target company. This represents a significant policy shift, particularly in the context of strategic investments and acquisitions. The Amendment also provides specific relaxations for certain real estate development projects and industrial parks that satisfy prescribed conditions. ECB proceeds may now be used in connection with such projects, including for the acquisition, sale, or leasing of land forming part of the development.
The Amendment continues to prescribe a list of activities for which ECB proceeds cannot be utilized. These restrictions apply, among others to: (i) real estate business and construction of farmhouses (subject to certain exemptions); (ii) repayment of a domestic rupee loan that was originally availed for an usage restricted under the Principal Regulations, or that is classified as a non performing asset; and (iii) on-lending for any purpose for which funds cannot be borrowed or utilized under the Principal Regulations.
4. Minimum Average Maturity Period (“MAMP”)
Prior to the Amendment, specific categories, such as ECB raised for working capital purposes or general corporate purposes and ECB raised for repayment of rupee loans availed domestically for capital expenditure, were subject to a longer MAMP. The Amendment has introduced a uniform 3 (three) year MAMP for all eligible borrowers. The Amendment relaxed the MAMP for borrowers in the manufacturing sector who may raise ECBs with a maturity period between 1 (one) and 3 (three) years, provided that the outstanding amount of such ECBs does not exceed USD 150 million (United States Dollars One Hundred and Fifty Million).
Additionally, the Amendment clarifies that compliance with the MAMP will not be required in cases of (i) conversion of ECB into non-debt instruments, (ii) repayment of ECB out of proceeds of non-debt instruments issued on a repatriation basis (where such proceeds are received after drawdown), (iii) refinancing of ECB in accordance with the Principal Regulations, (iv) waiver of the ECB by the lender, and (v) repayment of ECB in connection with mergers and acquisitions, corporate restructuring, or insolvency proceedings involving the borrower.
5. Borrowing Limit
The Amendment has enhanced the borrowing limits from USD 750 million (United States Dollars Seven Hundred and Fifty Million) to the higher of (i) USD 1 billion (United States Dollars One Billion) in outstanding ECB, or (ii) total outstanding borrowing (external and domestic) up to 300% (three hundred percent) of net worth as per the latest audited standalone balance sheet of the borrower. Non-fund based credit and amounts raised through instruments that are mandatorily convertible to equity are to be excluded for the purpose of calculating the outstanding borrowing. The proposed ECB must be included when assessing compliance with the borrowing limit. The prescribed borrowing caps do not apply to entities regulated by financial sector regulators.
6. Cost of borrowings
The Amendment removed the earlier caps on all-in-cost and on prepayment charges or penalties that could be incurred for borrowing through ECB. The cost of borrowing along with prepayment charges / penal interest, if any, must be in line with prevailing market conditions. However, ECBs with an MAMP of less than 3 (three) years continue to be subject to cost ceilings aligned with those applicable to trade credits.
7. Reporting Requirements
The Amendment has simplified reporting requirements for ECBs. The eligible borrowers are required to file (i) ‘Form ECB-1’ for obtaining a loan registration number, (ii) ‘Revised Form ECB-1’ for reporting changes in loan parameters within 7 (seven) days from the end of the relevant month, and (iii) ‘Form ECB-2’ for reporting drawdowns and debt servicing within the same timeline. The revised reporting timelines apply to both new and existing ECBs.
8. Some other changes
- In addition, the Amendment introduces greater flexibility by allowing conversion of ECBs from foreign currency to rupee denomination and vice versa. Under the earlier regime, conversion from rupee denominated ECBs into foreign currency ECBs was not permitted.
- No NoC from authorised dealer bank is required for creation of security for ECB, changes in the terms of an ECB and transfer of ECBs by lenders.
- ECB includes foreign currency convertible bond, foreign currency exchangeable bond and funds received from a non-resident against issuance of non-convertible and optionally convertible preference shares and debentures. The Amendment also expressly clarifies that investments made by Foreign Venture Capital Investors (FVCIs) through debt instruments fall outside the scope of the ECB framework, thereby providing clarity on the regulatory treatment of such investments.
- Pursuant to the revised ECB framework permitting acquisition financing as an eligible end use, foreign-owned and controlled companies may now deploy ECB proceeds for downstream investments in Indian entities, subject to compliance with the applicable laws.
- An ECB may be converted into a non-debt instrument and not only into equity, subject to compliance with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and subject to certain additional terms and conditions prescribed in the ECB framework including the requirements for lender consent, prohibition on incurring additional cost for conversion, and determination of the ECB liability eligible for conversion basis the exchange rate.
III. CONCLUSION
The Amendment reflects a clear move toward a more liberal and market-oriented ECB framework. By expanding eligibility, easing end-use restrictions, and simplifying borrowing conditions, the RBI has made ECBs a more practical financing option for Indian entities. These changes may allow Indian corporates to access offshore debt for refinancing and general funding needs, while also easing pressure on domestic credit markets and supporting the resolution of stressed assets. Collectively, these measures mark a decisive shift toward liberalisation, enhancing flexibility for Indian borrowers while broadening access for overseas lenders within a regulated structure.
Authors: Anusha Dash, Nargees Basheer
