On October 3, 2025, the Reserve Bank of India (“RBI”) has released the (draft) Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025 (“Draft Regulations”), proposing a comprehensive refresh of the existing External Commercial Borrowing (“ECB”) regime. The draft introduces a general prohibition on certain end-uses, recalibrates eligibility and lender recognition, replaces hard all-in-cost caps with a market-based approach subject to Authorised Dealer oversight, revises borrowing limits, and streamlines reporting and operational mechanics. If finalized in its current form, these changes will materially affect transaction structuring, documentation, pricing, and internal controls for Indian borrower entities looking to raise foreign or rupee denominated ECB.

 What the Draft Regulations Propose

• Redefined Borrowing Limits. Under the Draft Regulations, the RBI has proposed a recalibration of borrowing limits by permitting eligible borrowers to raise ECB up to the higher of – (a) outstanding ECB up to USD 1 billion, or (b) total outstanding borrowing (external and domestic) up to 300% of their net worth as per the latest audited balance sheet, thereby replacing the existing uniform automatic route cap of USD 750 million. Unlike the existing framework, which expressly incorporates an ECB liability-to-equity ratio of 7:1 where borrowing is from a direct foreign equity holder, the Draft Regulations remove explicit reference to this leverage cap, instead placing greater onus on Authorised Dealer (“AD”) Category I banks to assess prudential risk and compliance with sectoral or regulatory leverage norms.
• Uniform MAMP. A uniform MAMP of three (3) years has been proposed, with a limited one to three year window for manufacturing companies up to USD 50 million equivalent outstanding ECBs for such shorter-tenor ECBs. Mandatory adherence to MAMP remains (with standard exceptions for conversion to equity, waiver by the lender, and closure/merger scenarios). Making MAMP uniform removes the complexity associated with the purpose/ end use of the ECB.
• Market determined cost of borrowing. The existing all-in-cost ceiling is proposed to be removed. Pricing must be in line with prevailing market conditions, subject to satisfaction of the designated AD Category I bank. The borrowing limits are proposed to be linked to a borrower’s financial strength and ECB are proposed to be raised at market determined interest rates. This approach reflects a broader policy shift towards linking borrowing capacity and pricing to the financial strength, credit profile and risk metrics of the borrower, rather than imposing a uniform regulatory ceiling.
• Broadened Eligibility Criteria for Borrowers and Lenders. The Draft Regulations propose a significant expansion of eligibility under the ECB framework by permitting any person resident in India (other than an individual) established or registered under a Central or State Act, and otherwise permitted to borrow, to access ECB. Correspondingly, the category of recognised lenders has also been broadened to include any person resident outside India, as well as foreign branches or IFSC-based branches of entities engaged in regulated lending activities of the RBI.
• Simplified negative end-use list. Under the proposed regime, ECB funds shall not be utilised for – (a) investment in chit funds or Nidhi companies; (b) agricultural or plantation activities (except where expressly permitted under the FDI laws); (c) real estate business or construction of farmhouses (except for FDI permitted activities and the purchase or long-term leasing of industrial land for new projects or expansion of existing units); (d) trading in transferable development rights (TDRs); (e) on-lending (except where undertaken by RBI regulated lending entities or through specified intra-group lending structures); and (f) dealing in securities (except for limited exceptions relating to overseas investment, mergers and acquisitions conducted in compliance with the Companies Act, 2013, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, and the Insolvency and Bankruptcy Code, 2016, as well as investment in primary issuances by non-financial entities for further permitted on-lending).
• Drawdown and utilisation of ECB. Unlike the existing framework which permits broader flexibility in temporarily parking funds abroad, the Draft Regulations mandate immediate repatriation of ECB proceeds to India. Where foreign currency deployment is allowed, the Draft Regulations now require that such proceeds be held either in an FCY account with the designated AD bank in India or an offshore account strictly in accordance with the foreign currency account regulations. These changes signal a regulatory shift towards tighter monitoring of fund flows and a reduced tolerance for passive treasury parking or carry trade strategies, with AD banks expected to scrutinize utilisation timelines more closely.
• Simpler Reporting Requirements. Key procedural change under the Draft Regulations is the transition from fixed periodic reporting to a more streamlined event-based reporting framework. Instead of multiple recurring filings for routine updates, borrowers will now be required to report only upon the occurrence of specific events, such as drawdown, change in terms, refinancing, conversion to equity, or prepayment, through their designated AD Category I bank.

The Draft Regulations are open for public feedback until October 24, 2025. Final regulations and updated master directions are expected to align operational guidance to the new framework.

Conclusion

The Draft Regulations propose a significant shift towards a market-driven, net worth–linked ECB regime with simplified compliance requirements. By eliminating the all-in-cost ceiling and streamlining maturity and end-use restrictions, the RBI aims to expand access to ECBs while maintaining prudent safeguards through borrower leverage limits, oversight by AD banks, and restrictions on end-use.