On 16 February 2026, the Reserve Bank of India (RBI) introduced the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, marking the most significant reform of India’s External Commercial Borrowing (ECB) framework in over a decade. These regulations amend the earlier Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 and replace key provisions of the ECB regime previously governed by the Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations issued in 2019.

The reforms were introduced following a public consultation process initiated in October 2025. The objective of the amendments is to modernise India’s cross-border borrowing rules by shifting from a rigid, approval-driven regulatory system to a more flexible and market-oriented framework. The revised regime aims to encourage global capital inflows, enhance financing opportunities for Indian companies, and align the regulatory framework with contemporary international financing practices.

Background: Limitations of the Previous ECB Framework

Prior to the 2026 reforms, the ECB framework imposed several regulatory restrictions that limited the ability of Indian companies to obtain overseas financing efficiently.

Key constraints included:

• Pricing restrictions: Borrowing costs were capped at 450 basis points above a benchmark rate, irrespective of the borrower’s risk profile or prevailing market conditions.

• Strict maturity requirements: Minimum average maturity periods ranged between three and ten years depending on the intended use of funds.

• Limited end-use flexibility: ECB proceeds could not generally be used for domestic acquisitions or transactions involving securities.

• Extensive approval requirements: Any significant modification to loan terms, including security creation or transfer of the loan, required approval or a no-objection certificate from an authorised dealer bank.

These requirements often made offshore borrowing cumbersome and less attractive, particularly for mid-sized companies or businesses seeking flexible financing arrangements with international lenders.

Expansion of Eligible Borrowers and Lenders

Borrower Eligibility

One of the most notable reforms is the expansion of the categories of entities permitted to raise ECBs. Previously, only entities eligible to receive foreign direct investment could access this financing route. Under the revised framework, any non-individual resident entity established under central or state legislation may borrow externally, provided such borrowing is allowed under applicable laws.

This change significantly broadens access to foreign funding, enabling entities such as limited liability partnerships and organisations operating in sectors previously outside the foreign direct investment regime to obtain overseas loans.

Additionally, the regulations clarify that companies undergoing restructuring or insolvency proceedings may raise ECBs where permitted under the relevant resolution plan. Even borrowers subject to ongoing investigations for foreign exchange violations may obtain external financing, provided such proceedings are disclosed in regulatory filings.

Lender Eligibility

The amendment also liberalises the eligibility criteria for lenders. Previously, lenders had to be located in jurisdictions compliant with the standards of the Financial Action Task Force or the International Organization of Securities Commissions.

This requirement has now been removed. Under the new framework, recognised lenders include:

• Any person resident outside India;

• Overseas branches of entities regulated by the RBI; and

• Financial institutions operating within international financial services centres.

This change is expected to attract a wider range of global lenders, including alternative credit funds and institutions based in the Gujarat International Finance Tec-City.

Market-Based Pricing of Borrowings

A particularly significant reform concerns the removal of the previous all-in cost ceiling that restricted the interest rate on ECBs. Borrowing costs are now required only to reflect prevailing market conditions.

Under the revised regime:

• Lenders may price loans based on the borrower’s credit risk.

• Transactions between related parties must follow an arm’s-length principle.

• Short-term borrowings with maturities under three years remain subject to a limited spread restriction to prevent excessive short-term arbitrage.

This market-based pricing structure allows international lenders to assess risk more realistically and is expected to encourage greater participation from global private credit funds.

Simplification of Maturity Requirements

The earlier system imposed multiple minimum maturity thresholds depending on how the borrowed funds were intended to be used. The revised framework simplifies this significantly.

The standard minimum average maturity period is now three years for most ECBs. However, manufacturing companies may obtain loans with shorter maturities of between one and three years, subject to an overall borrowing limit.

Furthermore, certain transactions—such as refinancing with another ECB or converting debt into equity—allow early repayment without breaching maturity rules.

Greater Flexibility in End Use of Funds

The reforms also introduce a more practical approach to the permitted uses of ECB proceeds. The list of prohibited uses has been rationalised, and clearer definitions have been provided for activities such as real estate development.

One of the most transformative changes relates to acquisition financing. Under the previous framework, ECB funds could not generally be used for transactions involving securities. The amended regulations now permit borrowing for corporate restructuring transactions, including mergers, acquisitions, and amalgamations, where the purpose is long-term strategic value creation.

These provisions align the ECB regime with modern corporate finance practices and open new possibilities for cross-border mergers and acquisitions.

Revised Borrowing Limits

Another important reform concerns the borrowing limits applicable to ECBs. Under earlier regulations, companies could borrow up to USD 750 million per financial year.

The new framework introduces a dynamic limit, allowing borrowers to raise funds up to:

• USD 1 billion in outstanding ECBs, or

• up to 300 percent of the borrower’s net worth, whichever is higher.

This approach ensures that borrowing capacity grows alongside a company’s financial strength and balance sheet expansion.

Changes in Security and Loan Transfers

The revised framework also simplifies the process of providing security for ECBs. Borrowers may now offer security over a wider range of assets, including intellectual property rights, movable and immovable property, and financial assets.

Additionally, the regulations explicitly allow third-party security, enabling group companies or holding entities to provide collateral. This change facilitates more sophisticated lending structures commonly used in international finance.

Importantly, regulatory approval from authorised dealer banks is no longer required for creating security or transferring ECB exposures between lenders. This significantly reduces transaction timelines and administrative complexity.

Refinancing and Risk Management

The amendment regulations introduce greater flexibility for refinancing existing ECBs. Borrowers may refinance their loans through new ECBs without the earlier requirement that the new borrowing must carry a lower cost or longer maturity.

Furthermore, the previous mandatory hedging requirement has been removed. Companies may now decide independently whether to hedge foreign currency exposure, although this increases the responsibility of corporate treasury departments to manage exchange rate risks effectively.

Streamlined Reporting Requirements

Reporting procedures have also been simplified. Previously, borrowers were required to submit monthly reports detailing ECB transactions. Under the new regime, reporting is event-based and required only when funds are drawn down or debt servicing occurs.

The framework also introduces provisions for identifying borrowers who become untraceable after receiving funds, enabling regulatory authorities to take appropriate action.

Implications for Existing Borrowings

The amended regulations apply immediately to all new ECBs raised after 16 February 2026. However, borrowings contracted prior to that date remain governed by the earlier regulatory regime, except for the updated reporting requirements.

Consequently, companies with existing ECB facilities must manage their debt portfolios carefully, as different borrowings may fall under different regulatory frameworks.

Conclusion

The 2026 amendments represent a major liberalisation of India’s external borrowing regime. By removing rigid pricing controls, expanding borrower and lender eligibility, and simplifying procedural requirements, the reforms align India’s regulatory environment more closely with global financial markets.

These changes are expected to improve access to international capital for Indian companies, promote cross-border investment, and strengthen India’s position as an attractive destination for global lenders. However, the increased flexibility also places greater responsibility on borrowers to manage financial risk and ensure compliance with the revised regulatory standards.

Overall, the new ECB framework marks a decisive step towards a more open, efficient, and market-driven system of international corporate financing in India.