Liberalisation of the External Commercial Borrowing Framework – India Regulatory Update

On February 16, 2026, the Reserve Bank of India (“RBI”) months after publishing the draft Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025, amended the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 and the Master Directions on External Commercial Borrowings ‘ECB’, Trade Credits and Structured Obligations (“Revised ECB Framework”).

Through these amendments the RBI has revamped the existing external commercial borrowings regime in India.

1. What are external commercial borrowings?

In simple words these are borrowings that loans that Indian companies take from overseas lenders which can be denominated either in INR or in any other currency with a free float (e.g. USD or EUR)

2. Who can lend?

The Revised ECB Framework expands the definition of lenders, who now can be any person resident outside India.

3. Who can borrow?

Any person who is not an individual but one who is:

• Incorporated in India
• Established or registered under a Central or State Act

4. Currency of borrowing

Can be in any foreign currency or in INR. The currency of the ECB can also be changed from one foreign currency to another, or from a foreign currency to an Indian currency or from an Indian currency to a foreign currency

5. Form of borrowing

This can be in any form of commercial borrowing arrangement that involves payment of agreed interest, if any, by whatever name called, and repayment of principal. Further, funds received from a person resident outside India, on or after April 30, 2007, against issuance of preference shares or debentures which are not fully or mandatorily converted to equity shares are treated as ECB.

In addition, certain types of funds raised by an Indian borrower are not treated as ECB such as trade credits with original maturity up to 3 years, etc.

6. Borrowing limit

The ECB limit is higher of: (a) outstanding ECB up to USD 1 billion; (b) total outstanding borrowing (external and domestic) up to 300% net worth as per the last audited standalone balance sheet of the borrower. Do note that outstanding borrowing does not include non-fund based credit and funds raised through issuance of securities which are mandatorily convertible into equity.

7. Maturity

The minimum average maturity period should be 3 (three) years (please note that this is different from 3 calendar years and there is a particular way in which this is calculated based on the draw-downs).

8. Cost of borrowing

The cost of borrowing must be in line with the prevailing market conditions (there is full flexibility to define the cost of borrowing in line with commercial negotiations between parties).

9. Loan registration number

ECB proceeds can be obtained only after obtaining the loan registration number (“LRN”) from an AD Category I bank which is tied to particular bank account in which the ECB is received.

10. Security

ECBs can be secured by:

• Creation of charge on immoveable assets, moveable assets, financial assets and intangible assets (including intellectual property rights) in favour of the non-resident lender or security trustee; or
• Issue of guarantee in favour of the lender or security trustee in accordance with the relevant FEMA regulations.

The security created for ECBs are subject to the following conditions:

• The borrowing agreement contains a clause requiring the borrower to provide such security
• ‘No objection certificate’, as applicable, from the existing lender(s) in India shall be obtained before creation of charge on an unencumbered asset; and
• Creation of charge on an asset shall not be construed as a permission to acquire the asset in India, by the overseas lender/ security trustee.

11. Refinancing

Is permissible in part or full, by a fresh ECB, subject to the condition that the refinancing does not result in failure to meet the MAMP requirement applicable on the original borrowing (weighted outstanding maturity in case of multiple borrowings)

12. Conversion of ECB into equity

This is also permissible subject to compliance with extant FEMA regulations and there are no additional costs for such conversion.