C&M E-ALERT - NEW EXTERNAL COMMERCIAL BORROWING FRAMEWORK

On 16 February 2026, the Reserve Bank of India (“RBI”) notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (the “New ECB Framework”), which came into force with immediate effect from the date of notification. The New ECB Framework constitutes one of the most comprehensive overhauls of India’s external commercial borrowing (“ECB”) framework to date. The principal changes introduced pursuant to the New ECB Framework are summarised below:

Principal Changes

1. Applicability: ECBs in respect of which a Loan Registration Number (“LRN”) was obtained prior to the date of notification of the New ECB Framework will continue to be governed by the erstwhile ECB Framework, except for reporting obligations applicable to such ECBs which will be governed by the New ECB Framework.

2. Eligible Borrower: The erstwhile condition requiring an entity to be eligible to receive foreign direct investment (“FDI”) as a prerequisite to qualify as an eligible borrower has been removed, and the definition of ‘eligible borrower’ has been expanded to include all entities incorporated under any central or state legislation. Given that FDI can be availed only by ‘companies’ registered under the Companies Act, 2013, with this change, borrowing under the ECB route is now also available to other incorporated entities including Limited Liability Partnerships (“LLPs”). Further, borrowers that are under a restructuring scheme or corporate insolvency resolution process, have also been permitted to raise ECB, provided that such borrowing is permitted under the restructuring or resolution plan. This will enable debt financing for acquisition of distressed assets by foreign entities.

3. Recognised Lenders: ECB may now be availed from any person resident outside India, overseas branches of RBI-regulated entities, and financial institutions (or their branches) located in the International Financial Services Centre (“IFSC”). The erstwhile requirement that lenders must be resident in jurisdictions compliant with the Financial Action Task Force (“FATF”) or the International Organisation of Securities Commissions (“IOSCO”) has been removed. Further, under the erstwhile framework, individuals were permitted to extend ECB only if they were a ‘foreign equity holder’ of the borrower. The New ECB Framework has dispensed with this restriction, thereby permitting ECBs to be raised from any person, including individuals, irrespective of their equity holding in the borrower.

4. Borrowing Limits: An eligible borrower may raise ECB up to the higher of: (a) USD 1 billion in aggregate outstanding ECB, or (b) an amount equal to 300% of its net worth as per its latest audited standalone financial statements, computed on the basis of total outstanding borrowings (both external and domestic), excluding non-fund based credit facilities and compulsorily convertible instruments. These thresholds do not apply to borrowers regulated by financial sector regulators, providing greater freedom particularly to non-banking financial companies (“NBFCs”), to raise ECB funding.

5. End-Use Liberalisation: End-use restrictions on the ECB proceeds for transacting in listed and unlisted securities have been relaxed to permit use of ECB proceeds for corporate actions such as merger, demerger, amalgamation, arrangement, or acquisition of control (as per the relevant incorporation/ establishment Act e.g. Companies Act/ LLP Act, the Takeover Code, SARFAESI, and IBC, as applicable). The only restriction is that such action/ acquisition should be for strategic purposes, i.e. those driven by the core objective of creating long-term value through potential synergies, rather than for short-term gains. While raising ECB for speculative gains is still restricted, the New ECB Framework opens the door for use of ECB proceeds for acquisition financing, which is a welcome change. Further, the erstwhile restriction on the utilisation of ECB proceeds for the payment of costs of borrowing has been removed under the New ECB Framework.

6. Minimum Average Maturity Period (“MAMP”): A MAMP of 3 (three) years has been prescribed under the New ECB Framework. Entities in the manufacturing sector may raise ECBs with a maturity period of 1 (one) to 3 (three) years, subject to an enhanced outstanding cap of USD 150 million (increased from the erstwhile cap of USD 50 million). This represents a material relaxation from the erstwhile framework, wherein the MAMP applicable to ECB raised for general corporate purposes and refinancing of rupee-denominated debt was 7 (seven) and 10 (ten) years, respectively. Further, the New ECB Framework expressly clarifies that MAMP requirements shall not be applicable for:

   
   

   1. conversion of ECB (including Foreign Currency Convertible Bonds (“FCCB”) and Foreign Currency Exchangeable Bonds (“FCEB”)) to non-debt instruments (“NDIs”);

   2. repayment of ECBs out of proceeds from issuance of NDI under the FEMA NDI Rules on a repatriation basis, provided such proceeds are received after the drawdown of the ECB;

   3. refinancing of an existing ECB in accordance with the provisions of the New ECB Framework;

   4. waiver of ECB debt by the lender; and

   5. 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.

7. Procedural Relaxation: Several procedural requirements have been streamlined, including: (a) Form ECB 2 filing being cashflow based, doing away with the previous requirement of monthly reporting; and (b) dispensing with the requirement to obtain no-objection certificates  from designated authorised dealer banks (“AD Banks”) for: (i) creation of security, (ii) amendments to the terms of the ECB, or (iii) transfers of ECB by lenders.

8. Refinancing: An eligible borrower may refinance an existing ECB, whether in part or in full, by raising a fresh ECB. The only condition is that such refinancing must not result in a breach of the MAMP requirements applicable to the original borrowing. Where such condition is satisfied, no additional MAMP will apply to the refinancing.

9. Conversion of Debt into Equity: Conversion of ECB into equity or other NDIs is permitted without any additional cost to the lender, subject to lender consent and, where applicable, consent or prior intimation to other lenders. Prudential and restructuring norms under the RBI regulations will apply where the borrower has existing credit facilities from an entity regulated by the RBI. The ECB liability eligible for conversion will be determined based on the exchange rate prevailing on the date of the agreement for such conversion, or at an exchange rate which does not result in a liability higher than that arrived at by using the exchange rate prevailing on the date of the agreement for conversion. Further, it appears that the pricing guidelines and sectoral caps for such conversion will be assessed and determined in accordance with the extant regulatory framework, in force on the date of the agreement for conversion.

10. Hedging: The New ECB Framework does not prescribe any mandatory hedging requirements. Borrowers and lenders will accordingly have the flexibility to determine appropriate hedging arrangements having regard to their respective commercial circumstances and risk appetite.

11. Investments by Foreign Venture Capital Investors (“FVCIs”): The New ECB Framework expressly excludes investments received from FVCIs by way of debt instruments from the purview of the ECB framework, thereby clarifying that such investments will not be characterised as ECB.

IMPACT OF THE NEW ECB FRAMEWORK

The New ECB Framework represents a significant liberalisation of India’s cross-border financing framework. By expanding the scope of eligible borrowers and recognised lenders, relaxing end-use restrictions, permitting acquisition financing, dispensing with the FDI-eligibility prerequisite, and rationalising compliance procedures, the RBI has aligned the ECB framework more closely with prevailing international financing practices and India’s capital market objectives.

The practical implications of the New ECB Framework are considerable. The liberalisation of acquisition financing is expected to catalyse the deployment of ECBs in mergers and acquisitions, leveraged buyouts, and restructuring transactions across sectors. The relaxation of end-use restrictions is likely to stimulate cross-border debt capital flows into sectors that have historically faced constrained access to foreign debt. The removal of jurisdiction-based lender restrictions and the elimination of mandatory NOC requirements from AD Banks are expected to reduce transactional friction and broaden the pool of available capital for Indian borrowers.

*******

Should you have any queries or comments on this alert please visit our LinkedIn page. You may also contact the authors below.