Reserve Bank of India Notifies Structural Consolidation and Liberalisation of the ECB Framework

Posted On - 4 March, 2026 • By - King Stubb & Kasiva

The Reserve Bank of India has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, significantly reforming the Foreign Exchange Management (Borrowing and Lending) 2018 regulations and supersede the provisions of the Master Direction – External Commercial Borrowing, Trade Credits and Structured Obligations dated March 26, 2019.

External Commercial Borrowing (“ECB”) refer to commercial loans raised by eligible Indian entities from recognised non-resident lenders in foreign currency or in INR. They serve as an important source of offshore capital for Indian companies, enabling access to global liquidity, competitive pricing, and longer tenors, particularly for infrastructure, manufacturing, and expansion projects. However, the ECB framework has always been tightly regulated because of the macroeconomic implications of foreign borrowings such as exchange rate exposure and external debt sustainability.

The 2026 amendment reflects a structural consolidation and liberalisation in this regime.

Codification of Prohibited End-Uses (Regulation 3A)

One of the most significant changes is the insertion of Regulation 3A, which codifies an exhaustive list of prohibited end-uses for ECB proceeds.

Borrowed funds cannot be utilised for:

  • Chit funds
  • Nidhi companies
  • Trading in transferable development rights
  • Speculative real estate activity
  • General agricultural and plantation activities

The amendment clarifies that “real estate business” means purchase, sale or lease of immovable property for profit. However, activities such as industrial parks, infrastructure projects, construction-development projects, and commercial or residential property for own use are excluded from the prohibition, subject to defined compliance conditions.

ECB proceeds also cannot be used to invest in listed or unlisted securities, except for mergers, demergers, amalgamations, or acquisition of control in accordance with applicable law. Importantly, funds cannot be used to repay INR loans classified as non-performing assets or originally availed for restricted purposes, nor can they be on-lent for prohibited activities. This structured articulation reduces interpretational ambiguity and prevents indirect circumvention of restrictions.

Enhanced Borrowing Limits and Leverage-Linked Threshold

The borrowing limit has been substantially enhanced. Eligible borrowers may now raise ECB up to the higher of USD 1 billion or 300% of their net worth as per the last audited standalone financial statements.

This marks a significant increase from the earlier USD 750 million cap and introduces a leverage-linked threshold favouring well-capitalised entities.

Further, the borrowing cap does not apply to entities regulated by financial sector regulators, thereby liberalising access for NBFCs and other regulated financial institutions. This dual-ceiling approach reflects a calibrated liberalisation aligned with prudential safeguards.

Maturity, Pricing and Hedging Rationalisation

The amendment also standardises the minimum average maturity period (“MAMP”) at three years, with a limited relaxation permitting manufacturing entities to raise ECB between one and three years up to an outstanding cap of USD 150 million. MAMP requirements are relaxed in specific cases such as refinancing, conversion into non-debt instruments, debt waiver, and certain corporate actions. Call and put options cannot be exercised before completion of MAMP. The cost of borrowing is now required to align with prevailing market conditions rather than being subject to rigid caps, although shorter-tenor ECBs must comply with trade credit ceilings. Penal interest and prepayment charges are no longer capped, signalling a move towards market-based pricing. Notably, earlier stipulations relating to mandatory hedging have been removed, enhancing flexibility in currency risk management.

Compliance, Reporting and Security Framework

Operational and compliance provisions have also been rationalised.

  • Borrowers must obtain a Loan Registration Number (LRN) before drawdown.
  • Revised reporting formats  Form ECB 1, Revised Form ECB 1, and Form ECB 2,  must be filed within strict timelines.
  • A new concept of “untraceable borrower” empowers designated banks to escalate prolonged non-reporting to enforcement authorities.

The security framework permits creation of charge over movable, immovable, financial, and intangible assets, subject to FEMA compliance and lender safeguards, while limiting enforcement strictly to the outstanding ECB claim.

Conclusion

In conclusion, the 2026 amendment represents a comprehensive recalibration of India’s ECB regime. By enhancing borrowing limits, clarifying end-use restrictions, permitting strategic acquisition financing, liberalising cost norms, and streamlining compliance, the RBI has modernised the framework to align with evolving global capital flows while maintaining prudential oversight. The revised ECB framework promotes greater flexibility, transparency, and integration with international financial markets, making it a pivotal development for borrowers and lenders alike.

Reference

Reserve Bank of India, Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, Notification No. FEMA 3(R)(5)/2026-RBI, February 09, 2026.