Towards A New Era: RBI's Transformative Amendments To India's External Commercial Borrowings Landscape

Article Insights

Manisha Shroff’s articles from Khaitan & Co LLP are most popular:

in European Union

Khaitan & Co LLP are most popular:

within Family and Matrimonial, International Law and Strategy topic(s)
with readers working within the Law Firm industries

Background

On the heels of the review initiated by the Reserve Bank of India (RBI) of the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Erstwhile Regulations) in October 2025 (which was analysed by us in an earlier ERGO) and after taking into account the feedback received from industry participants and other stakeholders, the RBI has now notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Revised Regulations) (published in the official gazette on 16 February 2026) aiming to significantly simplify the existing external commercial borrowings (ECB) framework to align it with some of the other advanced economies in the world and to meet the funding requirements of the Indian corporates. This marks a significant step towards modernizing and liberalising the existing ECB regime. The timing of the Revised Regulations is critical as it coincides with the introduction of RBI's acquisition financing framework for Indian banks, indicating an overall shift in RBI's approach in regulating debt transactions in India.

We have analysed below the manner in which the Revised Regulations reshape key aspects of the erstwhile ECB framework and set out a few practical considerations for borrowers and lenders. For a detailed comparison of the Erstwhile Regulations and the Revised Regulations, please refer to the Annexure below.

1. Prospective application

The amendments have prospective application only and existing ECBs will continue to be governed by the old regime. However, reporting for both existing and fresh ECBs will be in accordance with the new timelines under the Revised Regulations.

2. Broader pool of eligible borrowers

Eligible borrowers now include any person resident in India that is incorporated under a Central or State Act (other than individuals) and entities under a restructuring scheme or corporate insolvency resolution process (CIRP) where the plan permits borrowing. The explicit linkage to foreign direct investment eligibility has been removed.
The suggestions made by various stakeholders to specifically include trusts including real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) as eligible borrowers has not been spelt out and left to interpretation.

3. Expansion of recognised lenders universe

Recognised lenders now include all persons resident outside India (including individuals and NRIs), overseas branches / subsidiaries of entities whose lending business is regulated by RBI and financial institutions or their branches in International Financial Services Centre (IFSC).
Specific FATF / IOSCO jurisdictional conditions and special tests for foreign equity holders have been removed.
Borrowing from related parties on an arm's‑length basis has also been permitted.

4. Expanded list of permitted end-uses now include

Acquisition Financing: Acquisitions of listed or unlisted companies where control is acquired as well as distressed acquisitions under Insolvency and Bankruptcy Code, 2016 (IBC) and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) are permitted. Minority acquisitions without controlling stake remain outside scope.
Schemes and Reorganisations: Financing of mergers, demergers, amalgamations and schemes of arrangement is permitted.
Real Estate Business: 'Real estate business' has been defined with several exclusions which were earlier restricted now being permitted, albeit subject to conditions, for e.g., construction‑development projects, industrial parks, special economic zones, integrated townships, infrastructure, own‑use commercial / residential property and real‑estate broking services are permitted.
Agriculture and Plantation: The earlier blanket prohibition is replaced with specific permitted categories (e.g., controlled‑condition cultivation) and limited plantation activities (tea / coffee / rubber, etc.).
Infrastructure: Activities in the Harmonised Master List are expressly permitted (reinstated from a drafting omission in the Draft Amendments¹).
On‑Lending: Prohibited only for purposes that are themselves restricted; otherwise permitted.

5. Higher borrowing thresholds

Automatic route limit increased to the higher of: (a) outstanding ECB up to USD 1 billion from USD 750 million; or (b) total outstanding borrowing (external and domestic) up to 300% of net worth as per the last standalone audited balance sheet. Entities regulated by a financial sector regulator (RBI / SEBI / IRDAI / PFRDA) are outside this ceiling and remain subject to their prudential norms.

6. Increased flexibility in currency

ECBs may now be raised in any foreign currency or INR and are not restricted to just freely convertible currencies. Borrowers can convert INR-denominated ECBs to foreign currency (which was restricted earlier) and vice versa.

7. Market-Aligned Cost Structure

All‑in‑cost and prepayment ceilings have been removed. Borrowing cost must align with prevailing market conditions, subject to satisfaction of the designated AD Category‑I bank.
Prepayment / penal charges are also market‑

8. Standardized minimum average maturity period (MAMP)

A uniform 3‑year MAMP now applies across borrowers and end‑uses, with a calibrated window of 1 - 3 years for manufacturing sector borrowers whose outstanding ECB does not exceed USD 150 million.
MAMP need not be met in specified scenarios such as conversion of ECB (including Foreign Currency Convertible Bonds / Foreign Currency Exchangeable Bonds) to non‑debt instruments, repayment using proceeds of non‑debt instruments, permitted refinancing, lender debt‑waiver, and closure / merger / acquisition / resolution or liquidation of the lender or the borrower.

9. Simplified Compliance

Form ECB‑2 has moved from monthly to event‑based reporting, i.e., within 7 calendar days from the end of the month in which drawdown or debt‑servicing occurs.
Changes to ECB parameters are to be reported in the revised Form ECB‑1 within 7 calendar days from the end of the month in which the change took effect.

10. Refinancing

Eligible borrowers may now refinance an existing ECB (in whole or in part) with a fresh ECB, provided the refinancing does not breach the MAMP applicable to the original ECB.

Market Impact for Stakeholders

Borrowers	Lenders
Group treasury and promoter financing structures become more viable with related‑party lending expressly allowed on an arm's‑length basis. Borrowers can now tap offshore debt for acquisition financing, enabling acquirers to fund control and distressed acquisitions through ECBs - unlocking capital for strategic growth. Real‑estate companies gain a meaningful new avenue for leverage, reducing uncertainty and diligence friction in financings. Refinancing flexibility improves as borrowers can roll over or restructure ECBs without needing a lower all‑in‑cost, allowing more efficient repricing and extension strategies. Market‑aligned pricing boosts access to private credit, as the removal of all‑in‑cost caps allows, risk‑priced offshore structures. Manufacturers benefit from shorter MAMP windows, enabling 1 - 3 year tenors for up to USD 150 million outstanding and supporting working capital adjacent needs. Borrowers gain currency flexibility, with ECBs now permitted in any foreign currency and allowing INR‑to‑FCY conversions for optimal hedging and investor fit. CIRP and restructuring‑stage companies gain a lifeline, as they can now raise ECBs if the resolution plan permits, creating opportunities for turnaround financing.	Pricing flexibility increases materially with the removal of all‑in‑cost caps, allowing lenders to price risk in line with global private credit norms. Refinancing markets deepen as fresh ECBs no longer need to be cheaper than existing ones, enabling flexible exit and rollover strategies. Real‑estate and infrastructure financing opportunities expand with detailed exclusions permitting construction‑development, industrial parks, SEZs and own‑use assets. Acquisition finance opens up as ECBs can now fund control acquisitions and distressed acquisitions under IBC, a major new pipeline for credit providers. IFSC‑based lenders gain a clearer regulatory footing, positioning GIFT City as a more competitive cross‑border credit hub. Guarantee structures become more lender‑friendly with cross‑border guarantees shifting to a liberalised standalone framework. Hedging flexibility increases, allowing lenders to negotiate risk‑mitigation terms without regulatory conditionalities.

Borrowers

Lenders

Group treasury and promoter financing structures become more viable with related‑party lending expressly allowed on an arm's‑length basis.
Borrowers can now tap offshore debt for acquisition financing, enabling acquirers to fund control and distressed acquisitions through ECBs - unlocking capital for strategic growth.
Real‑estate companies gain a meaningful new avenue for leverage, reducing uncertainty and diligence friction in financings.
Refinancing flexibility improves as borrowers can roll over or restructure ECBs without needing a lower all‑in‑cost, allowing more efficient repricing and extension strategies.
Market‑aligned pricing boosts access to private credit, as the removal of all‑in‑cost caps allows, risk‑priced offshore structures.
Manufacturers benefit from shorter MAMP windows, enabling 1 - 3 year tenors for up to USD 150 million outstanding and supporting working capital adjacent needs.
Borrowers gain currency flexibility, with ECBs now permitted in any foreign currency and allowing INR‑to‑FCY conversions for optimal hedging and investor fit.
CIRP and restructuring‑stage companies gain a lifeline, as they can now raise ECBs if the resolution plan permits, creating opportunities for turnaround financing.

Pricing flexibility increases materially with the removal of all‑in‑cost caps, allowing lenders to price risk in line with global private credit norms.
Refinancing markets deepen as fresh ECBs no longer need to be cheaper than existing ones, enabling flexible exit and rollover strategies.
Real‑estate and infrastructure financing opportunities expand with detailed exclusions permitting construction‑development, industrial parks, SEZs and own‑use assets.
Acquisition finance opens up as ECBs can now fund control acquisitions and distressed acquisitions under IBC, a major new pipeline for credit providers.
IFSC‑based lenders gain a clearer regulatory footing, positioning GIFT City as a more competitive cross‑border credit hub.
Guarantee structures become more lender‑friendly with cross‑border guarantees shifting to a liberalised standalone framework.
Hedging flexibility increases, allowing lenders to negotiate risk‑mitigation terms without regulatory conditionalities.

To read this article in full, please click here

Footnote

1. 'Draft Regulations' means the draft Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025 (Draft Regulations)

The content of this document does not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up, please contact Khaitan & Co at editors@khaitanco.com.

Towards A New Era: RBI's Transformative Amendments To India's External Commercial Borrowings Landscape

Contributor

Background

Market Impact for Stakeholders

Finance and Banking

Contributor

India