The Revised ECB Regime: Key Changes under the 2026 Amendment
Background
As businesses in India increasingly tap global markets for funding, External Commercial Borrowings (“ECB”) have emerged as an attractive option. ECBs are the loans availed by eligible Indian entities from non-resident lenders, offering access to overseas liquidity. The framework governing ECBs is administered by the Reserve Bank of India (“RBI”) through regulations, master directions, FAQs, etc. In October 2025, the RBI invited comments on the draft amendments[1] to the ECB framework, and following this consultative process, has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 ("2026 Amendment")[2] on February 16, 2026. The revised framework amends and consolidates provisions earlier dispersed across the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, the RBI Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations, 2019 and FAQs into a single set of regulations.
Key Amendments
1. Expanded Eligibility for Borrowers
Under the earlier framework, eligibility to raise ECB was linked to foreign direct investment (“FDI”) permissibility. The 2026 Amendment allows any person resident in India other than an individual that is incorporated, established or registered under a central or state law to raise ECB. Accordingly, the framework now also covers: (a) companies and LLPs irrespective of FDI eligibility; (b) entities undergoing restructuring or insolvency resolution, where permitted under the resolution plan; and (c) borrowers with pending investigation, adjudication or appeal under FEMA, subject to disclosure in Form ECB 1.
2. Broadened Pool of Recognized Lenders
The 2026 Amendment also expands the scope of recognized lenders for ECBs. An eligible borrower can now raise ECB from any person resident outside India including (a) an overseas branch of an entity whose lending business is regulated by the RBI; or (b) a financial institution or its branch set up in the IFSC. This is a shift from the earlier framework, which restricted individual lenders to foreign equity holders and required lenders to be from FATF (Financial Action Task Force) or IOSCO (International Organization of Securities Commissions) compliant jurisdictions. Further, overseas branches of Indian banks can now extend ECBs in both Indian Rupees and foreign currency. This widens the access to international capital and strengthens India’s positioning as a regional financial hub.
3. Revised Borrowing Limits
The borrowing limit has been substantially increased from the earlier limit of USD 750 million per financial year to the higher of:
- USD 1 billion in outstanding ECBs, or
- 300% of the borrower’s net worth, excluding nonfundbased credit and convertible instruments.
These limits do not apply to entities regulated by India’s financial sector regulators, thus, granting them greater freedom to manage their ECB exposure. This is a shift from a onesizefitsall to a financial strengthbased approach, where eligible borrowers can access higher limits based on their financial position.
4. Pricing and Cost of Borrowing
The 2026 Amendment replaces the earlier ‘all-in-cost’ framework with a broader concept of ‘cost of borrowing’, which encompasses interest and all other costs related to the ECB. Unlike the earlier regime, which prescribed specific ceiling limits linked to benchmark rates and fixed spreads, the revised framework does not impose any ceiling on the cost of borrowing. Similarly, prepayment charges and penal interest, previously capped at 2% above the applicable interest rate, are also no longer subject to a fixed ceiling. The borrowers and lenders now have greater freedom to negotiate such terms commercially.
5. Permitted EndUse Relaxed
While the list of restricted end-uses remains extensive, the framework introduces certain key relaxations, including:
- Acquisition Financing: ECBs can now be used to fund listed as well as unlisted acquisitions, but only when control is being acquired, thereby excluding minority and creeping acquisitions. Further, borrowing must serve a strategic purpose i.e. creation of long-term value as opposed to short-term gains. Distressed acquisitions under the IBC and SARFAESI as well as financing mergers, demergers and amalgamations are also permitted.
- Real Estate: The 2026 Amendment replaces ‘real estate activities’ with ‘real estate business’ as prohibited end-use, covering activities involving the purchase, sale or lease of property for profit. The scope of permitted activities has been broadened and includes development of industrial parks, integrated townships and SEZs; activities in the infrastructure sector; construction-development projects; commercial or residential properties for the borrower’s own use; and real estate broking services.
6. Standardized Maturity
The RBI has streamlined the Minimum Average Maturity Period (MAMP) requirement by prescribing a uniform threeyear maturity for all categories of borrowers and enduses. The manufacturing sector borrowers, however, can raise ECBs up to an outstanding of USD 150 million, with a shorter maturity range of one to three years. Further, the RBI has clearly enumerated situations where compliance with MAMP is not required. These include: (a) conversion of ECBs into nondebt instruments; (b) repayment of ECBs using proceeds from the issuance of nondebt instruments on a repatriation basis after drawdown of the ECB; (c) refinancing of an existing ECB; (d) waiver of debt; and (e) closure, merger, acquisition, resolution, or liquidation of either the lender or the borrower.
7. Reporting Requirements
Until now the borrowers were required to file Form ECB-2 monthly within seven working days and submit a revised Form ECB within seven days of any change in loan terms. Under the new framework, reporting has been made event based. Borrowers must file Form ECB-1 to obtain a loan registration number, submit Form ECB-2 within seven calendar days from the end of the month in which any drawdown or debt servicing occurs, and file a revised Form ECB-1 within seven calendar days from the end of the month of any change in loan terms. The borrowers must note that the move from working days to calendar days effectively tightens the reporting window. Further, a borrower will now be treated as untraceable after four consecutive quarters of non-reporting, as compared to eight quarters earlier, provided this is coupled with non-responsiveness and absence from its registered address.
8. Other Important Changes
- Hedging: Earlier mandatory hedging requirements have been removed, leaving the decision to borrowers based on commercial considerations.
- Conversion to non-debt instruments: ECBs can now be converted into non-debt instruments, subject to compliance with FEMA.
- Guarantees: Issuance of guarantees in favour of lenders or security trustees is now governed under a separate regulatory framework.
- Currency of Borrowing and Conversion: ECBs can be raised in any FCY or INR, with the ability to convert between currencies, enhancing structuring flexibility and currency risk management.
Conclusion
The 2026 Amendment marks a clear shift in RBI’s approach from a restriction-heavy framework to a flexible and market-oriented system. By easing constraints around pricing, maturity and end-use, it makes the ECB route commercially more viable for both borrowers and lenders. In particular, relaxations relating to acquisition financing and in sectors such as real estate are likely to improve access to global capital for Indian entities on competitive terms. The amendment also positions ECB as a practical alternative to other financing routes, such as non-convertible debentures, which typically involve higher compliance and structuring costs. It will be interesting to see how the new ECB framework unfolds in practice and evolves on a case-by-case basis, as the RBI responds to real-world scenarios and addresses the regulatory gaps that may arise.
References
[1] Reserve Bank of India, Draft Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025, Draft Notification No. FEMA 3(R)(xxx)/2025-RB, October 2025.
[2] Reserve Bank of India, Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, Notification No. FEMA 3(R)(5)/2026-RB dated February 9, 2026, published in the Official Gazette on February 16, 2026.