1.   Introduction

In February 2026, the Reserve Bank of India (“RBI”) introduced a comprehensive overhaul of India’s External Commercial Borrowings (“ECB”) regime through the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, which amended the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (the “Amended Regulations”). This article provides a practitioner-focused analysis of the key amendments and their practical implications for international lenders, Indian borrowers, and restructuring professionals. The reforms – which expand the borrower and lender universe, deregulate pricing, simplify maturity requirements, and liberalise end-use restrictions – collectively signal a decisive shift from a prescriptive, rules-based ECB framework to a principle-based, market-aligned regime.

2.   Key amendments and their practical implications

2.1   Expanded universe of eligible borrowers

Under the erstwhile framework, ECB eligibility was tethered to eligibility to receive foreign direct investment – a test that excluded several categories of Indian entities. The Amended Regulations now permit any person resident in India (other than an individual) that is incorporated, established, or registered under a Central or State Act to raise ECB, provided such borrowing is permitted under the entity’s governing legislation.[1] Limited liability partnerships, which were previously ineligible to raise ECBs, are now eligible. Further, entities under restructuring or undergoing the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 may raise ECB where the resolution plan specifically so permits.[2] Entities facing investigation or adjudication under the Foreign Exchange Management Act, 1999 may also raise ECBs, subject to requisite disclosures.[3]

2.2   Broadened universe of recognised lenders

The erstwhile requirement that lenders be resident in a Financial Action Task Force (“FATF”) or International Organization of Securities Commissions (“IOSCO”) compliant country has been removed. The Amended Regulations now recognise three categories of lenders: (a) any person resident outside India; (b) a branch outside India of an entity whose lending business is regulated by the RBI; and (c) a financial institution, or branch thereof, established in an International Financial Services Centre (“IFSC”).[4]

The removal of the erstwhile FATF/IOSCO residency requirement, combined with the removal of the requirement that individual lenders be shareholders of the borrowing entity, opens participation in Indian cross-border syndications to a substantially broader pool of capital providers. This is likely to lower the barriers to entry for finance transactions involving Indian borrowers.

The express inclusion of IFSC-based entities as recognised lenders, and permissibility to lend both foreign currency (“FCY”) and Indian Rupee (“INR”) denominated ECBs, further deepens the utility of GIFT City – India’s sole operational IFSC – as a cross-border credit hub, and creates opportunities for IFSC-registered entities to participate in ECB transactions. As GIFT City matures, it is likely to emerge as a serious competitor to established offshore financial centres for cross-border lending into India, particularly for structured and syndicated transactions that benefit from its quasi-domestic offshore characteristics.

2.3   Market-based pricing

Under the erstwhile framework, the all-in-cost of ECBs was subject to a prescribed ceiling: benchmark rate plus 500 basis points for foreign currency ECBs and benchmark rate plus 450 basis points for INR-denominated ECBs, with penal interest capped at 2 percent over the contracted rate. The Amended Regulations abolish this ceiling – perhaps the most market-significant of the reforms – and instead simply require that the cost of borrowing be “in line with prevailing market conditions”[5]. Borrowers and lenders may accordingly negotiate pricing on a purely commercial basis, subject only to that overarching standard. ECBs with a minimum average maturity period (“MAMP”) of less than three years remain subject to the trade credit all-in-cost ceiling.[6] For related-party ECBs, arm’s length pricing is mandated[7] – a standard that may have significant transfer pricing implications.

2.4   Liberalised end-use restrictions

The erstwhile framework had extensive end-use restrictions, prohibiting ECB proceeds from being deployed for real estate activities, capital market investments, equity investments, working capital (save in limited circumstances), general corporate purposes (save with extended maturity), and repayment of rupee loans (save in limited circumstances). The Amended Regulations consolidate these end-use restrictions, with materially narrowed prohibitions.

Most significantly, ECB proceeds may now fund strategic acquisitions – including the acquisition of control in listed and unlisted securities – provided the transaction is driven by long-term value creation through synergies. This permission is carefully circumscribed: borrowing for transactions in securities is available only for ‘strategic purposes’, defined as those “driven by the core objective of creating long-term value through potential synergies, rather than for short-term gains.”[8] Minority acquisitions and incremental stake purchases do not qualify – only transactions involving the acquisition of control are permitted. Construction-development projects and activities in the infrastructure sector are, in addition, expressly carved out from the restriction on using ECB proceeds for real estate business.[9]

2.5   Streamlined MAMP

The old tiered MAMP structure – ranging from one year for certain manufacturing borrowers to ten years for general corporate and working capital purposes – has been replaced by a uniform three-year MAMP.[10] Manufacturing companies may raise ECB with a MAMP of one to three years, subject to an outstanding cap of US$ 150 million.[11] MAMP is not required in cases of conversion into non-debt instruments, refinancing, waiver, or corporate actions such as mergers and demergers.[12]

2.6   Increased borrowing limits

The erstwhile framework capped ECB at US$ 750 million per financial year under the automatic route, with an additional ECB liability-equity ratio of 7:1 applicable to FCY-denominated ECB raised from direct foreign equity holders. The Amended Regulations introduce a more permissive dual-limb test: ECB may be raised up to the higher of (a) outstanding ECB of US$ 1 billion, or (b) total outstanding borrowings (external and domestic) of up to 300 per cent of net worth as per the last audited standalone balance sheet.[13] This limit does not apply to borrowers that are themselves regulated by a financial sector regulator.[14] This fundamentally alters the borrowing capacity of Indian entities: corporates with strong balance sheets can now access a substantially larger quantum of offshore capital.

2.7   Refinancing

The Amended Regulations materially liberalise the regulations for refinancing of existing ECBs. Under the erstwhile framework, a borrower seeking to refinance an existing ECB with a fresh ECB was required to demonstrate that the all-in-cost of the fresh borrowing was lower than that of the extant borrowing – a condition that, in practice, often rendered refinancing commercially unviable during periods of rising interest rates or widening credit spreads. The Amended Regulations dispense with this ‘lower cost’ test entirely; the sole condition now applicable is that the refinancing must not result in a failure to meet the MAMP applicable to the original borrowing.[15]

In addition, the requirement that Indian banks may participate in ECB refinancing transactions only in respect of highly rated corporates (i.e., those with an AAA credit rating) and Maharatna or Navratna public sector undertakings has been eliminated. This broadens the pool of eligible participants and facilitates greater domestic bank involvement in refinancing structures.

These changes are expected to drive a significant increase in refinancing activity, particularly among well-rated corporates seeking to diversify their funding sources and optimise borrowing costs through offshore markets, as well as among borrowers with maturing ECB facilities who may now approach a wider universe of lenders – including Indian banks – on more flexible terms.

The liberalisation of refinancing, however, interacts in a complex way with the end-use restriction under Regulation 3A(1)(h)(ii) of the Amended Regulations – an area that will require careful navigation by restructuring practitioners. While the erstwhile framework contained specific dispensations permitting borrowers having Special Mention Account-2 or non-performing asset (“NPA”) classification (i.e., borrowers having defaulted accounts for more than 60 days and 90 days respectively) to refinance rupee loans availed for capital expenditure in the manufacturing and infrastructure sectors under one-time settlement arrangements, the Amended Regulations take a different approach: repayment of domestic INR loans is generally permitted, except where the loan was availed for a restricted end-use or is classified as an NPA under applicable prudential norms. The new framework is thus more restrictive specifically in respect of NPA-classified loans, even as it is materially more permissive for performing loans. This tension will require careful navigation in the context of resolution plans and stressed-asset transactions, and may necessitate interpretive guidance from the RBI in due course.

2.8   Greater structural flexibility

The Amended Regulations introduce several features that collectively enhance the structural flexibility available to parties when designing ECB transactions. First, borrowers now enjoy greater latitude in managing currency risk: the currency of an existing ECB may be changed from one freely convertible FCY to another, from an FCY to INR, or from INR to an FCY[16], enabling treasuries to respond dynamically to shifts in exchange rate outlook or hedging costs. This flexibility is further reinforced by the removal of the erstwhile mandatory hedging requirements, leaving borrowers free to assess and manage foreign exchange exposure on a purely commercial basis, informed by their own risk appetite and board-approved policies.

Second, the scope of permissible security has been broadened: charge may now be created over immovable, movable, financial, and intangible assets, including intellectual property rights, and third-party collateral over immovable and movable assets is permitted.[17] Third, the universe of eligible guarantors has been expanded, with any person resident outside India now able to provide a guarantee in favour of the lender or security trustee, subject to compliance with the Foreign Exchange Management (Guarantees) Regulations, 2026[18]. Equally significant is the removal of the requirement to obtain prior Authorised Dealer Category-I bank (“AD Bank”) approval before creating security – a procedural step that, under the erstwhile framework, frequently introduced delays and added a layer of transactional friction to time-sensitive financings.

Together, these reforms materially improve the bankability of finance structures incorporating ECB tranches: security packages can be more flexibly tailored to accommodate holdco pledges, intellectual property security, third-party guarantees, and complex acquisition structures, while the elimination of mandatory hedging and the permission for currency conversion support more sophisticated liability management. These changes should, in practice, facilitate faster execution of amendments, assignments, and secondary trading of ECB facilities.

3.   Operational hurdles

Some operational hurdles continue to mar this route for foreign credit entry: significantly early exit/repayment/enforcement and recovery following operational or payment breaches and defaults is still a key concern. While the regulatory position on early exit following a bona fide default is clear – in that such exit is permitted, the procedural steps and requirements which continue to be in place make such exit near impossible, or at the very least significantly onerous.

Following occurrence of a bona fide event of default and if there is actual recovery by the lender – the lender/borrower would need to apply to the AD Bank for remittance of the funds outside India. The AD Bank is expected to check and be satisfied as to the bona fides of the breach – in practice, this determination has proven to be subjective and discretionary; with some AD Banks referring this determination back to the regulator (especially if the breach is performance related and not payment related).

Even if the bona fides of the default are established/clear, procedurally the AD Bank often requires:

• Past filings and compliances by the borrower to be up to date and complete – but, practically in event of default (“EOD”) scenarios, borrower cooperation is not available or can be expected;
• Filing of documents/certifications by the borrower requesting for remittance of the ECB funds – as above, this filing needs lender and borrower cooperation, which is likely not forthcoming;
• Filing of certain tax documents/certifications (Form 145 and 146) to confirm if any amounts from the remittance proceeds need to be withheld as per local tax laws – not only is this required to be submitted by the borrower, there is no practical recourse/work around, in that this is now an online filing. Therefore, it can only be accessed and made by the actual borrower; alternatives such as power/s of attorney, while always having limited benefit, must not be used for this purpose.

Several lenders and market participants have argued that each of the above signals compliance requirements qua the borrower; which should really not prejudice further the lender or its rights – especially given this is in an EOD scenario. However, formal clarification from the regulator is pending and the approach followed by AD Banks pending such clarification is subjective, conservative, not solution oriented – and in most cases involves referral back to the regulator (RBI).

4.   Conclusion

The Amended Regulations are likely to have a transformative effect on India’s credit market, both in terms of the depth and diversity of capital available to Indian borrowers and in the sophistication of financing structures that can now be deployed. Several interlocking reforms – spanning lender eligibility, pricing, maturity, security, refinancing, and end-use – operate in concert to create a materially more attractive environment for cross-border lending into India. The Amended Regulations signal the RBI’s intent to align India’s external borrowing framework more closely with international financing norms, while retaining calibrated safeguards, particularly around NPA-classified exposures.

From a banking and finance perspective, these changes are intended to carry immediate practical significance. Lenders gain access to a substantially wider pool of Indian borrowers on more commercially negotiated terms, while borrowers benefit from enhanced limits, lower transaction costs, and greater structuring flexibility in currency conversion, security, and guarantees. As India’s credit market continues to internationalise, the Amended Regulations are intended to accelerate reliance on ECBs as a source of capital, cementing ECB as a mainstream financing tool for Indian corporates.

The feedback from seasoned investors continues, however, to have some caveats – a significant overhaul seems to be required for permitting creditors to remit funds following a genuine EOD. The legal and practice hurdles to this continue to pose a significant hindrance to the use of this route. The regulator appears to have indicated a green signal to enabling such ease of post-EOD remittance; but the instances of the regulator providing necessary clarifications/dispensations have been ad hoc and on a case to case basis. Market participants are calling for the regulator to issue generally applicable (non-specific) and objective guidance and standards to enable AD Banks to helpfully, and in a timely manner, enable exit and remittance.

[1] Amended Regulations Schedule I, Para 1(1).

[2] Amended Regulations, Schedule I, Para 1(2).

[3] Amended Regulations, Schedule I, Para 1(3).

[4] Amended Regulations, Schedule I, Para 2.

[5] Amended Regulations, Schedule I, Para 7(1).

[6] Amended Regulations, Schedule I, Para 7(2).

[7] Amended Regulations, Schedule I, Para 9.

[8] Amended Regulations, Regulation 3A(1)(g).

[9] Amended Regulations, Regulation 3A(1)(c).

[10] Amended Regulations, Schedule I, Para 6(1).

[11] Amended Regulations, Schedule I, Para 6(2).

[12] Amended Regulations, Schedule I, Para 6(4).

[13] Amended Regulations, Schedule I, Para 5 (1).

[14] Amended Regulations, Schedule I, Para 5 (3).

[15] Amended Regulations, Schedule I, Para 12.

[16] Amended Regulations, Schedule I, Para 3(2).

[17] Amended Regulations, Schedule I, Para 11(1)(a).

[18] Amended Regulations, Schedule I, Para 11(1)(b).