The Reserve Bank of India (“RBI”) has introduced significant reforms to India’s foreign currency borrowing framework through the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (“Amendment Regulations”), which came into effect on February 16, 2026. Amendment Regulations were notified after incorporating stakeholder feedback from the draft released in October 2025, which now aims to rationalize the external commercial borrowing (“ECB”) framework.

The Amendment Regulations substantially amend 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 (“Master Direction”), marking a strategic shift from a prescriptive framework to a more flexible and principle-based regime. Other than the guidelines on trade credit, which continue to be covered by the Master Direction, other provisions with respect to the ECBs under the Master Directions stand deleted.

The changes primarily focus on providing enhanced clarity through refined definitions, introducing a dedicated and more simplified ECB framework. In this article, we summarize the key changes brought into effect by RBI on the ECB framework through the Amendment Regulations:

  • Eligible Borrower: Requirement of borrower being eligible to receive foreign direct investment has been removed by the Amendment Regulations. Definition is now linked to a person resident in India (other than an individual) incorporated, established or registered under a Central Act or State Act, subject to the condition that the borrower is permitted to borrow in terms of the applicable laws and under the Amendment Regulations. The Amendment Regulations also permit a borrower under restructuring scheme or corporate insolvency resolution process to raise ECB only if specifically permitted under the restructuring or resolution plan.
  • Eligible Lender: Requirement of a lender to be from a FATF or IOSCO compliant country has been changed to a broader definition including person resident outside India or a branch outside India of an entity whose lending business is regulated by RBI or branch of a financial institution or financial institution in the IFSC. Financial institution is defined to have the same meaning as assigned to it under the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 (i.e. financial institution will include, amongst others, a company or a firm engaged in rendering financial services or carrying out financial transactions, (for instance banks and non banking financial institutions). Additionally, it is pertinent to note that under the earlier regime, Master Directions restricted foreign branches/subsidiaries of Indian banks to advance INR ECB, the Amendment Regulations now enable the foreign branches/subsidiaries of Indian banks to advance INR ECB.
  • Minimum Average Maturity Period: The minimum average maturity period has been standardized to 3 years by the Amendment Regulations. The Master Directions had a bifurcated minimum average maturity period, for various forms of ECB, which was outdated considering the evolving global financial market due to requirement of a more standardized approach for all forms of ECBs to streamline the entire framework. However, there is an option provided to the manufacturing sector in the Amendment Regulations, where the minimum average maturity period can be between 1 - 3 years with outstanding liability capped at USD 150 million, which provides greater and needed flexibility for the sector.
    • Having said the above, the Amendment Regulations have also provided certain carve outs where the minimum average maturity period is not required to be followed, inter alia, in the case of repayment of ECB using the proceeds from non-debt instruments issued in terms of foreign exchange regulations, refinance of the ECB in terms of the Amendment Regulations and 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.
  • Cost of Borrowing: The cost of borrowing is now linked to prevailing market conditions. Previously, Master Directions had them linked to certain set of pre-defined pricing benchmarks. This is a remarkable change and shift from the previous regime under the Master Directions, which was more regulated and conservative in approach. The restriction regarding utilization of the ECB proceeds towards repayment of the cost of borrowing has also been removed in the Amendment Regulations. Further, in case of eligible ECBs with average maturity period of less than 3 years, the cost of borrowing is required to be in compliance with cost ceiling specified for trade credit under the Amendment Regulations.
  • Borrowing Limit: Amendment Regulations link the borrowing limit under ECB to the higher of (a) outstanding ECB up to USD 1 billion; or (b) total outstanding borrowing (external and domestic) up to 300 percent of net worth as per the last audited standalone balance sheet of the borrower. This is a welcome change from the previous position under the Master Directions, which had capped the borrowing limit at upto USD 750 million.
  • End Use: The Amendment Regulations has a reduced negative end use list, which is a business aligned approach. The Amendment Regulations also permit refinancing of INR denominated loans vide an ECB in certain scenarios, which is a welcome step. Further, interestingly, whilst the transactions in listed and unlisted securities remain under negative end use, the Amendment Regulations have provided carve-outs for any merger, amalgamation, arrangement, or acquisition of control in accordance with the Companies Act, 2013, under which the entity is incorporated/established, Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (as amended from time to time), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Insolvency and Bankruptcy Code, 2016. Per the Amendment Regulations, an acquisition as a permitted use from the proceeds of the ECB is allowed only in the event a person acquires control (defined under the Amendment Regulations). Having said the above, any such transaction will have to demonstrate that borrowing of ECB for, inter alia, acquisition of control or merger is undertaken for strategic purposes and is for creating long-term value, in terms of the Amendment Regulations.
  • Security Creation: Amendment Regulations have included creation of security over moveable and immovable assets by third parties and amending the requirement of only a borrower providing certain types of security for the purposes of securing an ECB. Further, the requirement of authorized dealer bank approval prior to creation of security to secure an ECB has been removed in the Amendment Regulations.
  • Refinancing: Refinancing of an existing ECB with a new ECB is permitted under the Amendment Regulations without requiring a borrower to comply with the restrictions around the fresh ECB being lower in cost as compared to the existing ECB. Further, the restrictions around refinancing of an INR denominated ECB through foreign ECB has been taken away. The requirement of Indian banks participating in refinancing of existing ECB, only for highly rated corporates (‘AAA’) and for Maharatna / Navratna public sector undertakings has also been removed. Amendment Regulations also provide clarity that the minimum average maturity period of a refinancing can be less than 3 years, this change appears to be provide operational ease to the borrowers to refinance their existing ECB having less than 3 years of maturity. Having said this, for longer tenure ECBs there is no exemption and the original maturity period will have to be followed in such cases.
  • Transfer: Requirement of obtaining approval from an authorized dealer bank for any transfer of ECB from one lender to another lender has been omitted in comparison to the compulsory consent requirement from the authorized dealer bank in the Master Directions for transferring an ECB from one lender to another lender. This may result in reducing overall timeline involved for the purposes of any downselling transactions undertaken for the transfer of an existing ECB exposure inter se the lenders.
  • Changes in the terms of ECB: Requirement of obtaining approval from authorized dealer bank for any change in the term of ECB has been omitted in comparison to the compulsory consent requirement from the authorized dealer bank for the changes in the terms of the ECB in the Master Directions. This will reduce operational ease for the stakeholders in the transaction.
  • Hedging: The requirement of hedging has been removed in the Amendment Regulations in comparison to the compulsory hedging requirement applicable to ECB in the Master Directions. Linking the entire cost of the ECB to prevailing market conditions will provide more flexibility to the borrowers and will also give them options to evaluate the route through which the borrower proposes to borrow.

To conclude, the Amendment Regulations, represents a significant long due modernization of the ECB framework. The core theme of the Amendment Regulations is a shift from rigid regime to a more flexible, principle-based ECB framework that proposes to empowers Indian corporates with greater autonomy in accessing global financial markets.

Author:

Madhur Verma, Partner

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.