Liberalisation of India’s external commercial borrowing regime

The Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (new regulations), substantially revising the external commercial borrowings (ECB) framework. The amendments move towards a more principle-based and market-oriented regime by expanding the scope of eligible borrowers and lenders, liberalising end-use and pricing restrictions, and simplifying maturity requirements, although some interpretational and implementation issues remain.

Any person resident in India (other than individuals), incorporated, established or registered under a central or state act may now raise ECB. The new regulations, which includes limited liability partnerships, also permit entities undergoing restructuring or corporate insolvency resolution to raise ECB where such borrowing is contemplated under the resolution plan.

The lender side has also been significantly liberalised. Any person (including individuals) resident outside India may now act as a recognised lender. This includes overseas branches of RBI-regulated entities, and financial institutions or branches established in the International Financial Services Centre. It removes earlier jurisdiction-linked filters, such as FATF or IOSCO compliance, and broadens the pool of offshore creditors.

Higher limits, market pricing, shorter maturities

Eligible borrowers may now raise ECB up to a higher limit of outstanding ECB of USD1 billion, or total outstanding borrowings up to 300% of net worth (based on the last audited standalone financial statements). Non-fund-based credit and mandatorily convertible instruments are excluded from this computation. Regulated entities supervised by financial sector regulators can borrow uncapped amounts. This introduces a balance sheet-linked test that may increase borrowing capacity for stronger credits.

The pricing framework has also been liberalised. The earlier all-in-cost ceiling has been removed, and the new regulations provide that borrowing costs should be aligned with prevailing market conditions.

This is a significant development for borrowers seeking to access more diverse pools of foreign capital, including private credit and other non-bank lenders. For related party transactions, ECBs must be undertaken on an arm’s length basis. This gives flexibility but places greater responsibility on borrowers, lenders and authorised dealer banks to justify pricing.

The new regime standardises the minimum average maturity period (MAMP) at three years. Manufacturing entities may however raise ECB with an MAMP of one to three years, provided their aggregate outstanding amount of such shorter tenor ECB does not exceed USD150 million. The regulations also clarify that MAMP requirements do not apply in circumstances including conversion into non-debt instruments, repayment from proceeds of non-debt instruments, refinancing, debt waiver, and specified corporate actions.

Acquisitions funded; security, conversion clarified

ECB proceeds may now be used to finance acquisitions (merger, demerger, amalgamation or acquisition of control), if undertaken for strategic purposes and long-term value creation. The use of ECB for acquisition finance may expand offshore financing options for Indian corporates pursuing domestic strategic transactions. ECB funds remain prohibited for real estate business subject to certain exclusions such as construction development projects, industrial parks and infrastructure sector activities. These changes create additional flexibility, although the line between permitted and prohibited activity may still require careful analysis.

The new regulations also provide clarity on security, guarantees, refinancing and conversion. ECB may be secured over movable, immovable, financial and intangible assets, and guarantees may be issued as per the applicable FEMA framework. Refinancing by a fresh ECB is permitted if it does not breach the maturity condition applicable to the original borrowing.

Conversion of ECB into non-debt instruments is also permitted subject to the foreign investment framework compliance and lender consent. Notably, hedging requirements have been omitted which reflects a more market-driven approach, although this may raise prudential questions concerning unhedged foreign currency exposure.

Overall, the revised ECB framework represents a substantial liberalisation of India’s cross-border borrowing regime. Certain areas remain open to interpretation, including the precise scope of eligible borrowers, the application of the strategic purpose test for acquisition finance, and the practical contours of market-linked pricing.

The extent to which the reforms achieve their intended effect will depend on how these issues are clarified in implementation, and how market participants respond to the wider flexibility now available.

Nishtha Arora is an associate partner and Ashutosh Kumar is an associate at SNG & Partners