RBI Notifies ECB Framework Revamp
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RBI Notifies ECB Framework Revamp
The Reserve Bank of India (RBI) has recently rationalised the External Commercial Borrowing (ECB) framework and notified the amendments to the existing ECB vide the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Amendment Regulations). Some of the key amendments to the ECB framework include expansion of eligible borrower and recognised lender base, rationalisation of borrowing limits and restrictions on average maturity period, removal of restrictions on the cost of borrowing for ECBs review of end-use restrictions and simplification of reporting requirements which are discussed below:
- Lender and Borrower Expansion: The Amendment Regulations have expanded the eligibility criteria of eligible borrowers and recognized lenders.
Any person resident in India (other than an individual) that is incorporated, established or registered under a Central or State Act is now an eligible borrower, as opposed to the previous general position inter alia which allowed FDI eligible entities to be eligible borrowers. This is step forward as it opens option of foreign borrowings to all registered entities in India regardless of whether they are FDI eligible entities or not. Similarly, a person resident outside India; a branch outside India of an entity whose lending business is regulated by the RBI; and a financial institution or a branch of a financial institution set up in IFSC are now recognised as lenders, which previously generally required the lender to be resident of FATF or IOSCO compliant country.
- Codification of End-use Restrictions: The Amendment Regulations now explicitly prescribe end-use restrictions vis-a-vis the use of borrowed funds. Such restrictions include blanket prohibition for purposes such as chit funds, Nidhi company, trading in and transferable development rights, real estate business and construction of farmhouses (with specific provisos for construction-development projects and industrial parks with certain conditions), agricultural and animal husbandry (with specified exceptions), plantation, transaction in securities (except for specific corporate actions), on-lending for restricted purposes and repayment of domestic INR loans availed for a restricted end-use or classified as a non-performing asset.
- Revised Borrowing Limits: The borrowing limit for an eligible borrower has been significantly revised. An entity can now raise ECB up to the higher of:
- Outstanding ECB up to USD 1 billion; or
- Total outstanding borrowing (external and domestic) up to 300% of its net worth as per the last audited standalone balance sheet. This limit does not apply to eligible borrowers regulated by financial sector regulators.
The above replaces the earlier limits under the automatic route which were USD 750 million or equivalent per financial year for eligible borrowers, and USD 3 million for startups.
- Maturity Period Flexibility: A uniform Minimum Average Maturity Period (MAMP) of 3 (three) years has been introduced for ECBs as opposed to the differing MAMPs for certain specified categories. Eligible borrowers in the manufacturing sector can now raise ECBs with a MAMP between 1 (one) and 3 (three) years, provided the outstanding amount of such ECBs does not exceed USD 150 million.
The uniform MAMP will not apply for certain specified purposes.
- Revised Borrowing Cost: The cost of borrowing has moved from being prescriptive/regulated in nature to being in line with “prevailing market conditions”. For instance, the all-in-cost ceiling and other costs, for which rates were prescribed, have now been de-regulated to be in line with market conditions.
- Untraceable Entities: The Amendment Regulations now statutorily incorporate the process and prescribe the conditions for treating a borrower with an active Loan Registration Number as an untraceable borrower, which was previously in the form of a standard operating procedure to be followed by AD Banks.
The Amendment Regulations are a significant overhaul of the ECB framework to make it more accessible and available for growth capital. Moving from a specification-based regulation to a general enabling overhaul framework along with streamlining of various provisions, it is expected that eligible borrowers will utilize the revamped and flexible ECB framework with enhanced borrowing limits for raising capital for expansion of businesses.