This publication has been published by Chambers and Partners at Debt Finance 2026 – India.

Introduction  

The Indian lending ecosystem has undergone a significant evolution in recent years, with diversification in the range of participants in the market – both lenders and borrowers. Over the last couple of decades, with the liberalisation of India’s foreign exchange regulations, the establishment of better recovery mechanisms for creditors through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act, which allows out-of-court enforcement for secured creditors) and the Insolvency and Bankruptcy Code, 2016 (IBC – a creditor-driven insolvency process for corporates), and the advent of complex debt and quasi-debt structures and instruments, market participants today have better risk appetites, and the benefit of effective behavioural deterrents to improve credit worthiness.

As part of the larger liberalisation process, the Reserve Bank of India (RBI – the Indian banking and foreign exchange regulator) and the Indian Parliament have introduced rapid changes in the last few months, with significant relaxations in India’s external commercial borrowings (ECB) framework (allowing non-resident creditors to participate more actively in the Indian market), cross-border guarantee regulations, acquisition financing framework for Indian commercial banks, and the creditor-oriented amendments to the IBC (which are expected to be effective very shortly). While these changes and relaxations are spread across separate laws and regulations, governed by separate regulators, they tie into the larger effort towards liberalisation and improving the ease of doing business in India.

Overhaul of the ECB Framework

RBI has introduced wide-ranging reforms to the ECB framework through the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Amended Regulations). The amendments address several areas of concern that have long been flagged by market participants:

• pricing norms;
• permitted end uses;
• overall borrowing headroom; and
• minimum maturity requirements.

End use restrictions

Indian borrowers have historically faced tight restrictions on how ECB proceeds can be deployed. The Amended Regulations relax several such restrictions. Transactions in listed or unlisted securities are now permitted where the ECB is used for corporate actions like mergers, demergers, amalgamations, arrangements or acquisitions of control, provided the purpose is strategic – ie, the acquisition (or other such transaction, as applicable) is aimed at generating long-term value through synergies rather than short-term gains.

The use of ECB proceeds for real estate activities or business continues to be restricted generally. However, some notable exceptions have now been introduced, permitting ECB proceeds to be used for the purchase, sale or lease of land or immovable properties in connection with construction development projects (with certain conditions), and for commercial and residential properties intended for the borrower’s own use.

Pricing

The pricing of ECBs under the erstwhile regime has been regulated and capped. The earlier regime imposed a fixed all-in cost ceiling on ECB transactions, tying them to a benchmark-plus-spread formula. The stipulation has now been replaced with a general requirement that pricing should reflect prevailing market conditions. The relaxation covers not only interest rates but also prepayment charges, penal interest and default interest. This amendment is expected to be key in opening up this route for a larger category of market participants.

Maturity and borrowing limits

The default minimum average maturity period is now a uniform three years for all ECBs, replacing the earlier regime under which specific end uses such as working capital and refinancing of rupee loans attracted extended tenures of five to ten years.

Furthermore, under the automatic route, borrowers could avail up to USD750 million in ECBs per financial year. Under the Amended Regulations, the permissible borrowing limit is the higher of:

• outstanding ECBs of up to USD1 billion; or
• aggregate outstanding borrowings (external and domestic, excluding non-fund-based credit and compulsorily convertible instruments) of up to 300% of net worth based on the borrower’s last audited financials.

Notably, this is an overall limit rather than annual.

Other key changes

The pool of eligible lenders has been widened; borrowers may now raise ECBs from any person resident outside India, doing away with the earlier requirement that lenders belong to FATF or IOSCO-compliant jurisdictions. The concept of “foreign equity holder”, which carried specific regulatory benefits and conditions, has been retired in favour of the broader concept of “related party” under the Companies Act, 2013; ECBs from related parties must now be conducted on an arm’s length basis.

Procedural requirements have also been simplified: amendments to ECB terms now need only the lender’s consent and compliance with the regulations, rather than a no-objection certificate from the authorised dealer bank (which was posing as a significant long-lead item in some cases). On the reporting side, the earlier monthly filing obligation has given way to an event-based framework, under which reporting is triggered by events (drawdowns or debt-servicing or amendments, as applicable).

Collectively, these changes signal a clear intent to make offshore borrowing more accessible for Indian entities and to reduce the regulatory compliances (and potential bottlenecks) that have historically impacted ECB transactions. The reforms are likely to broaden the range of cross-border financing options available to Indian corporates and support greater credit inflow into the Indian economy.

Cross-Border Guarantees

RBI has replaced the Foreign Exchange Management (Guarantees) Regulations, 2000 with an entirely new framework: the Foreign Exchange Management (Guarantees) Regulations, 2026. The old regulations had been in place for over two decades, and were prescriptive and relatively narrow. The 2026 regulations represent a shift toward a more principles-based regime, offering greater flexibility to market participants.

The old regime prescribed specific categories of guarantees that could be provided by authorised dealers and other persons, such as guarantees for exporters, importers with RBI approval, guarantees backed by counter-guarantees from international banks, bid bonds, and so on. The 2026 framework replaces this with general conditions under which Indian residents may act as surety, principal debtor or creditor.

The key conditions are straightforward: the underlying transaction must not be prohibited under India’s foreign exchange laws and related rules, and in specified cases the surety and principal debtor must be eligible to lend to and borrow from each other under the existing ECB framework. One key aspect evoking slightly varied views from market participants is the permissibility of cross-border security and credit support under these new regulations, with one faction propounding the position that freer cross-border guarantees should necessarily subsume cross-border security as well (with both guarantee and security representing access to a creditworthy Indian counterparty).

The shift is equally significant in terms of reporting, with the new framework introducing detailed quarterly reporting requirements. The surety, principal debtor or creditor (depending on the arrangement) must report any issuance, any changes to guarantee terms and any invocation within 15 calendar days from the end of each quarter.

The 2026 guarantee regulations are being interpreted as a broader trend not only in India’s foreign exchange framework, but in the Indian economy overall – ie, moving from granular approval-based controls to a more open, principles-driven framework.

Amendments to the IBC

The IBC has also undergone a significant overhaul recently, with amendments reflecting the prevailing market sentiment and addressing certain long-standing jurisprudential issues that have affected the efficiency of the IBC process and outcomes for creditors.

Introduction of creditor-initiated insolvency resolution process

The amendments introduce a new framework for a creditor-initiated debtor-in-possession resolution process, where the insolvency resolution will take place without the intervention of the courts and the existing management will remain in possession of the corporate debtor during the insolvency process (with appropriate checks and balances), instead of the control of the corporate debtors being handed over to the creditors. The entire process is largely out-of-court, with the insolvency tribunals playing a supervisory role at certain critical junctures. The process is expected to be rolled out in a phased manner, with certain notified creditors and corporate debtors being first enabled to participate.

Admission of debtors into the IBC

Under the IBC, financial creditors (ie, creditors who have lent money against its time value, including banks, financial institutions and other private creditors) can file an insolvency petition against a corporate debtor if the minimum threshold for default is met. Previously, India’s apex court had held in one controversial judgment that the insolvency tribunals (ie, the court of first instance wherein the insolvency petition is first filed) may consider extraneous factors, such as the overall financial health of the defaulting company, and choose, at its discretion, not to admit the insolvency petition, even when debt and default are proven. While the scope of the judgment was later clarified and limited, there were concerns that tribunals could use these principles while adjudicating an insolvency petition. The proposed amendments have now clarified that insolvency tribunals may not reject insolvency petitions on any ground if debt and default are proven and other procedural filing requirements have been properly complied with.

Government dues

In the IBC process, government dues are usually considered to be operational debt, and government authorities are classified as operational creditors and have lower priority than financial creditor debt and recovery. Relatedly, the classification of creditors as secured or unsecured assumes critical importance, since such classification decides the position of the creditor in the liquidation waterfall, which in turn has a significant impact on the creditor’s recoveries in the insolvency process.

In the recent past, certain courts have upheld the classification of government authorities as secured creditors, on the basis of a deemed security interest by operation of law. The amendments address this position by clarifying that security interest cannot be created merely by operation of law – ie, government authorities cannot be considered secured creditors only because the law under which their dues arise creates security interest in their favour, and security interest should now be classified as such when it is created under an agreement.

Revised payout for dissenting creditors

Under the IBC, dissenting financial creditors are entitled to receive certain minimum amounts they would have received in the event of the corporate debtor’s liquidation. This is aimed at protecting the rights of minority financial creditors. While some argue that the value of the creditor’s security interest should be considered while calculating their minimum entitlement, others are of the view that the distribution should be based on the value of the creditor’s debt alone. The proposed amendments clarify and provide that the dissenting financial creditors will now receive either the amount to be paid to such financial creditors in the event of the corporate debtor’s liquidation, or the amounts they would receive if the amounts under the resolution plan are distributed according to the statutory waterfall for liquidation, whichever is lower.

Realisation of security interest outside liquidation

During the liquidation process, secured creditors have the right to either realise their security interest outside the liquidation process, or relinquish the security interest towards the larger liquidation estate, for distribution as per the statutory waterfall. The proposed amendments provide a much-required clarification that realisation of security interest by multiple creditors having security over the same asset will now require the consent of 66% of the creditors by value.

From the above, it is clear that the proposed amendments to the IBC aim to strengthen creditor participation and compliance by debtors, and to resolve ambiguities that have persisted.

Acquisition Financing By Commercial Banks

RBI has also issued the Reserve Bank of India (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Amendment Directions), which introduce a revised framework for acquisition financing by commercial banks in India. These directions mark a substantial shift in the regulatory landscape for acquisition financing in India and will be effective from 1 July 2026.

Under the Amendment Directions, “Acquisition Finance” is defined as any financial facility or assistance extended to an eligible borrower for acquiring control in a domestic/overseas non-financial target company or its holding company (ie, entities not engaged in financial activities), including through mergers and amalgamations or through instruments such as equity shares, compulsorily convertible preference shares and compulsorily convertible debentures. Such financing may also encompass refinancing of the target company’s existing debt, provided the refinancing is integral to the acquisition and such refinancing takes place only when the acquisition financing has been completed in all respects, resulting in the acquisition of control over the target company by the acquiring company.

Eligible borrowers include a non-financial acquiring company (whether listed or unlisted), any subsidiary of the acquiring company or any special purpose vehicle (SPV) set up specifically for the acquisition. The acquisition financing can also be extended to the acquiring company for on-lending to a non-financial subsidiary (both domestic and overseas) for such purpose. Notably, financial institutions and non-banking financial companies as defined under the RBI Act remain excluded, and Indian companies that are foreign owned or controlled (FOCC entities) are not permitted to avail onshore acquisition finance under this framework, which is in keeping with foreign investment norms applicable to such FOCC entities.

Total bank financing is capped at 75% of the acquisition value, independently assessed by the bank. The remaining 25% must be contributed by the acquirer from its own funds, such as internal accruals or fresh equity. Listed acquirers may use bridge finance to meet this own-funds requirement, subject to conditions including an identified repayment source to replace the bridge finance with equity within 12 months. The post-acquisition debt-to-equity ratio on the acquirer’s consolidated balance sheet level must not exceed 3:1 on a continuous basis.

Furthermore, the acquisition finance must be secured by the acquired instruments of the target company, which must be free from encumbrance. A mandatory corporate guarantee from the acquirer, its parent or group holding entity is also required if the acquisition financing is extended to a subsidiary or an SPV of the acquiring company. Therefore, the Amendment Directions impose various financing and security parameters under the significantly liberalised acquisition financing framework.

An acquisition under the Amendment Directions must result in control over the target company, whether through a single transaction or a series of inter-connected transactions completed within 12 months from the first disbursal of the acquisition financing. Where the acquirer already holds control, acquisition finance is available only for incremental acquisitions crossing substantial thresholds.

The Amendment Directions mark a significant shift in RBI’s approach, creating a pathway for commercial banks to meaningfully deploy institutional capital into India’s acquisitions landscape. Banks are set to benefit by gaining entry into a complex, high-returns lending category, where their participation has been historically limited due to legal and regulatory constraints. From the perspective of Indian corporates and strategic buyers, the framework unlocks the potential for larger capital pools, better and competitive financing terms, and a wider range of deal structures than were previously available. At the same time, the framework incorporates robust prudential norms designed to keep risk within acceptable boundaries.

Conclusion

The reforms discussed in this article, spanning the ECB framework, cross-border guarantee regulations, the IBC and acquisition financing by commercial banks, are not isolated regulatory events. They reflect a deliberate and co-ordinated effort by India’s regulators to liberalise the country’s financial ecosystem, reduce friction for market participants and align the regulatory architecture with the demands of a maturing economy. India’s regulatory environment is evolving rapidly, and these developments collectively signal a more open, commercially responsive framework for both domestic and cross-border transactions.