The regulations on External Commercial Borrowings (‘ECB’) have, with effect from February 16, 2026, been significantly amended with the Notification of The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (‘Amended Regulations’). We set out below some key pointers on these latest changes to the ECB regime.

Key Changes to ECB Regime:

1. Commencement and Applicability: The Amended Regulations come into effect from February 16, 2026. However, in respect of ECBs for which loan registration number (‘LRN’) was obtained before February 16, 2026, the old ECB regime continues to apply (except that reporting will be as per the Amended Regulations).
2. All In Cost Cap No More Except for ECBs with Minimum Average Maturity Period (‘MAMP’) Less Than Three Years: Pricing must be in line with prevailing market conditions. Same for prepayment charges, penal interest, default interest. Pricing of ECB from a related party must be on arms’ length basis. For ECBs (to manufacturing companies) with MAMP less than three years, the concept of all-in cost remains and will be same as trade credit, i.e., FCY: benchmark + 300 bps, and INR: benchmark + 250 bps.
3. Easing of End Use Restrictions: Some of the notable relaxations, in this respect, are: (a) the end use restriction re transacting in listed/unlisted securities has been eased where the borrowing is availed for corporate actions such as merger, demerger, amalgamation, arrangement, or acquisition of control (as per the relevant incorporation/establishment Act e.g., Companies Act, 2013/ Limited Liability Partnership (‘LLP’) Act, 2008; SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and Insolvency and Bankruptcy Code, 2016, as applicable), in each case, only where such action/acquisition is 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 . Do note that ‘control’ is a nuanced concept and should be analysed on a case-by-case basis. (b) carve outs to the restriction on use of ECB proceeds for real-estate business have been provided, including for: (1) purchase/sale/lease of land or immoveable properties for construction development projects or commercial/residential properties for own use of the borrower; (2) industrial parks meeting certain criteria; and (3) construction-development projects with developed trunk infrastructure, etc.
4. Borrowing Limit: Under the automatic route, the borrowing limit is the higher of (a) outstanding ECB of USD 1 billion or (b) total outstanding borrowing (external and domestic, but excluding non-fund based credit and compulsorily convertible instruments) not exceeding 300% of net worth as per the last audited standalone balance sheet of the borrower. Please note that this does not apply to borrowers that are regulated by financial sector regulators.
5. MAMP: Default is three years for all except for manufacturing sector, which is one to three years on the condition that outstanding amount of such ECBs does not exceed USD 150 million. This relaxation puts an end to the lengthy tenures (five, seven, ten years) for end uses such as working capital, refinance of rupee loan etc., making ECBs for these end uses much more viable. It is now expressly clarified that MAMP is not applicable for (a) conversion of ECB (including Foreign Currency Convertible Bonds and Foreign Currency Exchangeable Bonds) to equity/non-debt instruments (‘NDI’), (b) repayment of ECBs out of proceeds from issuance of NDI under Foreign Exchange Management (Non-debt Instruments) Rules, 2019 subject to certain conditions, (c) 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, (d) waiver of debt by the lender, and (e) refinancing the ECB in terms of the Amended Regulations (refer point x below).
6. Broadening the Ambit of ‘Eligible Borrower(s)’: It is now clarified that LLPs can also avail ECBs.
7. Broadening the Ambit of ‘Recognised Lenders’: Eligible Borrower(s) may now avail ECBs from any person resident outside India; a branch outside India of an entity whose lending business is Reserve Bank of India (‘RBI’) regulated, and a financial institution or its branch set up in an International Financial Services Centre. Note that there is no longer any specified Financial Action Task Force/International Organization of Securities Commissions requirement for a lender. However, authorised dealer banks will likely require compliance with these requirements under the RBI KYC Directions.
8. Foreign Equity Holder (‘FEH’) Replaced by Related Party: The concept of FEH has been replaced by related party. Now, eligible borrowers can receive ECBs from related parties (as defined under Companies Act, 2013) on an arm’s length basis.
9. ECB Proceeds: These may be held in account and invested in an unencumbered fixed deposit of tenor up to one year (for INR or FCY ECBs) or an unencumbered debt instrument with original maturity up to one year (only for FCY ECBs).
10. Refinancing: Only condition for refinancing is that the refinancing must not result in a failure to meet the MAMP requirement applicable on the original borrowing. To the extent this is not breached, no additional MAMP will apply to the refinancing.
11. Conversion of ECB to Equity: The Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 may also apply, same as under the earlier regime.
12. Hedging: The Amended Regulations are silent on any mandatory hedging requirements.
13. Reporting: Monthly reporting has been replaced with event-based reporting (Form ECB 2 needs to be filed within seven days from the end of the month in which any drawdown occurs or any debt servicing is undertaken (i.e., any event / transaction that alters the outstanding borrowing under that LRN must be reported)).